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The local government squeeze
Local governments are caught in an unprecedented squeeze, according to a new report. State aid and property taxes, which together account for more than half of local revenues, are dropping simultaneously for the first time since 1980, according to “The Local Squeeze” by the Pew Center on the States.
The one-two punch could not have come at a worst time — just as states and local governments are slowly recovering from the Great Recession. Local governments are being squeezed for revenue even as demand for government services rises, driven by continuing high unemployment, population growth and other factors.
The report details the extent of the squeeze on local governments. State aid, which funds nearly one-third of local government budgets, fell by $12.6 billion, or 2.6 percent, in fiscal year 2010, the most recent year for which comparative data are available. That trend is continuing, with 26 states reporting cuts in local government funding in 2011 and 18 states so far in 2012.
Property taxes — the other side of the squeeze —are shrinking, too. Those taxes, which amount to 29 percent of local government revenues, have dropped after the collapse of real estate prices during the recession. In 2010, according to the report, property tax revenues were $11.9 billion, or 2.5 percent, lower than the year before, the largest decline in decades. Property taxes also fell in 2011 and are expected to decrease further in 2012 and 2013.
Local governments have responded by cutting services and jobs. The Pew report offers a sobering conclusion: “The local squeeze will be felt for years to come.”
The damage done by the
The damage done by the Sixteenth Amendment is now hitting home. Local governments, required to have truly balanced budgets relied on ever increasing values to raise the funds to satisfy the ever greater personnel costs. Instead of self imposed taxation and utility revenues, Money was expected from the State and the Federal government, Local citizens began to have OPM dreams — that somehow money coming from the State capital and Washington D.C. was Other People’s Money — free lunch. Now government employees expect as the rest of us scrape by that they are exempt and the spigot once having been opened will be continued forever.
I look at this situation a
I look at this situation a bit differently – what you refer to as “State aid,” I view as the local districts’ money.
Many states have established a revenue sharing system with local districts whereby the State collects sales and income taxes from local residents, takes its “cut” to do whatever the State does with it, and then flows the remaining portion back down to cities and villages, and eventually counties, townships and libraries. This is referred to in some states as a Local Government Fund.
Recently, States – in order to balance their own budgets – have held back those funds that had been long-agreed would be forwarded to municipalities. In the view of many local officials, these states have reneged on agreements made decades ago – leaving already lean and collaborating municipalities few options but workforce reductions, elimination of capital improvements, reductions in municipal services, or increases in local taxes.
I am surprised to see the
I am surprised to see the report details the extent of the squeeze on local governments. The government is trying to put the tax but tax burden over the common people. Thanks for sharing all information.