Saturday, February 14, 2009

Let's Talk Taxes

“The people are hungry: It is because those in authority eat up too much in taxes.”
Lao Tzu

“Taxes grow without rain.”
Jewish Proverb

“He has combined with others to subject us to a jurisdiction foreign to our constitution and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation... For imposing Taxes on us without our Consent.... We, therefore... solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States.”
The Declaration of Independence of the Thirteen Colonies, 1776

“Why, sir, there is every possibility that you will soon be able to tax it!”

(PM William Gladstone, on the usefulness of electricity)

“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Winston Churchill

“The point to remember is that what the government gives it must first take away.”

John S. Coleman, address, Detroit Chamber of Commerce, 1956

“You don't pay taxes - they take taxes.”
Chris Rock, Bigger and Blacker

Bitching about taxes has been around for a while and I’d be willing to bet what remains of my income after April 15th that taxation will continue to be the target of “thoughtful” comments well into the future. The purpose of this post is not to out-do the witty insights of those who came before me nor continue the centuries old tirades, clichés, or sound bites against taxes. The goal is to arrive at a consensus as to what level of taxation is legitimate. To tackle this question we must also make some determination regarding the legitimate role of government. Our focus will be on taxes at the local level.

I am going to step out on a limb and say that we all agree that taxes are at least a necessary evil. The question then becomes what constitutes, “necessary.” Another aspect of this question that should be considered is the direct benefit of tax dollars to the community being served—overhead vs. outcomes.

Tax dollars collected at the local level stay local. They are primarily spent on services, not programs, and a higher percentage of those dollars goes towards services than to overhead. As you get farther up the food chain to the state and federal level those dynamics change—more program spending, less percentage of tax dollars actually meeting a need due to higher overhead. And then there is the issue of using tax policy for redistribution of wealth and social policy--A discussion for another day.

As with taxes in general there are those in the community who believe their local taxes are too high while others point to the fact that Fredericksburg has one of the lowest tax rates in the state as a justification for increasing taxes. For those supporting higher taxes you need to consider the fact that the City also has the lowest median income and the largest percentage of households on fixed incomes in the region. Our level of taxation in relation to other localities is irrelevant. The level of service expected and the efficiency of providing those services are relevant. For those at the other end of the spectrum consider this--

During one of our budget discussions I received a call from a constituent who was on a fixed income and was told that to raise taxes would cause her great financial distress. Then she told me not to cut the library budget. At the same time Council announced that the city would no longer be supplying trash bags, which would mean a savings of over $60,000.00 a year. I received more calls and comments (and still do) complaining about the loss of trash bags than I did about the tax rate. We are told not to increase taxes but at the same time we are told not to reduce services. The reality is that something has got to give--higher taxes or less service. The most common response to this reality is to deny it. We are told not to reduce services, but instead cut out “wasteful” spending.

I’ve lost count of the times I’ve been told that the City could end “wasteful” spending if it were run more like a business. To date I’ve yet to receive an explanation as to what that means. Am I to believe that the private sector is free of wasteful spending and runs at 100% peak efficiency? The current situation faced by the auto industry and financial firms, for example, would seem to indicate that this is not the case. So let’s put the clichés aside and focus on whether we can really save money without affecting services.

The city has actually been reducing expenditures in areas like travel, continuing education, and supplies for the last two years. In addition, the city has deferred maintenance and put off replacement of equipment and vehicles. We have reduced our workforce through attrition and are having to do more with less. As a result of these actions last year’s city budget was actually less than the one the year before. So as any good business would do we have been trying to control costs while trying to minimize the impact on our responsibility to provide services. It is not my intent to imply the city is now running at 100% peak efficiency but rather to make clear that further reductions will start affecting services.

Another factor which has a big impact on expenditures and services comes from mandates, regulations, and funding, or lack there of, from the state and federal governments. Before you recommend that the city should reduce work crews from three to five to do a job, read the OSHA regulations. Before you point to savings in the school budget in the area of administration or in the classroom, check to see how state or federal law mandates many of those positions or programs.

