Tag Archives: tax revenues

Chicago suburb to raise revenue by selling guns

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St. Charles, Illinois has one solution for communities looking to raise revenues: sell confiscated and used guns back to the public.

But while some Chicago-area communities host buybacks where weapons are turned in and destroyed, one suburban police department is poised to sell about 20 firearms to two licensed dealers, including some guns seized from criminals.

“There’s value in these guns,” said police Chief James Lamkin of west suburban St. Charles. “They’re not illegal guns. Quite honestly, it’s a bottom line for us.”

Though Arizona has just enacted a controversial state law requiring local departments to sell firearms that are surrendered or go unclaimed, the practice appears to be unusual in the Chicago area. The Chicago Police Department and several suburban law-enforcement agencies, as well as Illinois State Police, say they destroy weapons after they’re turned in or no longer needed as evidence…

The choice for a public agency to sell or destroy seized weapons underscores the push in many suburbs to find new ways to generate revenue without raising taxes. The issue also places St. Charles in an unusual position among law enforcement agencies at a time when the gun control debate has been re-energized by the Sandy Hook school shooting and, in Illinois, by the current effort to enact a concealed carry law before a court-imposed June deadline.

My guess is that the negative publicity from a story like this – having a fairly well-off suburb make the front page of the Chicago Tribune for selling guns – outweighs the revenue that may come from selling 20 guns. This is the sort of negative attention that suburbs try to avoid. Yet, this is what happens when many American communities are desperate to find revenues. It would be interesting to see what St. Charles residents think of this. Does this story that could make their community look bad overpower the efforts the local government is making to avoid raising taxes?

Infrastructure mental image of the week: “America is one big pothole”

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Transportation Secretary Ray LaHood may be retiring but he made clear yesterday the infrastructure issues he believes face the United States:

Outgoing Transportation Secretary Ray LaHood lamented the amount of infrastructure spending that was approved by Congress during his tenure at the Department of Transportation (DOT) on Wednesday.

“America is one big pothole right now,” LaHood said in an interview on “The Diane Rehm Show” on National Public Radio.

“At one time … we were the leader in infrastructure,” LaHood continued. “We built the interstate system. It’s the best road system in the world, and we’re proud of it. But we’re falling way behind other countries, because we have not made the investments.”…

LaHood said Wednesday that whoever ends up replacing him will have to think outside the box to find more transportation funding.

LaHood is not alone in suggesting that America’s lack of attention to infrastructure could be quite costly down the road. Infrastructure is the sort of thing that greatly benefits from good funding and planning upfront rather than trying to patch problems down the road. It reminds me of the stories in recent years in Illinois about how asphalt gets used on tollways because it is cheaper upfront but concrete is costlier upfront yet saves money in the long run.

I wonder what it would take to convince politicians and the public that infrastructure needs should get priority when other issues look larger in their perception. I don’t think people would say money shouldn’t be spent on basic issues, particularly when safety is involved, but infrastructure tends to get left behind among other concerns. Can someone create a sexy pothole repair or bridge repair marketing campaign?

Behind the suburban scenes: Warrenville asks Naperville School District 203 to stop expensive lawsuit

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I posted last November about a Warrenville newsletter where the mayor expressed his displeasure that a new Cantera business had invited the mayor of Naperville to its opening but not the mayor of Warrenville. I was surprised at the reaction, which was quite unusual to see in a newsletter to the whole community, but I wonder it might be tied to a eight-year expensive lawsuit over tax revenue from Cantera:

Warrenville officials are campaigning to end an eight-year court battle over taxes with a Naperville school district.

The case returns to court Thursday, two days after leaders of five government bodies in Warrenville presented the Naperville Unit District 203 school board with a letter saying the lawsuit concerning a special taxing district has cost all parties involved more than $803,000 since 2005…

The lawsuit was filed by the district in March 2005 over the use of funds from the Cantera tax increment financing district. The Cantera development now includes a theater, shops, restaurants and corporate offices and provides about $3.2 million a year in revenue to District 203. Dave Zager, the district’s chief financial officer, said the Naperville district will continue to collect property tax revenue from the development into the future, but the amount will vary.

