Article
Local governments feel the squeeze
Just about everyone at one time or another has felt squeezed — between home and work, aging parents and young children, your bills and your paycheck. Now, another kind of squeeze is affecting local governments across the country.
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,” a report by the Pew Center on the States. State aid to local governments fell by $12.6 billion, or 2.6 percent, in fiscal year 2010 from 2009, the most recent year for which comparative data are available. Property taxes — the other side of the squeeze — were $11.9 billion, or 2.5 percent, lower in 2010 than the year before, the largest decline in decades.
Local governments are feeling the crunch. “Localities have had to find ways to balance their budgets with these revenue challenges,” says Bob Zahradnik, research director with the Pew American Cities Project. “We’ve seen impacts across a variety of service areas, including public safety, welfare and social services, even basic services like trash collection.”
That is what happened in the small town of Belvidere, N.J., where officials faced a projected deficit of more than $250,000. This year, the town opted to cut garbage collection entirely. Residents now have to haul their own trash to the landfill or pay for private service.
Other cities and counties facing the squeeze have had to cut critical jobs. In Cleveland, after the state cut $36 million in aid in 2011, the city laid off more than 300 employees, more than half of them police officers and firefighters. It also shut down five fire companies.
The property tax squeeze, too, hit hard. Stockton, Calif., where the housing boom in the Silicon Valley tripled construction rates, saw its property tax revenues plummet during the Great Recession. In 2011, Stockton had the second highest foreclosure rate in the nation, just below Las Vegas. In June, Stockton became the largest U.S. city ever to file for bankruptcy. Local school districts have suffered the most from the squeeze. Half of the more than 500,000 local government jobs lost since 2008 have been in education, Zahradnik says.
Are there any bright spots amidst the gloom and doom? Maybe, Zahradnik says, there’s hope in the “innovations and efficiencies that this crisis is generating.”
In Anaheim, Calif., for example, officials contracted out some services, including park maintenance and collection of delinquent taxes, to the private sector. Dallas turned over operation of its zoo to a nonprofit group. And Beaverton, Ore., began using more efficient hydraulic dump trucks that reduced the number of sanitation workers needed.
“City leaders are on the frontline of a lot of these issues,” Zahradnik says. “Oftentimes, they can come up with practical solutions to some of these problems.”
Still, he says, local leaders are likely to face more challenges. Many states are still cutting aid to local governments, and property taxes are expected to decrease further in 2012 and 2013. “More tough choices are ahead.”
What you define as “State aid
What you define as “State aid to local governments” dropping, I describe as local money that the State has confiscated. Here in Ohio, for example, many decades ago there was a compromise reached between the municipalities and the State – Ohio’s municipalities would not object to the State taxing local districts (income, sales, etc.) if the State established a revenue sharing system whereby the State shared a portion of this locally-collected revenue with cities and villages, and eventually counties, townships and libraries. This was referred to as the Local Government Fund (LGF). This compromise worked well for many years.
In the 1980’s, the distribution of the LGF became increasingly controversial, including litigation between and among local governments. Many counties (counties are agents of the State and perform many State functions locally) adopted an alternative funding formula which was created in the 1980’s and resolved many of these disputes.
However, in 2011, the Ohio General Assembly adopted a two-year budget which for the first time confiscated half of the Local Government Fund – only for the purpose of balancing the State’s $8.0B budget deficit. In the opinions of local government officials, the State of Ohio has reneged on a compromise made in the 1930’s. While leaders in the Ohio Legislature brag loudly about how they have balanced the State’s budget without raising taxes, they have done this by breaking these prior agreements which in essence have forced units of local government throughout Ohio to either cut their service levels or raise taxes locally.
What is missing in this
What is missing in this article is that while local governments are getting pinched with reductions in state aid and property taxes, they are, at the same time, getting hit with new costly regulatory requirements. Just look at the draft Phase II stormwater permit in California that includes requirements that exceed federal mandates and receving water limitations requirements that will be impossible to achieve. Because California agencies are challenged with creating a secure funding source to ensure compliance due to Proposition 218 which would require voter approval; cash strapped agencies must use limited General Fund revenues to comply. Non-compliance could result in costly State enforcement actions or third party law suits. Rather then cleaning strormwater, CA small agencies will be spending their limited resouces addressing enforcemnet actions and legal battles. Wake Up CA!