In regard to funding, at the state level the current view is to hold the line on tax increases and as a result funding to localities to meet state obligations in such areas as education, transportation, public safety, and Constitutional Officers, have been reduced, or are not keeping up with increasing costs, thereby leaving the localities to face the shortfall. This statement is not meant as either an endorsement or criticism of state tax policy it is simply a statement of fact.

On the Federal side of this issue it is not so much money as an added level of bureaucracy, which just adds to the amount of paperwork and procedures, which take time and resources away from actually providing efficient and cost effective services. In applying for or using HUD funds for example, the amount of paperwork and regulations, which change almost daily, is mind-boggling. The rationale for this process is to ensure that funds are properly spent. The reality is that these regulations waste time and resources dealing with the process, thus leaving less time and resources for the desired outcome.

Here is the link to the city’s current 2009 budget:
I invite you to go through it and point out where you believe the city is wasting money. Or if you believe that there are obvious savings that don’t require a look at the budget please pass them on. I will be happy to respond by either pointing out issues with the proposed cuts or acknowledge the validity of the suggestion and pass it on to staff. Let’s put assumptions and clichés aside and instead provide specifics with a rationale to back them up.

Now that we are in the process of eliminating all wasteful spending in the budget we need to address the issue of what services local government is to provide. As I noted the sole determinate in setting the tax rate should be to ensure that we have the revenue to provide the services that City residents expect and at a reasonable cost. We are dealing with the cost issue as outlined above, so let’s now talk about services.

In previous posts I have discussed my thoughts on the level of service we should be providing. Now I want to hear from you regarding what level of service you believe should be funded at the local level. As a taxpayer what do you expect for your investment?

I would breakdown services as follows: Core services would be public works—water, sewer, roads, trash pick-up, public safety, and education. Next would come quality of life services such as recreational and library facilities. Then there are services that we fund through outside organizations primarily related to social services— SPCA, legal aid, homeless shelter, counseling services etc. You may, or may not, agree with this breakdown of services. If not, let me know how you would rank services.

If you have the view that taxes are too high then you need to point out cost savings and/or what services should be reduced (and how) or eliminated. If you believe that local government needs to be providing more services let me know what they are and then offer a viable suggestion for how we are going to pay for them. Everyone has a position on taxes. I am giving you the opportunity to prove your point. No one-liners allowed!


Larry G said...

I like the Balanced Scorecard idea.

It helps establish more open and honest communications and though it allows cheap shots, if a large number of people are not happy about a specific service (or vice versa), that can be valuable info.

Also.. some folks think that some services that are provided "free" from taxes - need to be fee for service even if the service is mandatory.

It doesn't help either when you've got a traffic signal that is malfunctioning at 3:00 am .. and the guy on his way to work, every morning has to put up with that light even though it has been reported multiple times and still is not fixed.

Things like that put out a strong message - that leads many to believe that the rest of the government is operating the same way.

Balanced Scorecard surveys can give valuable insight into your "customers" attitudes IMHO.

MATT KELLY said...

LarryG—Balanced Scorecard is great in providing a measure to determine the effectiveness of expenditures to make better use of revenues. However, the question remains regarding how and where the revenue will come from to fund the program or service you will measure.

You must also first establish which programs and services you will measure. Then there is the issue of how to incorporate state/fed guidelines and the erratic nature of funding and unplanned expenditures that we face due to new regulations and mandates from on high, for example, making it difficult to take advantage of the data obtained from a balanced scorecard. Not saying that it is not a good suggestion but it would take a bit of thought to integrate it into a governmental process. And again the revenue question and the issue of baseline services remain unanswered.

Councilman Brad Ellis is a big proponent of balanced scorecards and maybe he could add his insight on these questions.

Bryan said...

Only 1 comment? I'm posting here instead of FredTalk, which does have a few more random posts.

The balanced scorecard is ok, but it is also not a solution. It's a metric, to be used with other quality management to generate a result. For instance, I can see where the scorecard might show emergency services met or beat it's standard one month, but bombed the next. Yet you're probably going to be unwilling to modify it's funding because calls can come in at very busy times, and other slower times.