However, the school district alleges in the suit it is owed more than it has received. Brummel maintains the funds from the TIF district have been distributed legally and at the advice of attorneys.

The case has been dismissed twice, but the school district appealed twice, and litigation has continued.

Warrenville, its park district, fire protection district, Wheaton-Warrenville School District 200 and the public library district have spent a combined $357,000 defending the case. Naperville Unit District 203 has spent about $446,000. Part of the Cantera site is in District 203, and part is in District 200.

On one hand, this sounds like a lot of money to spend on a lawsuit that has still not concluded, but, on the other hand, tax revenue is hard to come by these days and lots of school districts could use this kind of money. I wonder if the length of the lawsuit is also tied to the economic crisis of recent years; in better times, District 203 might be better able to lose this revenue.

This is the first time I’ve heard of this lawsuit. Large battles between suburbs or suburban governmental bodies are fairly rare.

Argument: cities could find more revenue by taxing people who commute in

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Michael Pagano details the tax revenue issues facing American big cities and proposes a solution: tax commuters for the city services they use.

Over the past several decades, municipal tax systems have changed in many ways to try and capture the revenues needed to support essential services. But most cities continue to base their tax systems on dated notions of how local economies work and what drives income growth and wealth. Cities must be given the ability to develop tax and revenue systems that match the unique characteristics of their local economies, and that allow them to diversify revenues in ways that protect them from fiscal crises.How might that request be accommodated? Tax structures should be created that link cities to their underlying engines of growth or to income and wealth, similar in design to what the property tax attempted to accomplish two centuries ago. In Ohio for example, cities tax earnings at the place of employment and the place of residence. By taxing at the place of employment, users of city services (that is, employees who physically work at a site) contribute to the resource base for service provision.

Imagine if users of city-government services actually were required to pay for the full cost of those services? Imagine household decisions on where to live that is based on their paying the full cost of services. Imagine the decision calculus by individuals who would be responsible for paying their fair share. It could be revolutionary.

I wonder if changing the tax structure in this way would only serve to push more organizations and firms to the suburbs. Take the example of Chicago cited by Pagano. In the last few years, several companies, like Motorola, have announced they are moving workers back into the city. Would changing the tax structure make them reconsider?

The three issues behind an incorporation vote in a Utah suburb

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After writing earlier this week about the decisions of The Woodlands, Texas to not incorporate, here is the story of the Salt Lake City suburb of Millcreek that is considering incorporation on election day:

To supporters, a city would cobble together a few suburban neighborhoods into a more perfect union. After years of living at the whims of county codes and tax rates, residents of Millcreek said they would, for the first time, be able to keep their tax dollars inside their own borders and write their own future…

Opponents say the status quo works fine. Forming a city would heap municipal rules and expenses atop existing layers of county, state and federal bureaucracy. They say a new city would need money for lawyers, accountants, city buildings and other services now provided by the county, and ultimately be forced to raise taxes.

In 2011, an independent study said that Millcreek’s economics, population and geography would make it a “viable and sustainable” new city. But it also said the area was mostly built-out and had few new opportunities for development, raising the prospect that its expenses would outstrip the money it takes in. If Millcreek goes its own way, the surrounding county would also stand to lose $30 million in annual revenues from one of its wealthiest areas, and be forced to cut services or raise taxes on other residents.
If the measure fails, some residents say they are worried the community will be torn apart. At a time when city budgets are strained, they say that Millcreek’s Home Depot, its for-profit hospital and supermarkets would make ripe targets for annexation by nearby cities.

It sounds like there are a few issues present. First is the issue of revenues. Could an incorporated community afford the services it would be expected to provide? Would it increase the local tax burden, something many suburbanites abhor. Second is the issue of annexation. Incorporation typically provides a community more protection against adjacent communities annexing land. this article suggests what is most at stake are revenue sources such as retail and commercial establishments and perhaps job providers as well.

