Tag Archives: tax revenues

Oddity of Illinois Home Rule allows municipalities to get into a lot of debt

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The Chicago Tribune has an interesting piece of how the Illinois oddity of granting Home Rule powers to municipalities starting in 1970 can lead to overborrowing:

The state used to cap how much towns could borrow on the backs of taxpayers. Even for loans under the cap, the state forced cities and villages to put many “general obligation” borrowing deals before voters. The intent was to protect taxpayers from massive debt.

But local officials complained they needed easier ways to borrow. Chicago’s first Mayor Richard Daley led the charge for municipalities to set their own rules. The result was the 1970 Illinois Constitution and a concept that transformed how the city and suburbs are governed: home rule.

It has let towns borrow as much as they want, and raise many taxes, all without direct voter input. Any town with at least 25,000 residents gets the power. Smaller towns can vote it in via a referendum measure…

The vast majority of states — including all of the largest ones — do not offer municipalities such blank checks.

Ken Small of the Florida League of Cities said he would worry if his state had Illinois’ loose rules.

Read on for details on how several Chicago suburbs have accumulated massive amounts of debt.

I don’t think I’ve ever seen any municipal leaders denounce or reject Home Rule powers. Indeed, they tend to accentuate the positive sides of the powers as they allow municipalities more local control and the ability to finance projects on their own rather than having to rely on outside funding. And this would seem to fit with what many suburban residents tend to want as well: more local control, meaning that “big government” doesn’t control everything.

But, as this article suggests, local government officials aren’t necessarily any better at handling financing and borrowing. I was struck by reading this piece and an earlier one featuring the plight of Bridgeview, Illinois that a number of these borrowing situations arose when smaller communities wanted to jumpstart economic development. Struggling to do things on their own, they borrowed lots of money for retail, residential, and entertainment projects intended to bring in more tax dollars through property and sales taxes. A number of these projects didn’t pan out, possibly because of unrealistic hopes and also because the economic crisis made it difficult even for established and more financially stable communities to pursue larger developments. The lesson here? Perhaps slow and steady really is better here as big change for small communities is difficult to attain.

Another issue: the article suggests Chicago led the way to get the 1970 legislative act passed. Were some communities opposed to this or did they get behind Chicago as this could also benefit them?

Does Motorola Mobility moving to Chicago weaken the suburbs?

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With the news this past week that Motorola Mobility will be moving from Libertyville to downtown Chicago, a question arose: is Chicago’s gain the suburbs’ loss? Here is part of the discussion:

Rather than a zero-sum game of moving jobs from the suburbs to Chicago, Motorola Mobility’s planned relocation from Libertyville to the Merchandise Mart next year has many upsides. For one it’s another step for the city toward its goal of being a tech hub. That will not only give the company access to a coveted savvy urban workforce but also help Chicago stand out in the increasingly competitive global economy.

“The marketplace for knowledge-based industries favors dense, urban areas — it’s a global phenomenon,” said urban affairs specialit Frank Beal.

“This is not a choice between the city and the suburbs,” added University of Chicago economics professor Austan Goolsbee, “it is between Chicago and some other metro area.”

Goolsbee is correct if one takes a metropolitan view: it doesn’t really matter to the Chicago area if the headquarters is in the Loop or Huntley as long as the jobs, tax revenues, and prestige stay in the region. Yet, this is not so clear from a local perspective: Libertyville loses 3,000 local jobs and Chicago gains them. The mayor of Libertyville is disappointed:

The mayor of north suburban Libertyville says he’s disappointed Motorola Mobility has decided to move its corporate headquarters to downtown Chicago…

The mayor of Libertyville, Terry Weppler, said there are no hard feelings against Emanuel.

“I’ll put our community up against Chicago any day, you know, for any type of amenity whatsoever,” he said…

He said his next plans involve brainstorming what could fill Motorola’s giant corporate campus once it empties out.

I’m not sure Libertyville would win that battle of amenities. And it is clear that Chicago leaders are pretty happy.

But this may be part of a larger trend of large companies seeking out the more exciting and younger life of big cities:

The move brings jobs downtown — part of a reversal of fortune in which the city is now snatching corporations from suburbia. And as a result, a building type with a future that once seemed rock solid now appears under threat. United Airlines vacated its 66-acre Elk Grove Township headquarters — it even has tennis courts — for downtown Chicago beginning in 2007. The campus, designed by SOM, won three different American Institute of Architects awards since its completion in 1968.

