Category: Taxes

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Revenue handcuffs on local government

Thanks, Minneapolis Fed!   Latest issue of FedGazette has a piece on unfunded mandates and other ways local government is burdened by the folks upstairs:

Even the most flexible, forward-thinking government can run into roadblocks not of its own making. Numerous local government sources said unfunded state and federal mandates often prevent cities, counties and school districts from cutting costs and becoming more efficient.

Don’t believe it? Here’s a simple example, born of tradition: Many states still require local governments to post meetings and other official news in a printed newspaper, when web posting is readily available, free and arguably more accessible to the public.

Northfield’s Council brought up the printed official newspaper problem at its organizational meeting a few weeks ago with the plan to follow up with state legislators, but that’s just the tip of the iceberg.  Property tax class rates, sales tax paid by local government, local government aid (and levy limits), and more.  I hope state and federal legislators are listening and will attempt thoughtful reform, rather than continuing to balance state budgets on the backs of cities or simply adding regulations without considering the downstream consequences.

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New tax report from MN Dept of Revenue

Not a fiscal cliff, but a very nice cliff in Cornwall
Not a fiscal cliff, but a very nice cliff in Cornwall

As we approach the fiscal cliff in Washington, there’s a new report from St. Paul about property taxes which give some hope for the longer term.  In addition to recommendations for reform, the quick education on tax policy and the history of property taxes in Minnesota is well worth reading.

I admit, I still have a wee bit of small liberal arts college idealism (even after 10 years in and around local government!), but I’d like to think tax reform could be a bipartisan effort.  Rather than arguing (at the start, anyway) about raising or cutting taxes, let’s take a look at Appendix B and admit we (everybody take some responsibility here) have managed to incrementally complexify the property tax system to the point where it is collapsing under the weight of special interest protections and it is time to return to the fundamental purpose of property taxation (from the Guiding Principles of the report)

The purpose of the property tax is to provide a local revenue source to pay for local ser- vices. Although the state should define a uniform structure, the tax should be accountable to local people and the state’s involvements should be very limited. It should not be an arena for state legislators to serve constituent interests. The property tax is foremost a local revenue system, not a vehicle for state policies.

 

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Different debate questions

Presidential debates usually make me think about moving to Canada since the likelihood of either candidate actually answering a question is abysmally low and the only excitement comes from the random zinger of a comment, factual screw up, or public speaking trainwreck (I depend on the Brits for the most entertaining and pointed commentary and American media for the transcript).  I’d like to believe, however naively, that the President of the United States does more than repeat familiar phrases or score points for verbal jabs in the course of his employment.

I would like some answers from candidates, though, and Chuck Marohn has a different list of questions over on Strong Towns which get at some of the issues I care about. It might be fun to ask them on the local level, too, and see if we can get beyond repeating the usual answers and catchphrases about growth, infrastructure, regulation and the like to ask what would really work and what it would cost.

 

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Voter ID, again

I’ve blogged about the proposed voter ID amendment before, but now the Council will be considering a resolution opposing the amendment. Although this amendment will amend the state constitution and be decided by voters across Minnesota, this one is a local issue. Indeed, it’s an issue for every unit of local government. Why?

Big government solution to a small problem: I’ve observed before that it seems like common sense to have to show a photo ID to vote.  If I have to show photo ID at the Science Museum and Minnesota Zoo along with my membership card, shouldn’t something as important as voting have at least the same level of documentation as being able to see the grizzly bears?

Unfortunately, the amendment requires much more – additional ID requirements, new provisional ballots and much more brand new, untested government process – and the “more” will be in the constitution thus unable to be altered by the legislature to adapt to new technology or for technical changes.  Finally, much of the burden to be shouldered by county and municipal governments in the administration of the new election requirements.  Here are the details.

If this were statutory rather than a constitutional amendment, it would be better because the new procedure, new provisional ballots, etc. could be implemented, tested and then revised if necessary to address the glitches that happen in almost any new system.  It would still be expensive, but it would be more flexible.  However, if additional verification is needed for voting security, there are better ways to do it which address the common sense identification issue without creating this sizable unfunded mandate for local government or erecting unnecessary barriers to voting.