Though not stated here, I imagine there is also a third issue: the tension between individualism and communitarianism that is often present in American suburbs. On one hand, the suburbs offer homeownership, small parcels of land, the idea that individuals have a little space in which to live their own lives. On the other hand, suburbs, even unincorporated ones, require services such as roads, sewers, schools, police and fire protection, and more that is more easily realized when people pool their resources (tax dollars). Can you have a fully developed community life if individualism wins out? Is community, not just services but also strong and weak ties to neighbors and others in the community, desired by a majority of American suburban residents?

Quickly, some Census statistics about Millcreek: it has just over 62,000 residents; the median household income is $57,385 (about $1,000 above the median for Utah), is 87.2% white and 8.4% Latino, and 41.9% of adults have a bachelor’s degree.

One other note: the article suggests “the election here next Tuesday is a fight about what happens as America’s suburbs grow up.” This is a typical phase that many suburbs go through though it is a bit unusual, as it is for The Woodlands, for a community to grow so large and still not be incorporated.

How suburbs deal with the loss of a major big box retailer

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Big box stores can provide a lot of tax revenue so when a big box store leaves a suburban community, it can be a big blow:

The unexpected closure — it was announced in April and the store shuttered in May — forced village officials to approve a series of last-minute budget cuts totaling $216,000.The largest savings came by cutting hours for part-time firefighters, a move that limited response times out of one of the village’s two stations. West Dundee also moved its 54 employees to a cheaper health insurance carrier, reduced hours for part-time and seasonal employees, eliminated a community service position in the police department, canceled a National Night Out event and decided to hold fewer board meetings…

But Rolling Meadows officials found themselves scrambling in January 2010 when Sam’s Club abruptly closed after eight years in business, City Manager Barry Krumftok said.

The closure meant the loss of about $600,000 in various annual revenues from the retailer — nearly an 8 percent loss to the general fund…

The city responded by eliminating two part-time jobs and four full-time positions among the police department’s civilian staff, delaying the hire of a finance director, eliminating holiday decorations and glow necklaces for kids at the tree-lighting ceremony, ending a program reserved to commemorate employee and volunteer milestones, and holding off on painting its historical museum, digitizing city records and parkway tree replacement, removal and trimming.

In many cases, big-box stores leave one town to build a bigger, better store just out of the taxman’s reach.

To paraphrase a common saying, if you live by the big box store, you can also die by the big box store. I can see why communities would want big box stores since they generate tremendous tax revenues but at the same time, communities would prefer to have a diversified economy where a single employer or firm doesn’t control a sizable portion of the municipal budget. This hasn’t just happened to suburbs reliant on big box stores; it has happened to communities reliant on single factories or industrial firms that might be prosperous for years or even decades but when business dries up, the community doesn’t have much recourse. It doesn’t sound like the big box stores are as big of a loss as some factories to some towns but a 5-10% revenue loss can be huge, particularly in a down economy.

Once the initial budget adjustments are made, then the loss of the big box store becomes perhaps even more problematic for smaller communities: can they find someone else to lease or buy the property? Should the community continue to pursue big box retailers or does it pursue different directions? In an economy that in recent years has been built on a consumer economy, many suburbs will probably redouble efforts and continue to pursue more white-collar, high-tech jobs but there are not enough of these to go around at the moment.

Claim: those new municipal fees are here to stay

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More communities are charging residents more fees and they probably won’t be rescinded anytime soon:

As the nation’s cities attract an ever-growing share of the U.S. population, their capacity to honor service commitments, build and maintain necessary infrastructure, and meet their financial obligations will have a profound effect on local and regional economies, public safety, education, and overall quality of life for hundreds of millions of Americans. But U.S. cities are in a bind. Faced with a requirement that they balance their budgets every year, they have borrowed a page from the airline industry: increase fares (i.e., taxes) just a little if at all, and start charging big time for the “extras” that passengers (i.e., taxpayers) want. In the airlines’ case, it’s bag fees and the like that are going up. For cities, it’s charges for little things like, say, putting out fires…

In an annual survey [PDF] administered by the National League of Cities, more than four out of ten cities (41 percent) reported last year that they were increasing service fees in an effort to stanch the bleeding in city budgets. For the last two decades, when asked to identify a revenue action that their city had adopted in the previous year, city finance officers overwhelmingly selected “increase the level/rate of user fees or charges” and “impose new user fees or charges.”

