Tag Archives: tax base

The possible shifts in the foundations of tax bases

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Governments are dependent on tax bases for revenue. Hopefully, the tax base meets financial expectations and if things are going well, the taxes bring increased revenues, leading to more spending (and saving?) possibilities. But what happens when tax bases decrease?

This is an issue facing a number of government bodies and a number of taxes are affected:

-I was reminded of this again by this piece (h/t Instapundit) which suggests that increasing income taxes on the rich may not work out in the long run as economic troubles can greatly affect the incomes of the rich.

-Property taxes are affected by the assessed value of properties. If property values are down, such as in this economic crisis where it appears housing prices will be depressed for quite a while, then tax revenue may go down. (Or they may not – can local communities really afford to have less money coming in through property taxes?)

-So called “vice taxes,” on things like cigarettes, may be self-defeating: as people smoke less, the revenue will slowly dry up.

-The gas tax will be interesting to watch in future years: as the government pushes for more electric vehicles and with higher gas prices, this could mean that less gasoline is purchased. Money to pay for new roads and maintenance will have to come from somewhere.

A couple of questions about these different taxes:

1. Is the uncertainty about tax revenues in the last few years really that different from other points in history? If not, what have people done in the past?

2. Might we expect to see some major changes in taxation in the coming years as governments look for different (perhaps more stable?) or more sources of revenue?

3. How are sales taxes or VATs affected by economic crises?

(The realm of taxes is not my area of expertise but I do know the importance of some of this to communities: limited or decreasing property and sales taxes lead to big issues with budgets which then affect services which then angers residents.)

A few comments by Joel (3/31/2011):

One way that cities and states are seeking to increase collection revenues is through enhanced sales tax enforcement.  As Amazon is finding out, for example, governments have their ways of pressuring online retailers.

Of course, to a certain extent, this is simply turning into an arms race, with businesses increasing their lobbying budgets and hiring more tax attorneys.

Two more thoughts on Daley’s speech on campus: lack of partisanship and regional cooperation

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I’ve already written two posts about Mayor Daley’s visit to campus (see here and here). But a few days later, two themes, a lack of partisanship and an emphasis on regional cooperation, continue to stand out for me as I have thought about how this talk fits with my research on suburbs. Here is why these two themes matter:

1. To start, many people might look at Daley’s visit to the suburbs as strange, particularly since he came to Wheaton, a community known both for its political and religious conservatism. Daley is quite well-known for being a Democrat and one who sits atop a broad Democratic machine in Chicago. And yet, Daley stressed that many issues facing cities and municipalities are not partisan issues. Rather, they are issues of serving the people and having a balanced budget.

On one hand, we could view this as Daley simply knowing his audience: with a more conservative crowd, Daley might have been unwilling to sell a Democratic agenda. But on the other hand, this idea of a lack of partisanship is quite common in suburban government. While certain communities are known to be more Democratic or Republican (roughly, further out suburbs are more Republicans, inner-ring suburbs are more Democratic), local mayors and councilman (or alderman) rarely run on party platforms. Rather, their “parties” tend to be called things like “Citizens to Improve Wheaton.”

When a problem arises, such as dealing with police or firefighter unions, Democratic or Republican communities might approach the issue in different ways. But at the same time, it is not as if Republicans can dismiss or ban the unions while Democrats can’t simply give in to every union concession. With a more limited budget in many suburbs, city governments have to maintain good levels of service (indeed, good suburbs tend to be marked by a lack of crime and good fire coverage) while still meeting a budget.

Additionally, Daley mentioned the need for businesses in a community multiple times. Whether Democrat or Republicans, communities need businesses to provide jobs for citizens but also to maintain and grow the tax base. This issue of a tax base is not just an abstract matter: it is directly linked to the size of the municipal budget. Therefore, mayors and leaders on both sides have to be pro-business (though their approach might differ somewhat) in order to provide services.