 

 

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Budget thoughts

When there’s trouble I am not slow. It’s up, up, up and away I go! (to make good policy in a city I know)

On Think Twice, former members of the Locally Grown triumvirate (or perhaps that’s members of the former triumvirate) were chatting about their top city issues – including the City budget.  To cherry pick a few ideas – the budget should reflect citizen priorities and the City should present better, clearer budget information.

Priorities: The budget should reflect citizen priorities, but in practice it’s not so simple.  First, we need to determine what the collective priorities are (see my post on the community survey) and then we still have to make  decisions about spending as a result of them.  The two-pronged solution is gather lots of community input as we make policies like the Comprehensive Plan, Comprehensive Economic Development Plan and all the other plans, then work to implement them incrementally + work harder to engage citizens on an on-going basis to gather more input and check our work.

Some of our costs are driven by regulations and external factors over which we have no control or no direct control – the unfunded mandate problem.  Two issues in the news lately where this matters: stormwater and election costs.

Clearer budget information: Yes, this is a biggie and not just for the public, but for the Council, too.  Council action and the subsequent media reporting (newspaper, radio and this blog) works one budget decision at a time (“The Council voted to spend…”) and we often get bogged down in the details rather than the bigger picture – policy to the rescue.

For the Council, the big challenge ought to be developing sound policy to guide decisions, then using those policies to guide decisions.  Take the recent Safety Center financing – ideally, we would have thought carefully (and transparently) about what kinds of debt the city would issue, what type of debt would be issued for what type of project, what limits on debt or debt service costs, etc.  I believe Council members had their own well-thought out capital spending policies in their heads, but that’s not the same as a publicly available policy adopted by Council action.

If we pointed to a capital facilities policy that stated essential facilities (we could even itemize these) will be financed without a referendum where there is demonstrated need because (1) elected decision-makers are best situated to make the determination of need, (2) have critical information for determining the scope and timing of the project in the context of the city’s finances, (3) to insulate essential services from political will (with the safeguard that elected officials must stand for re-election), and (4) provide certainty and control for the project, then I believe the decision would have been much less of a surprise. It might also have helped focus on the policy problem of what issues should be put to referendum before we are trying to get a specific project underway.  Maybe the policy debate would have lead to a conclusion that we should put ALL facilities to a referendum or only those over some number of millions of dollars.  Or, perhaps recreational facilities require a referendum to issue bonds.  The policy could include guidelines for what might be financed via the EDA or HRA (with input from those bodies).

Over on Locally Grown, there’s discussion about utility franchise fees – Northfield already has a cable franchise fee, but we have considered adopting an additional franchise fee for electric and gas utilities for right-of-way access to be dedicated to street improvements.  Policy documents would be the place to establish and explain what revenue sources are available to the City (and by what authority – typically state statute), what additional taxes or fees are (or could be) adopted and what the revenue would be used for (if it is to be restricted).

In this larger context, a utility franchise fee could be evaluated as one tool to choose to put in the toolbox.  One of the charges to our ad hoc finance task force was to research how we could diversify revenue and they brought the utility franchise fee option to us.  Whether this fee is a good idea should consider the (possibly competing) goals of diversifying revenue to reduce reliance on property taxes and local government aid, equity and fairness (who will this fee affect and is that fair), ensuring transparency about the fee (obviously, we charge the utility which will pass along the cost to its rate payers) and the relationship of the proposed fee to the designated projects, etc.

Putting policies to paper or bytes also helps explain the tools we have to use for City work, provides a framework for Council and staff to act coherently, and gives citizens a yardstick by which to measure the Council’s performance – did we do what we said we’d do and do the policies reflect your priorities?  Transparency and accountability, in other words.

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What missed the Minibus Appropriations Bill?

Missing the minibus

Our leaders in Washington have managed to pass an appropriations bill – not an omnibus, but a minibus, bill appropriating funds for Fiscal Year (FY) 2012 Agriculture, Commerce/Justice/Science (CJS), and Transportation/Housing and Urban Development (THUD).