The United Airlines campus is for sale. And it isn’t alone. On any given week, the internet and the back pages of trade journals are filled with “for sale” ads for suburban office parks and headquarters. It wasn’t always this way. Much like suburban shopping malls, these corporate utopias — air conditioned, new, private and safe — were once very much the hottest thing around. From the 1960s through the end of the 20th century, corporations — Motorola, Sara Lee, and more — left Chicago for a new life in the ‘burbs.

But now things are changing. Corporations are downsizing and the new generation of workers does not want to toil in the suburbs. A story last week in the Boston Globe discusses how young workers in the tech and creative fields prefer working in cities and getting to work by public transit.
This would fit with recent data suggesting younger adults are not as interested in the suburban life of the Baby Boomers. But it could take some time for suburban communities to figure out what to do with these large office complexes (see an earlier post about the fight in Hoffman Estates about tax breaks for the incomplete Sears complex) , particularly in a down economy where many shopping malls and lifestyle centers are having difficulty.

Of course, the tax breaks to stay in Illinois are still intact with the move:

But Mobility executives pledged a year before the Google takeover to keep Mobility’s well-paying engineering, finance, marketing, design and executive jobs in Illinois so Mobility could benefit from statewide tax credits worth more than $100 million over a 10-year period.

Gov. Pat Quinn said at a news conference in Deerfield that he gave Google “permission” to move from Libertyville to downtown Chicago, since that was the location Google preferred.

Pat Quinn has to provide his permission?

In the end, I would say that moves such as these are not necessarily bad but they could have negative consequences for the community that large corporation is leaving. Just as the big cities of America were hurt by the move of corporations to suburban office parks after World War II, there are negative consequences for suburbs when the move is made in reverse. It will be interesting to see how these moves add to or re-energize urban life. For example, one could look at how many of the Motorola Mobility employees will move to the city after their job moves there. Similarly, is there a way to quantify how much better Motorola Mobility will do once it is located in the city rather than suburbs?

Tourism in Chicago suburbs grows; reminder that suburbs are also destinations

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I was intrigued to see the news that tourism in the Chicago suburbs, as well as in Illinois on the whole, was up in 2011 compared to 2010:

Local counties were among those gaining the most tourism dollars across the state during 2011, which is fueling a so-called road show with state officials touting those numbers to help keep the momentum going.

Cook and DuPage counties saw revenues climb more than 8 percent. Kane, Lake, McHenry and Will counties saw about 6 percent more revenue pouring back in after some tough years, according to the Illinois Office of Tourism and the Department of Commerce and Economic Opportunity…

Cook County, which includes Schaumburg, Chicago and other cities, had garnered about $19 billion of tourism dollars in 2011, an 8.4 percent increase over 2010. Next up was DuPage County which received $2.1 billion, an increase of 8.1 percent.

Overall, the state got a record $31.8 billion during 2011, an increase of 8.4 percent from 2010. The number of visitors in Illinois also set a record with 93.3 million in 2011, up 10.2 percent from 2010 and passing the previous record of 91 million in 2006.

These statistics suggest that tourism in Chicago still dwarfs what goes on in suburban counties: Cook County has has roughly 9 times as many tourism tax dollars as DuPage County and nearly 5 times as much as DuPage, Lake, McHenry, Kane, and Will counties put together. At the same time, these suburban tourism tax dollars are not small amounts. The DuPage County figure is impressive: the county had $2 billion dollars in taxes from tourism. This is part of a larger point that can be made about suburbs: they are not just simply places to live but are now locations where visitors come to visit, shop, and partake in cultural and recreational opportunities. Suburban residents don’t have to go to the big city for all of their trips or cultural opportunities: there are places where they can and do spend their money in the suburbs.

More California communities in fiscal trouble

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The Los Angeles Times suggests more California communities are going to have to go beyond contracting out services and consider more drastic financial moves:

Once rare, turning to bankruptcy has become a painful but enticing option for cities whose labor costs and municipal debt far outpace anemic tax revenues. The Bay Area city of Vallejo began the current trend in May 2008, filing for Chapter 9 bankruptcy protection because, city leaders said, salaries and benefits for its public safety workers were eating up too much of the general fund.

Last month, Stockton became the largest city in the state to seek bankruptcy protection after it was unable to come to agreement with its employee unions and creditors on a plan to close a $26-million gap in its general fund. On July 2, the tiny resort town of Mammoth Lakes filed bankruptcy papers in part because it was saddled with a $43-million court judgment it couldn’t pay.

San Bernardino couldn’t close a $45.8-million budget shortfall and would be unable make its payroll this summer. Days before Tuesday’s City Council vote, the city of 211,00 people had just $150,000 in the bank. The city barely scraped together enough money to cover its June payroll.