2. A second theme was the need for regional cooperation. Daley was introduced by former Speaker of the House Dennis Hastert who said, “what is good for Chicago is good for northern Illinois, and what is good for northern Illinois is good for Chicago.” Daley said something similar that what is good for the suburbs is good for Chicago and vice versa.

Again, Daley might have been playing for the crowd but I don’t think this is a full explanation. One, regional cooperation is needed on certain issues. Daley mentioned O’Hare expansion several times. Although the land is in the City of Chicago, the slow process has involved several suburban communities who have opposed Daley’s plan. Unlike a situation like Meigs Field where Daley could do what he pleased, he has had to work with others on this project. (Whether he wants to work with others on O’Hare is another matter.) Another transportation issue that drew regional emphasis was the fight over whether Canadian National should be allowed to purchase the Elgin, Joliet, & Eastern railroad line. Similarly to the O’Hare issue, this purchase harmed certain suburbs by increasing train traffic while reducing traffic on other lines in other communities. (See the largest regional group opposed to this purchase.)

Two, Daley mentioned regularly meeting with suburban mayors (as well as with big city mayors in the US and around the world). Outside of particular large issues, regional mayors and city managers get together to discuss “best practices.” While there were county groups that did this (like the DuPage Mayors & Managers Conference), Daley brought together mayors from 272 communities across the region in the Metropolitan Mayors Caucus which began in 1997.

At the same time, we could ask why groups like these don’t push harder for tackling larger regional issues like planning or crime. The Chicago region is notorious for having a large number of independent, taxing bodies. The whole region would benefit from a regional planning approach that could start to tackle issues like affordable housing across the region (and not sticking it only in certain less wealthy communities) and containing sprawl (which impacts issues like traffic congestion and pollution levels).

We know historically that the split between cities and suburbs really became clear in the early 1900s when suburban communities no longer wanted to be annexed into the nearby big city. Communities want to work together: just recently, a number of suburban leaders said they were looking for help from new Chicago Mayor Rahm Emanuel (though I also wondered whether these suburban mayors would help Emanuel in kind). Today, these regional groups are better than having no groups but primarily focusing on practical or technical municipal matters leaves a whole range of regional issues left to be tackled. Granted, these regional groups have no binding legislative authority but they could also be leveraged to do big things in a region.

Ultimately, a mayor or city leader has to respond to the needs of one’s citizens. However, many of the issues that mayors face are similar across communities and the challenges are often beyond the scope of just one municipality. All suburban and city leaders need to deal with the tax base, balancing the budget, and thinking about regional issues such as transportation and how to manage growth.

Zoning, churches, and tax bases

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Zoning of land can become a contentious issue, particularly when a community sets limits that some community members find restrictive. An article quickly mentions one of these points of contention: when communities make it difficult for churches to be built.

“Churches do not realize the fight they’re in,” Baker said. “If you go into a commercial district, they say you’re wrecking their tax base. If you go into residential, they say you’re disturbing their peace.”

While the issue is not new, Baker said, “The objections to churches obtaining zoning do seem to be heating up under the [economy].”…

In Houston, churches recently raised objections over a proposed drainage fee by city officials. In Mission, Kansas, churches filed a lawsuit after being charged a “transportation utility fee” to help fix roads.

In the case of Burbank, Mayor Harry Klein told the Chicago Tribune, “It’s obvious—every city likes to see their tax base grow, that’s a given.”

An alderman in Evanston, Indiana, raised concerns last year about the impact of “storefront churches” on the tax base and proposed an ordinance requiring special-use permits for houses of worship to operate in all business or commercial districts.

While this article doesn’t give any insights into how common this is, it does suggest that these cases might be more common now in a time of economic crisis. This may be the case as many communities look to close budget shortfalls and churches also have some more purchasing power with reduced real estate prices. Is there any data to suggest these sorts of incidents are now more common?