Much like Newton’s Third Law, as cities raise fees, they decrease their reliance on taxes to support general municipal services. Back at the start of World War II, city taxes on sales, income, and property amounted to some 89 percent of all revenues cities raised (excluding aid from state and federal governments and borrowing or debt), with property tax generating 78 percent of “own-source” revenues. Fees amounted to some 11 percent. Today, nearly 40 percent of “own-source” revenues are derived from fees on services, and 60 percent from all other taxes (and less than 30 percent from the property tax). In other words, we have seen a sea shift over the last three generations from a city fiscal system that collected taxes—almost all of which were property taxes—to pay for the bulk of municipal services to one that identifies individual beneficiaries or users of services who can then be assessed a fee (e.g., fire suppression in Mondovi).

I wonder about several pieces of this:

1. What about the declining federal and state support for communities? If the federal government and individual states have less money themselves, there is less to pass along to communities as well as other taxing bodies.

2. The share of revenue from property taxes has decreased over time and I wonder how much of this is tied to an increasing number of taxpayers arguing against paying more property taxes. This has been gaining steam since the 1970s (see more about Prop 13 in California) and limits what communities can collect. It sounds like more communities see fees as a solution but is this because their other options are limited? Of course, municipalities aren’t the only ones who get money from property taxes as there are others who take more of this pie.

3. It would be interesting to see these numbers alongside figures about the size of municipal budgets and what the money is spent on. As fees increase, where is the money going and how much is it contributing to or paying for larger budgets? Some of this increase could be hard to stop; communities do age, infrastructure needs replacing, and the costs of services tend to go up.

Illustrating problems with big retail in Naperville: push for more landscaping but offer sales tax rebate

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The response from the city of Naperville to a proposal for a new Walmart in the suburb illustrates some of the issues communities face when approving big retail stores:

Councilman Grant Wehrli said he would like to see the store follow the lead of nearby Costco and Whole Foods by going “above and beyond” the city’s landscaping requirements.

“I would love to have Walmart come in, but I’m concerned about the landscaping. What I would like to see done there is for Walmart to follow the lead of the other two developments, literally across the two streets, and go above and beyond with the landscaping. It’s relatively inexpensive and the benefit to society is massive,” Wehrli said. “If we go to the higher standard of landscaping, we’re not just going to be like the Walmart in Buffalo Grove. It’s going to take that intersection to a higher level.”…

Wal-Mart representative Aaron Matson called the timing of the request “eleventh-hour,” but said they were doing the best they can to address the concerns…

“If we’re not careful with what we’re asking for, they may decide to say, ‘Hey, let’s move right across the street (to Aurora),” Krause said…

Wal-Mart officials still hope to break ground this year on the store that has also been awarded a $1.75 rebate in sales tax revenues over 10 years.

Here is how I interpret this:

1. The community is concerned with how Walmart looks and how it fits in with the nearby Springbrook Forest Preserve. Naperville has its share of ugly retail stretches, notably Ogden Avenue east of Washington Street and Route 59 south of the Burlington Northern tracks. In order to present a nicer image befitting of a wealthier suburb, Walmart needs to add some landscaping and go beyond typical requirements. I am amused by the comparison to Buffalo Grove. According to the Walmart Store Locator, there is no Walmart in Buffalo Grove though there is one very close by in Wheeling. Regardless, Naperville doesn’t want to have any run of the mill Walmart; they want one that reflects Naperville and helps distinguish it on the higher end from other suburbs.

2. Yet, the city may not be able to push the landscaping requests too far because Walmart could still locate their new store in nearby Aurora. In other words, the city has to offer a sales tax rebate because it cannot pass up this revenue source. Naperville officials may be particularly attuned to this because Naperville has lost retail business to Aurora before. In one notable case, the developer for the Fox Valley Mall played Naperville and Aurora against each other in the early 1970s, Naperville was less willing to budge, and the mall was built just across Route 59 in Aurora.

