The Financial Dilemma Facing Local Governments

By James Donahue

The financial crunch sweeping the nation, the increasing numbers of people out of work and the dropping values on real estate is having an unprecedented impact on local governments that depend heavily on money raised from taxes on property, income and business.

The local boards of review are even now struggling with assessment values of properties in towns, townships and counties all across the land. They represent government boards that are struggling against deficit budgets which are illegal in most states. Thus the boards of review are reluctant to approve value reductions even when owners can prove the current market values are sliding.

 Property taxes are calculated on something called millage. A mill is an amount of tax assessed against every $1,000 of state equalized value of the property. States allow local governments to assess a certain number of mills against property, but up to a certain level. Governments that want to collect additional taxes must go to the voters and get their approval before extra millage can be collected.

When times are good, and people are earning what they need to provide a comfortable way of life, they are usually willing to approve extra millage issues to build new schools, buy new fire trucks, pay to operate local libraries and keep public bus systems operating.

State, county and local governments were set up for trouble when Lyndon B. Johnson’s landslide victory into the presidency in 1964 filled both the House and Senate with an overwhelming majority of Democrats. That election gave Johnson almost unlimited powers; whatever he wanted he usually got from the House and Senate. That administration established what Johnson called The Great Society. That was the beginning of the federal revenue sharing programs and the Comprehensive Employment Training Act (CETA), which funneled billions in federal dollars into state and into local coffers.

Those federal dollars came with strings attached. Local governments were required to jump through a lot of hoops that included hiring companies to draft master plans for future developments and the creation of zoning laws and boards to direct cities, villages and townships toward a utopian life style. The programs also included the creation of community block grants to finance urban renewal programs and other financial assistance programs that local governments managed to work into their annual budgets. Most cities shifted to City Manager forms of government and had the money to hire new staff people.

The CETA programs filtered dollars to counties and city budgets to create new jobs for the unemployed. Thus cities that were getting by very nicely with one police officer suddenly had a staff of several police officers and sometimes more than one police car. Counties hired special deputies to provide additional road patrol, and later special officers were put on staff to handle cases of child and family abuse and the war on drugs. Under President Nixon, entire Drug Task Forces were created in every county in the land.

Counties created new jobs and expanded public services. Some got extra millage to expand or build new and larger court houses to house all of the new offices. It was a time of imaginary wealth. What was happening was that the income tax money collected by Washington was being filtered back to us through state coffers. Because they were required to find ways to spend all of this excess money or risk losing it the following year, unnecessary jobs and government offices that were never needed were created. Now these positions are so deeply entrenched in our governments, they are going to be difficult to eliminate.

Now that federal coffers are deep in the red the revenue sharing money has dried up. At the same time local property values are falling, people are either out of work or earning less than they did in prior years, and consequently they are not buying big ticket items and generated sales tax revenues. Local governments are looking for new sources of revenue while also going through the agony of cutting services and laying off workers. The National Conference of State Legislatures reports that 36 states are grappling with budget deficits by cutting spending and closing offices.

Some are raising taxes in creative ways. Many are raising fees for everything from the price of fishing and hunting licenses to marriage licenses. Some cities and states are taxing hotel room rentals and car rentals, thus slamming out-of-town visitors with unexpected fees. Additional local taxes are being added for the sale of tobacco and liquor. All of this is having an effect on the nation’s tourist industry, which already is hurting due to the choked financial situation.

The states of Arizona, New Jersey, New York and Colorado have suspended property tax exemptions, including special exemptions for senior citizens.

Some state and local governments have been devious in thinking up new ways to collect money through traffic court. One idea that is catching on has been automatic surveillance cameras to monitor red lights and speed zones. Some cities have even gone so far as to reduce the time the yellow warning light shows, giving drivers less time to choose between stopping or going through the intersection. If the light turns red before they get through, there could be an automatic ticket with a big fine attached arriving in the mail.

The State of Georgia is trying a new “super speeder” law that assesses drivers caught driving at 85 miles an hour or faster to pay a special $200 state fine in addition to the local fine.

The tragedy is that the extra fees, fines and taxes are being slapped against a public that is already down on its luck. Many people are either out of work or working at low paying jobs and barely living from paycheck to paycheck. Any large fine for a driving or parking infraction, or an extra tax for something they need to purchase or use, only intensifies their personal financial hardship.

To make the situation even scarier, some urban economists are calling for relaxed laws restricting local government’s ability to raise property taxes and other fees to remain solvent. David Brunori, contributing editor for State Tax Notes magazine and research professor of public policy at The George Washington University, warns in a recent publication that the existence of local governments will be in jeopardy without these increased sources of revenue.