“THUD” – an inauspicious acronym if ever there was one – appropriates $55.6 billion dollars.  However, the bill cuts (11% this year following cuts in prior years) community development block grants (the CDBG program benefits Northfield’s HRA) and the Sustainable Communities Initiative which is HUD’s portion of the two year old Partnership for Sustainable Communities which brings together HUD, EPA, and the DOT was eliminated completely.  On the other hand, funding for the TIGER grants – was maintained at $500 million, so some federal dollars will be directed toward transportation grants projects with emphasis on sustainability, multi-modal transportation, etc.(Northfield has just applied for TIGER funding for building a pedestrian/bicycle route under TH3).

The Partnership for Sustainable Communities recognizes that community development is not limited to a single agency or department.  Building strong, sustainable communities requires attention to economic development, housing, transportation, energy,  simultaneously.  Like developing high density housing near transit hubs.  Or building streets which work for pedestrians and cyclists to reduce transportation costs and improve air quality.  Or encouraging denser land use to reduce both transportation costs and infrastructure costs.

THUD.

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Budget Season 2011, part 2

If you want all the details about the proposed levies, see the previous post.  If you want to read the latest Northfield budget documents, see the City website here.

I have two questions:

Are tax dollars are being spent efficiently and effectively?  We don’t ask you to pay taxes, we demand that you do, so elected officials better be sure we know where the money goes, whether city operations are as productive and economical as possible, and that we spend wisely for the long term.  City staff are diligent about answering this question as they cut costs, streamline services, and adapt the budget to the shrinking tax base, unpredictable state aid, and increasing needs.   I give Northfield a B (I’m a tough grader – I went to college when a C was an average grade).

How are tax dollars being used to implement the policy decisions made by the Council?  Hmmm.  I don’t know.  I could give Northfield an F, but I think I am still optimistic enough to assign an Incomplete to this question.

In my budget utopia, the Comprehensive Plan would be the foundation of the budget with programs evaluated for their consistency with the Comp Plan and new initiatives derived from the Plan.  After that, the other policies of the city (we’re part of the GreenStep Cities program, for example, and have a Comprehensive Economic Development Plan) would be used to guide spending.

Regular readers know that I think the vision and policies of the Comp Plan provide a framework for more compact, denser development which will be more cost effective in the long term (see, e.g. my post on an economically healthy Northfield, and follow up to a Strong Towns presentation).  Because I think the fiscal health of Northfield as well as its sense of place, natural environment, and quality of life all can benefit from attention to the Comp Plan, I am frustrated by my own inability to help turn the budget conversation around to address the long term, more taxpayers per acre, less car-dependent vision.  I give myself a D+ for this quarter.

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Budget season 2011

I started this post back in September.  Unfortunately, before writing much I decided to reread my posts from last year on budgets, budget policy, budget development, budget questions, and tax levies.  It was a thoroughly dispiriting experience.  With but a few minor changes, I could simply repost them and the questions, concerns, and issues would be equally relevant in 2011.

The 2012 budget/tax levy situation thus far:

The Council adopted preliminary tax levies and budget at our meeting on September 6 (State law requires we take this action by September 15; Charter requires it by the first regular meeting in September).  The proposed levy sets the maximum amount we can levy which is also the amount which you will find on your proposed property tax notice from the county (which also includes the public hearing date for each jurisdiction for you to make a statement to the county, school and/or city about your taxes).

The practical purpose of the levy is to set the maximum levy which staff then works to reduce by the time we much adopt the final levy in December.  There is a temptation here, I think, to set the levy high and to vote to adopt it because it’s “just preliminary.”  I got to the Council by way of the Planning Commission, however, and in land use it’s the preliminary plat, not the final plat, which establishes the legal rights.  I see preliminary levies the same way – by September 15 we really should have done all the work and the 4th quarter is proofreading and double-checking.  But here’s where are are:

Preliminary bottom lines

Housing and Redevelopment Agency (HRA) levy: $236,234.  This is the maximum allowable levy (based on .0185% of the taxable market value of property in Northfield) and a 9.3% increase over the current year levy.  Why the maximum?  The HRA has a steady record of accomplishment and is the only area of city government where adopted policy clearly drives action.  They’ve been very successful at leveraging tax dollars to qualify for grants, tax credits and other funding.  And, they’ve continually reported to the Council in a clear and complete manner.   In this economy, the HRA’s work has become even more critical for ensuring safe, affordable housing for Northfield and the way they do their work should be the model for the city.