Rising pension costs are are a growing issue in many places but not the only concern in this situation. Both states and the federal government have less money to contribute for local services and budgets. Tax revenues, property and sales taxes, are at least not growing much if not down. Residents and employees make it difficult to reduce service levels. How many people will be willing to live in certain suburbs and cities if the service levels have to decrease?

It will be interesting to watch these communities that have declared bankruptcy. The current mayor of Vallejo, California suggests the move wasn’t necessarily good for the community:

The Bay Area city of 112,000 was forced to shut down two of its fire stations and today fixes just 10% of its crumbling roads. Its workforce, including police and firefighters, is about half its pre-bankruptcy size and those people left are “insanely” overworked.

Meanwhile, Vallejo spent $10 million on legal fees. It ended up with employee contracts that Osby thinks the city could have struck more cheaply if it had stayed out of bankruptcy court and turned to the bargaining table.

But perhaps bankruptcy is the only route that “successfully” convinces everyone that something needs to change…

Study suggests US gov’t loses $71 billion a year because of tax exempt religious institutions

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A new study suggests tax exemptions for religious institutions cost governments $71 billion a year:

How much money does the U.S. government forgo by not taxing religious institutions? According to a University of Tampa professor, perhaps as much as $71 billion a year.

Ryan Cragun, an assistant professor of sociology, and two students examined U.S. tax laws to estimate the total cost of tax exemptions for religious institutions — on property, donations, business enterprises, capital gains and “parsonage allowances,” which permit clergy to deduct housing costs…

If history is a guide, the Free Inquiry article and any call for tax reform it may engender are not likely to have much effect. Since the 1950s, there have been several attempts to quantify religious tax exemptions — all of them wildly varied in their conclusions — and only a handful of legal challenges to those exemptions. Most were unsuccessful…

States bypass an estimated $26.2 billion per year by not requiring religious institutions to pay property taxes.

This seems like a lot of money but here are a few thoughts about this:

1. You would need to put the cost of these exemptions versus other areas of the tax code in order to know how this compares. For example, would repealing the mortgage interest deduction bring in more money? The study itself makes some of these comparisons:

To put this into perspective, the combined total of government subsidies to agriculture in the United States in 2009 was estimated to be $180.8 billion.38 Religions receive at least 40 percent of the subsidy that agriculture does in the United States. Another way to illustrate the size of the subsidy may be to illustrate how much tax revenue would increase at the state level if religious institutions had to pay property taxes. In Florida, where the state government’s budget was $69.1 billion in 2011, the amount of tax revenue lost from subsidizing religious property was $2.2 billion or 3 percent of the state budget. The additional revenue would have mostly prevented the $1.1 billion cut to firefighter and police retirement plans and the $1.3 billion cut to public schools.39

So is this a battle worth fighting instead of fighting agriculture subsidies?

2. I think we may see more calls for things like this during this period of economic troubles. The federal government as well as state and local governments need money so they are looking for ways to find “easy” money.

3. It could be interesting to look at how this affects local municipalities, particularly ones with more religious congregations that consequently don’t get the tax dollars they might if that land was occupied by homeowners or businesses. For example, a community like Wheaton, Illinois has a large number of churches (including a claim that the suburb has “more churches per capita than any other town in America”) and could have more tax revenue if that land was put to other uses.

Vehicles miles-traveled tax in “five to ten years” as states run pilot studies

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With more fuel efficient vehicles and higher federal government standards, several states are starting pilot programs to test a vehicles miles-traveled tax:

Minnesota and Oregon already are testing technology to keep track of mileage. Other states, including Washington and Nevada, are preparing similar projects.

The efforts are being prompted by the fact that gasoline taxes no longer provide enough money to pay for roads and bridges — especially when Congress and many state legislatures are reluctant to increase taxes imposed on each gallon. The federal tax of 18.4 cents a gallon hasn’t been raised in nearly two decades. More than half the states have not raised their gas tax this millennium. Fuel-efficiency also is behind the efforts. Electric-powered vehicles are growing in numbers. In 2009, President Obama set the nation’s most aggressive fuel-efficiency standards for new vehicles, ordering a 40% increase by 2016.