Metrics - now I am all for metrics, one of which might be the balanced scorecard. But lets also evaluate the amount of $ per service per person/household.

Lets talk about fees vs taxes.
For instance, you call out the $60k in savings from the trash bags. Yet the city charges households for trash pickup (it's on my bill anyway), so what's to say the city couldn't have re-couped that $60k by modifying the trash service fee to account for bag delivery? Speaking of trash pickup, how about evaluating one day a week service (leave me 2 trash cans please since they are relatively small). I've seen these guys on Fridays using a pick-up truck to make up time. For that matter, the last three weeks, twice they have failed to grab at least one bag out of my trash can.

Lets go onto water/sewer. Why have real estate taxes pay for either of these services? We have a water/sewer fee paid to the city. Great service, want to keep it that way, but if people paid what it cost, maybe they would have more incentive to SAVE. Lets graduate the water/sewer fee to account for the true city costs, and take this one out of the tax discussion. It's a core service, but it has it's own revenue stream.

Now lets talk taxes. You and I have talked about this before. I like your analogy to a pie. Core services in the center, quality of life in the middle, and then outside organizations around the outside of the pie. When balancing the budget to revenue (suggesting equalized real estate taxes), lets take a pie slice out of the overall pie. Maybe the pie slice doesn't have straight lines, but I'm advocating that core services should be feeling part of the pain, if outside agencies are taking a bigger cut. It's too late now, but the new police headquarters faces one of the same issues as the courts. The entrance is cathedral, the sconces on the outside are way over what is needed for lighting, and although the entire building looks nice - looks increased the construction costs, thereby increasing the tax burden on the city. If it had been placed in the historic district, my opinion would be different.

And here is where government needs to take a look at private business. In tough times, private business does what is needed. A warehouse looks like a warehouse. An office building has cubicles, and if one person can do what two are doing, and sometimes even if they can't, it might be time to downsize.

Before cutting tax paid services, let look at what services aren't being covered by their fees. I've already mentioned trash, water, sewer, but lets go further. DMV Express, as much as I like it being there, if every time I use it I'm eating into my real estate taxes, maybe it's time to rethink. Or figure out a way to slap on a DMV express fee (like the full DMV is doing for in person transactions).

Lets ditch the commissioner of revenue car decals for good. Let the police department handle the VRE lot the same way it does college heights parking with 2-year stickers. (Unfortunately, not much savings)

I've suggested making Fridays and every-Friday event, to try to bring in more revenue from outside the city on weekends. Yes it will cost, and we should tag those costs and evaluate it to see if we should keep doing it. It's a quality of life thing, but if done correctly it should show a revenue increase. If not, lets look at moving it to a private-partnership who might try doing it differently.

Parking - Again, lets look at the fees raised vs. interest and parking expenses. If demand at the current garage doesn't cover it's expenses, why is the city looking at spending $7M more to build a second garage next to the new courthouse? And that's $7M of bond revenue, what's the real "cost" to the taxpayer over 30 years, unless you can levy a parking fee on each case/defendent/attorney that uses the new garage.

Before raising real estate taxes beyond an equalized rate, I'd want to take a look at our luxury taxes. Although it's still taxes (sorry my Republican friends), things like the cigarette taxes are there to discourage certain activities, or at least pay-to-play. If I make a decision to partake, then I consciously make the decision to pay the price.

Brad's been outspoken about banning plastic bags. How about incentivizing people instead, and make it a $0.025 tax per bag, maybe allow them to collect a nickel on each one. It will eventually make people think about recycling bags. At the same time, maybe it will be a stopgap funding source until the economy comes back.

And btw, it's not just 12k, it's 12k x 7 people. Council's salaries donated to those outside agencies would go a long way after you cut them to zero this time around.

You are correct in one aspect, that we live in a city, and kind of by definition expect a higher level of service. I can't say that I know what the "right" level is looking in from the outside. This response is simply a few ideas, hopefully those getting paid to do this have even better ideas.

One liner - Please think about why our taxes must go up, and be considerate of those of us chosing to live/own here.

Muttley said...

Battle of the bloviating blarney meisters is well underway.