Sunday, December 23, 2007

The troubles faced by local government

The book Local Tax Policy: a Federalist Perspective appears guaranteed not to make anyone's best seller list, but author David Brunori nails the Milwaukee dilemma cold. I'm not too sure about his championing the property tax as a solution, but a fair property tax system, in which everybody pays, would be a lot better than the homeowner screw job we've got going now.

An excerpt is below, and the rest of Chapter 1 is here. Light reading for the holidays.

Local governments across the United States are struggling to raise revenue to pay for public services. Increased demands by citizens for more, and better, public services; the ever-rising costs of providing services; and a plethora of legal and political restrictions on raising tax revenue have left many American local governments in dire fiscal straits. These revenue problems are not the result of economic downturn. Rather, the problems stem from structural deficiencies that pose a risk to raising revenue and meeting government service responsibilities far into the future...

The existence of local government that Americans are familiar with will be in jeopardy without a significant change in the way local government is financed.

Without reform to ensure stable tax revenue, local governments could be weakened to the point of irrelevance. That stable tax revenue must be within the political and legal control of local government institutions. Without such a revenue source, local governments will be incapable of efficiently and effectively providing services. More important, local governments will continue to cede financial and political control to the states.

The only revenue source capable of ensuring a strong and vibrant local government is the property tax. This assertion is intentionally provocative because a failure to address the problems associated with local government finance will have serious consequences. Essentially, without significant financial reforms, local governments will play a far-diminished role in public life—a consequence that is contrary to the best interests of both the American federal system and the American public.

This book expands on this belief by using basic, widely accepted theories, none of them particularly controversial, or even novel. Essentially, from both an economic and political perspective, local governments are a normative good. But local governments require a certain amount of autonomy over their fiscal affairs to carry out their responsibilities. The property tax is the only source of revenue that provides that autonomy. Unfortunately, public and political pressure have eroded the tax’s vitality for decades, and the tax no longer dominates local government finance. The problem for American cities, towns, and counties is that there are no viable alternatives to taxing property, at least none that can ensure fiscal and political autonomy. Thus, the property tax must be strengthened and revitalized if local governments are to continue to play an important role in American society.

2 comments:

lvtfanh said...

The excerpt points out what I think is the best revenue option available to us: heavier reliance on the revenue from land.

Every bit of local spending and every bit of pork spending, if it is money at all well spent, has the side effect of increasing the value of the land served by it. People are drawn to the amenities created, and are willing to pay more for access to them. This is the ideal revenue source.

Not one acre or building lot will skip town. Not one can be hidden under a tarp so that the assessor will miss it. Good assessments winll reflect the value of the land as the primary value, and the depreciated value of the existing improvements as the difference between the property's current selling price and the value of the land itself.

Where assessments are poor, putting them online, with all their imperfections, along with the data for all the transactions that have occurred in the past few years, will allow property owners to push for better valuation practices and thus for property taxes that most fairly share the costs of providing the services and infrastructure.

Pork projects will result in increases in property value AND, with land value taxation, in the flow of revenue into local coffers -- funding the needs of the local community so that they can afford to do the next project THEMSELVES, without help from the federal government. Our current practice just pours that economic value into private pockets, and makes things more difficult for the poor.

For more on these ideas, you might take a look at http://www.answersanswers.com/ and http://www.wealthandwant.com/.

Brunori has it right, and I hope people interested in vibrant local communities will take notice -- and that state legislatures will rapidly provide the enabling legislation so that local government has this excellent tool available.

Anonymous said...

"local governments could be weakened to the point of irrelevance" - almost there.

"local governments will continue to cede financial and political control to the states" - i disagree with this, control wioll be ceded to private companies. it's all ready happening.

- creamcitian ( creamcitian@yahoo.com )