“As the (national vehicle) fleet becomes more fuel efficient … we’re going to lose a lot of revenue from the gas tax. If it’s not replaced, we’re going to see our transportation infrastructure deteriorate,” says Joshua Schank, president of the non-partisan Eno Center for Transportation in Washington, D.C. He expects to see a state vehicle miles-traveled (VMT) tax within the next five to 10 years…

The greatest obstacle to a miles-traveled tax has been privacy concerns. When Oregon ran a pilot program six years ago, motorists’ major objection was to in-vehicle boxes used to track miles driven, says James Whitty of the Oregon Department of Transportation. “They didn’t like the government boxes. They didn’t like the GPS mandate,” he says…

In Minnesota, 500 volunteers in largely urban Hennepin and mostly rural Wright counties have been testing a system using software installed on smartphones, says Chris Krueger, spokeswoman for the Minnesota Department of Transportation. “We can collect trip info and be able to simulate what it would be like to have a mileage-based user fee,” she says.

This blog has covered this issue before here, here, and here. This is a classic case of unintended consequences: trying to improve fuel efficiency may be a good goal but it has revenue ramifications.

Several thoughts about these pilot studies:

1. If citizens say they don’t like the programs, will that matter in the long run? States still need revenue whether drivers like the method of getting that revenue or not.

2. I haven’t seen this addressed: would drivers continue to pay a gasoline tax as well as a miles-driven tax? We are a long way from even a sizeable majority of people owning electric cars. How would you balance the two taxes to insure certain levels of revenue?

3. This is somewhat tongue in cheek but would you prefer to have the government tracking you by in-vehicle GPS or your smartphone? Or in Illinois and other similar states, by your toll transponder? Remember, you may not be able to answer “none of the above.”

4. Is a vehicles miles-traveled tax something that could get a politician voted out of office? Americans do like their freedom to drive…without considering how much it costs all-around.

h/t Instapundit

CA town: the public will help determine how a one penny sales tax increase is spent

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Amidst other changes in Vallejo, California, the community is trying something innovative involving a recent one cent sales tax increase:

And the city council struck an unusual deal with residents — if they agreed to a one-penny sales tax increase, projected to generate an additional $9.5 million in revenue, they could vote on how the money would be used. The experiment in participatory budgeting, which began in April, is the first in a North American city.

The approach was pioneered in Port Alegre, Brazil, as a way to get citizens involved in bridging the large gap between the city’s middle-class residents and those living in slums on the outskirts. Individual districts in New York and Chicago are also experimenting with the process, and residents there have expressed interest in spending money on things such as more security cameras and lighting, public murals, and Meals on Wheels for seniors.

Here is more information on Measure B the city provided before the vote over the tax. Measure B itself passed in a very close vote and it looks like the city opened up the approved sales tax to the process of “participatory budgeting” (with some disagreement) in April 2012:

A bid to draw significant public participation in the city’s budget planning was approved Tuesday night by the Vallejo City Council.

The council voted 4-3 to launch a process known as “participatory budgeting,” setting aside 30 percent of revenue collected from a sales tax hike initiative voters passed in November.

Under City Charter provisions, public-proposed uses for the estimated $9.5 million a year ultimately will require council approval.

Duly noted: this is a measure with some controversy. It will be interesting to see how this works out: how much input will the public get? Will a good number of people in the city participate in the process? How much money will the public be able to control? What happens if the public wants to use the money for other purposes than the city council?

Could this work beyond the local level?

h/t Instapundit, Via Meadia

Fuel efficiency goes up, gas tax revenues go down $50 billion (or so)

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A new report from the Congressional Budget Office suggests that increasing standards for fuel efficiency will leave a large deficit in highway funding:

This week, the CBO issued a new report that looked at how the upcoming, higher CAFE fuel economy rules will affect the Highway Trust Fund. The short answer? Between 2012 and 2022, the Fund will see revenues that are $57 billion lower than they would be without the new CAFE rules. The slightly longer answer:

The proposed CAFE standards eventually would cause a significant reduction in in fuel consumption by light-duty vehicles. That decrease in fuel consumption would result in a proportionate drop in gasoline tax receipts: CBO estimates that the proposed CAFE standards would gradually lower gasoline tax revenues, eventually causing them to fall by 21 percent. That full effect would not be realized until 2040 because the standards would gradually increase in stringency (only reaching their maximum level in 2025) and because the vehicle fleet changes slowly as older vehicles are replaced with new ones.

To illustrate the effect that the standards would eventually have on the trust fund’s cash flows (in 2040 and beyond), CBO examined how a 21 percent reduction in gasoline tax collections would alter the agency’s current budget projections for the trust fund, which span the period from 2012 through 2022. CBO estimates that such a decrease would result in a $57 billion drop in revenues credited to the fund over those 11 years, a 13 percent reduction in the total receipts credited to the fund.

