FINANCIAL MANAGEMENT/Fiscal regionalism levels playing field
The metropolitan region represents a new frontier in the way urban areas are conceptualized. The road to the metropolitan region travels necessarily through the land of local government. In that milieu, local governments are developing regional strategies that can be loosely bundled into “metropolitan regionalism.” Fiscal regionalism is one of those strategies.
The approach is simple: pool tax revenues for a wide variety of multi-jurisdictional or regional purposes. Fiscal regionalism is attractive because it addresses metropolitan issues in primarily non-threatening ways. It is the fiscal equivalent of having a regional government without creating that government or tinkering with municipal boundaries.
The strategy can be used to minimize the worst effects of fiscal mercantilism wherein local governments encourage or recruit only net revenue-producing developments. Also, annexation laws potentially create a negative outcome for governments — one government gets the new territory benefits, but at a significant cost to the government losing the territory (because of the loss of tax base). Fiscal regionalism is a way to share tax resources so that each government benefits.
Finally, wealthier jurisdictions are able to provide services with lower tax rates than less affluent jurisdictions. That disparity results in a vicious cycle of greater disparity as wealth gravitates to wealth, and the poorer jurisdictions become even less competitive. Fiscal regionalism aids in “leveling the playing field.”
There are four forms of fiscal regionalism.
Cultural asset districts
Center cities traditionally have been the sole public financier of attractions such as zoos and museums. However, populations are starting to disperse throughout metropolitan regions. That makes the residents of the region, rather than residents of the center cities, the beneficiaries of the region’s cultural and recreational amenities. Denver and Kansas City (Mo. and Kan.) are representative of metropolitan regions that have adopted cultural asset districts to address that issue.
Tax-base sharing districts
Tax-base sharing takes a portion of a revenue source, such as the property tax or sales tax, and distributes the proceeds to constituent local governments based on criteria that reflect the needs of the region. The largest tax-base sharing plan is in the Twin Cities of Minnesota. The Minnesota model of tax-base sharing has been in place for about 25 years. Today, the program covers 2.5 million people, seven counties and 200 local jurisdictions. It involves $400 million in tax proceeds.
Combined tax-base and cultural districts
The Allegheny County (Pa.) Regional Asset District was created in 1996 and is funded through an additional 0.5 percent on the sales tax. That funding stream generates more than $60 million annually for facilities like libraries, parks and stadiums.
Peaceful co-existence strategies
In Michigan, several peaceful coexistence strategies — including the Michigan Land Transfer Act — have been developed to create beneficial outcomes for cities and townships. Under the Land Transfer Act, townships conditionally transfer land that would have otherwise been the subject of annexation to the city in exchange for a share of the tax revenues and state aid.
Metropolitan regionalism through fiscal agreements represents a practical response to the realities of today’s complex metropolitan governing structure. The fiscal approaches to regional needs emerged as negotiated agreements and understandings between local governments, public-private partners and citizens over time. Externally imposed or mandated solutions seldom work as well as solutions that are developed locally and retain the existing structure of governing.
The author is associate dean and professor for the Graduate School of Public and International Affairs at the University of Pittsburgh.