Overall, the community needs the tax money Walmart generates but they also want the store to be presentable. Such are the tensions today regarding big box stores.

The fight over transit money between Chicago and its suburbs

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A fight over funding is brewing between the Regional Transit Authority (RTA) and Chicago Transit Authority (CTA), Pace, and Metra about how to divvy up sales tax revenues and discretionary money:

Twelve votes are needed to approve budgets, yet five out of the 16 directors on the board are Chicagoans who have the CTA’s back, conventional wisdom says.

And this isn’t just an RTA fight. It also involves the region’s political heavyweights like Mayor Rahm Emanuel and [DuPage County Board Chairman Dan] Cronin, who appoint RTA directors to their $25,000-a-year positions.

Cronin says he recognizes [CTA President Forrest] Claypool and Emanuel didn’t create the problem. But he describes the standoff as “bullying.”

“The money is collected from all the taxpayers in the region, the majority of whom reside in the suburbs. Why should we subsidize the CTA more than we already are?” he asked. “They seem to care little for their neighbors in the suburbs.”

This is tied up with two larger issues:

1. The Chicago area is infamous for its many governmental bodies. This is another example of the broader issues associated with metropolitanization: multiple transit agencies are fighting for revenues and surplus funds that are controlled by an umbrella organization. All three agencies could really use the money so how is it to be decided outside of what will end up being a very politicized process?

2. In the larger public discussion about taxes, a growing theme is illustrated here: why should funds/taxes raised in one area be spent in another area? This is what Cronin is arguing: the revenues raised from relatively wealthy DuPage County (#57 in the country according to 2011 figures) are being used to fund mismanaged services in the nearby big city that many DuPage residents and shoppers do not use on a regular basis. This, too, is tied to metropolitanization: how can communities, agencies, and governments across a region come together to address common problems if everyone is only looking out for their self-interests?

A conservative fighting sprawl argues it is a Ponzi scheme

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Here is a summary of the arguments against sprawl made by conservative Chuck Marohn:

But, while my concern with sprawling growth patterns was rooted in their effect on the landscape, on the environment, and on severely compromised populations left behind, Chuck is all about the money. As Thoughts on Building Strong Towns makes quite clear, Chuck believes that sprawl is a Ponzi scheme and we the taxpayers are the ones left holding the empty bags.

In fact, the lead chapters of the book are devoted to the Ponzi thesis, whereby municipalities chase outward growth to find new tax revenue that proves insufficient when the infrastructure needs repair; so they chase even more new growth to pay for the previous round, over and over, until the pattern chokes the economic life out of the place. In Chuck’s words:

“The local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange – a near-term cash advantage for a long-term financial obligation – is one element of a Ponzi scheme.

The other is the realization that the revenue collected does not come near to covering the costs of maintaining the infrastructure.  In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance . . .

We’ve done this because, as with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations – which are not counted on the public balance sheet — are a generation away.”

A few thoughts about this:

1. I’ve seen this in action in suburbs and the problem becomes particularly acute when growth slows or stops or the economy runs into trouble. At these points, the revenue flow based on developer fees plus the new tax revenues from property and sales taxes slows and budgets have to be looked at more closely.

2. Infrastructure is a long-term investment, not a short-term building issue. Lots of communities face this issue: how to generate enough money to substantially fix or replace aging infrastructure? Money needs to be consistently budgeted for these issues because issuing bonds is not always a good answer.

3. I’ve wondered this before: how much of growth is driven by money versus the status that comes with being a growing community? The money from new development is clearly important but there is also prestige associated with moving forward, adding to the population, and continually adding to the tax base. Imagine this line: “a good community is a stagnant/plateaued community.” I don’t think so.

4. More broadly, this is a call for more comprehensive long-term planning in communities. This doesn’t just mean 5, 10, and 20 year projections – communities need to think how the world might change, whether they will have the resources to change course, and how open they will be to pursuing differences courses given the changing world.