The CBO suggests three ways to deal with the shortfalls: do nothing (i.e., keep on transferring money from the general fund), spend less on highways and mass transit or raise the gas tax (or other taxes and direct them to the Fund). An increase to the gas tax wouldn’t have to be huge. Just five cents a gallon would be enough to offset the $57 billion, the CBO says. But until Congress can agree on this simple change, there’s always the voluntary gas tax.

This isn’t idle speculation. Joel noted some commentary about this in early February 2012.

This reminds me of a recent post about the possible unsustainability of suburbia. Under the current system, we either need more drivers overall (which could then be based on population growth plus more car ownership) or people to use more gasoline (which goes against a push to be more green). Are either of these options really optimal or even desirable? Of course, the gas tax could be increased by a small amount (perhaps just a few pennies?) and the deficit would disappear. However, would this simply lead to more gas tax hikes down the road compared to the option of resetting the system so that highways are funded through a more consistent mechanism? Which politicians want to tackle this? Perhaps we are closer to a tax per mile driven than we might know?

h/t Instapundit

Modern-day boom towns in the American West

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While we might consider boom towns to be part of American history, the discovery of oil and gas in the American West is leading to rapid population increases with some negative effects:

Stepped-up oil and gas development in northwestern North Dakota and northeastern Montana is punctuating the landscape with drilling rigs, trucks and hastily erected barracks, known as “man camps,” to house thousands of mostly male workers crowding into small communities where residents once greeted each other by name and left their homes and cars unlocked…

In Sidney, Montana, about 45 miles (72 km) southwest of Williston, officials have been scrambling to keep pace with oil and gas activity that is expected to double the population – from 5,000 to 10,000 – in five years and add an estimated 774 new students to the public school system…

Utah State University sociologist Richard Krannich said years-long studies of boomtowns in the West show a sharp rise in negative consequences such as crime and the fear of crime in the earliest phases of a boom.

“But we also saw the recovery once the initial phase ended and the workforce stabilized, the pressure on local services eased and infrastructure caught up with demand,” he said.

I’m not sure how you prepare for this. I can’t imagine local politicians could say no to needed jobs and future revenues and yet the quick changes in a community are difficult to handle until revenue streams are established.

What I think is particularly interesting here is that communities across the country are subject to outside social forces that can quickly change their trajectories. I assume most of these Western towns were small and hadn’t changed much in recent years but as soon as valuable resources are discovered, things can change very rapidly. Each community can make different choices about how to respond. Of course, these rapid changes can’t or won’t last forever and the town will return to some equilibrium and once the resources wind down or are depleted, a downward cycle can begin again. Boom towns and ghost towns are notable because most communities don’t experience this kind of rapid change – we expect some kind of gentle growth or at least a stable plateau. Just the idea of population loss can be troublesome because it suggests a community is on the road to dying or it is going to lose funding for services and tough cuts will have to be made to budgets.

I wonder if there are any consultants or academics to help communities adjust to these boom periods in order to take advantage of them (mainly, find tax dollars) as soon as possible. Additionally, I imagine there are some interesting interactions between long-time residents and newcomers and both sides try to adjust.

Considering the effects of a “flush tax” in Maryland

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Officials in Maryland are discussing a different way of finding revenue: raising the “flush tax.”

Maryland’s already got a flush tax, it runs about $2.50 a month for sewer customers, and $30 a year for homes on septic systems. The money raised goes to help clean up the Chesapeake Bay.

Citing the continued damage to the watershed, Md. Governor Martin O’Malley told reporters he’d consider doubling or tripling the tax…

“Right now, there’s a flat flush tax, such that a senior citizen living in the 1600 block of North Avenue pays the same flush fee as a single person living in a giant McMansion.”…

“The Governor dropped a bomb last year in his State of the State address where he proposed banning developments of five or more homes on septic systems,” says Michael Harrison, Director of Government Affairs for the Homebuilder’s Association of Maryland. Harrison says such a ban wouldn’t hurt the big national builders, but local, small scale developers who work in rural areas.

This is not an uncommon situation: a government official suggests raising or enacting a new fee tied to growth and builders respond negatively. While I can understand how raising the fee might impact future building, it seems like it would be difficult to argue that bigger houses shouldn’t have to pay a higher “flush tax.” As the tax currently stands, it is more about paying a fee per lot of development rather than for the usage of the sewers.

The talk of septic systems in suburbia reminds me of the possible problems as laid out in Adam Rome’s book The Bulldozer in the Countryside. Despite the issues with septic systems, building sewers out to more rural areas can be quite expensive for smaller communities so septic systems can seem cheaper in the short-term.