This article does highlight the goals of local municipalities: generating tax revenue and expanding the tax base. To require fees to pay for roads or sewers are not unusual when commercial or residential property is involved as these fees help offset the infrastructure costs for local communities. Churches do not generate property or sales taxes for a community so they might be considered dead weight. And if a church wants a potentially lucrative property, then the aims of the church and the community are at odds. Zoning is a means by which local communities have some control over land use and therefore can attempt to use zoning rules to regulate everything from the placement of banks to churches to tattoo parlors.

It would also be interesting to compare these sorts of cases with churches to those of mosques (one example here).

Suburban mayors look for Mayor Emanuel’s help

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There is often a tension between a big city and suburbs: these communities have different goals and access to resources. With a new mayor in Chicago, suburban leaders say they are looking to work with Rahm Emanuel:

But suburban leaders said Wednesday that they expect Chicago Mayor-elect Rahm Emanuel to recognize that the city he will soon lead and the surrounding communities are better off working together instead of fighting each other.

“I think, with his extensive government experience, he understands that we’re all in this together,” said Elmwood Park Village President Peter Silvestri, whose town is in Illinois’ 5th Congressional District, a seat once held by Emanuel.

Silvestri was among several leaders who also said they were hopeful that Emanuel, who has a reputation as a bare-knuckled political operative, will follow Mayor Richard Daley’s collaborative lead…

Among them is Elk Grove Village Mayor Craig Johnson, who fought bitterly with Daley over the expansion of O’Hare. He said he hoped Emanuel “will respect the concerns of his neighbor and work regionally.”

Emanuel supports  a Chicago casino, an idea that hasn’t gone over well in Des Plaines, which will soon open a casino of its own…

Naperville Mayor George Pradel was another suburban leader who said he hoped Emanuel would maintain a strong relationship with his suburban counterparts.

The Chicago mayor has influence on several issues that concern Naperville, including ongoing plans to build a western bypass around O’Hare and rates for Lake Michigan water, Pradel said. Naperville is the largest suburban user of water from the lake.

As a congressman, Emanuel supported an airport in south suburban Peotone and he has voiced support for extending the CTA’s Red Line to 130th Street — two important issues in the south suburbs.

Perhaps these suburban leaders do want to work with Emanuel but to me, it sounds like they are more interested in getting Emanuel’s support for their interests and projects. Perhaps Emanuel could ask these suburban leaders: and if I help you, how does your suburb plan to help the City of Chicago or the larger Chicago region?

This may be a cynical interpretation but this is the long-running history of suburban communities: many are not interested in regional or metropolitan issues except when they might threaten the quality of life in their immediate community. Going back to the 1890s and 1900s, suburbs stopped wanting to be annexed into the big city as they could provide their own basic services (water, sewers, electricity, etc.) and didn’t want to associate with cities which were seen as dirty and crime-ridden. Today, suburbs thrive on this idea of local rule: local taxes should go into local services, such as public school districts and basic local services such as police and fire. Local or regional projects are often judged on how particular suburban communities will benefit, particularly as it pertains to their tax base and property values.

In the long run, how many of these suburban communities are willing to help Mayor Emanuel?

Illustration of suburban revenue troubles: Brookfield vs. the Brookfield Zoo

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A constant concern of many suburbs is the tax base: how can the community bring in businesses and land uses that will bring in more tax dollars? To do this, some communities may be willing to offer tax breaks to certain land uses. But with the recent economic crisis, some communities have had to rethink their approach.

The source of contention between the suburb of Brookfield and the Brookfield Zoo is how much the water is going to cost for the zoo. For a long time, the community has given the Zoo a break on water, presumably because the Zoo brings in revenue for the municipality. But now with a tighter budget, Brookfield says it needs to charge the zoo a higher rate and perhaps also add an amusement tax to zoo tickets. In cases like these, some businesses might threaten to move – though this may be particularly complicated for a large zoo.

When times are good, municipalities and businesses don’t have as much trouble working out deals. But when there is less money to go around, issues like these become more common.