Economic Development Authority (EDA) levy:  $221,384.  EDA levies are also capped by state law at .0183% of taxable market value.  We’ve usually set the EDA levy at or near the maximum allowable which would be $233,681 for 2012 (based on 2011 payable); the approved number is the maximum based on the 2012 payable taxes (the difference is part of the fallout from the Market Value Homestead Credit change).  Last year, I voted against the preliminary EDA levy, but caved on the final levy on the assurances that the Council would work on addressing concerns about the EDA.  And I’ve said a great deal to say about the EDA as it is currently configured and how it is currently performing (in 2011: July, April, February and January).  I voted no on the preliminary levy, but I’d love to be surprised before December by a clear EDA budget tied to the Comprehensive Economic Development Plan by December.

City Levy: $6,898,909.  This amount is an increase of $464,909 or 7.2% over the 2011 levy amount.  The number has two parts, the operating levy and the bonded debt levy.  Of the increase, $311,843 is for operations (5.8% increase over 2011); $153,066 is for bonded debt (14.2% over 2011 – total bonded debt levy for 2012 is $1,234,631). Consider, for a very rough forecast, that bonding for a new Safety Center (between $8 and $10 million dollars) will add somewhere in the neighborhood of $500,000 annually to the debt levy.

Now you may as well just read last year’s posts here and here.

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Fixing the problem

Here is the message from the Curbside Chat yesterday:  The current development pattern cannot be maintained without big tax increases or big cuts in service.

The dilemma of tax increases and/or service cuts should sound pretty familiar to Minnesotans.  The state legislature and Governor Mark Dayton ended the government shutdown yesterday by finally agreeing on a budget (which should have been approved in May).  The Republican legislature said “no new taxes”   (relying on cuts instead) while DFL Governor Mark Dayton advocated for (but dropped in the final budget) a tax increase on the highest paid Minnesotans.  Both sides, however, are focused on balancing the budget for the short term.  In Northfield we’ve got our own budget to balance.

Cut services: we’ve asked which services are “essential” and attempted to distinguish “needs” from “wants” (with the presumption that we can cut the mere wants while we fund the needs).  Public safety, paradigmatically, is essential.  The public library generates debate about its status as necessary or merely nice.  We admit that snowplowing is essential, but we still wonder how much plowing is necessary – all streets cleared within 12 hours?  24?  36?

Or, we could raise taxes.  Local governments get most of their revenue from transfers from the state – local government aid – and property taxes.  LGA is shrinking, so the other way to raise revenue is to raise taxes.  Raising taxes is politically difficult and more so in a bad economy.  Then, even if Northfield was willing to raise taxes enough to fund all our programs and services at current levels without LGA, the state has capped tax levies (although this has now changed).

Fortunately, there is a third variable: Development pattern.  The Strong Towns guys did not go into detail about what a new, improved development pattern would look like, but dropped a few hints.

  • Land capacity and density.  We can fit alot more people in the same space (on the same infrastructure) which provides more wallets to pay for the services and pipes.  Northfield’s residential density is very low.  The stereotypical quarter acre lot with a house yields a density of 4 units per acre and our single family neighborhoods are under 10 units per acre.  By comparison, when I lived in Cambridge, England, the city was considering proposals to redevelop an area near the train station at 40 units per acre (this obviously means apartments and other vertical development).  But you’ve heard this sort of stuff from me before regarding infrastructure and Northfield’s economic health,
  • Establish the value of multifunctional infrastructure.  Or, can streets help manage stormwater?   Can parks support agriculture?  Our Complete Streets discussion last week started what I hope is a longer conversation about planning and building our street corridors for more than just moving cars and holding pipes, but also for walking, stormwater, energy conservation, etc.  Much to think about here.
  • The ability of local leaders to transform their communities.  Certainly I believe in the ability of local leaders to transform their communities or else why would I be doing what I’m doing?  Local leaders need some help, though, to understand the issues facing them.  The cost of our development pattern, the way we use debt financing, how higher levels of government incentivize practices which may not be in our long term best interests…we’ve got a lot to learn about what we already do.  Then, of course, we need to try to find and implement solutions which requires vision, risk taking (not something elected leaders are particularly good at) and commitment beyond a few election cycles.