Are Ci­ties In a Fis­cal Slow­down?

The Bond Buyer - - Front Page - BY BRIAN TUMULTY

WASHINGTON – City fi­nance of­fi­cers are tak­ing an overly cau­tious ap­proach in their 2017 rev­enue pro­jec­tions, a Fed­eral Re­serve Board an­a­lyst said Tues­day.

“There should be a solid in­crease in prop­erty tax growth,’’ By­ron Lutz, chief of the Fed’s fis­cal anal­y­sis sec­tion, said dur­ing a round­table dis­cus­sion of a Na­tional League of Ci­ties sur­vey re­leased Mon­day that found mu­nic­i­pal­i­ties are at the start of a fis­cal slow­down.

Early cen­sus data finds lo­cal prop­erty tax val­ues grow­ing at 6% to 7% this year, Lutz said.

That’s much higher than the 1.6% in­crease in prop­erty tax rev­enue growth that fi­nance of­fi­cials who par­tic­i­pated in the sur­vey es­ti­mated for 2017, fol­low­ing a 4.3% in­crease last year.

But the in­crease cited by Lutz may not re­sult in the same ac­tual amount of in­creased prop­erty tax rev­enue be­cause some com­mu­ni­ties im­pose lo­cal caps on that

rev­enue, said par­tic­i­pants at the round­table, which in­cluded lo­cal of­fi­cials and their rep­re­sen­ta­tives.

Prop­erty taxes are the main source of rev­enue for most ci­ties, al­though some rely heav­ily on lo­cal sales taxes and in­come taxes for fund­ing. While nearly all ci­ties have ac­cess to a lo­cal prop­erty tax, more than half are also au­tho­rized to col­lect lo­cal sales taxes, the NLC re­port said.

Only about 10% of mu­nic­i­pal­i­ties have ac­cess to in­come tax rev­enue, Michael Pagano, dean of the Col­lege of Ur­ban Plan­ning and Pub­lic Af­fairs at the Univer­sity of Illi­nois-Chicago and co-au­thor of the NLC re­port, said dur­ing the round­table.

Ci­ties have bud­geted for only a 0.9% in­crease in gen­eral fund rev­enue this year fol­low­ing in­creases of 2.61% in 2016 and a post-re­ces­sion peak of 3.26% in 2015.

The cau­tious rev­enue pro­jec­tions in the sur­vey can be traced in part to con­cerns about re­duced rev­enue shar­ing with ci­ties by fed­eral and state gov­ern­ments, par­tic­i­pants at the round­table said.

U.S. Rep. Dan Kildee, D-Mich., said Flint’s fis­cal trou­bles can be linked to a long-term drop in state rev­enue shar­ing.

“Many ci­ties are one mis­take away from fall­ing down that same well,’’ he said.

Kildee said his fo­cus in Congress is on “keep­ing in­tact the few in­vest­ments” the fed­eral gov­ern­ment makes in Amer­i­can ci­ties, such as fund­ing for Com­mu­nity De­vel­op­ment Block Grants.

Chris Mor­rill, ex­ec­u­tive di­rec­tor and CEO of the Gov­ern­ment Fi­nance Of­fi­cers As­so­ci­a­tion, said rev­enue growth is the ma­jor is­sue for his or­ga­ni­za­tion’s mem­bers. On the fed­eral level, that means keep­ing the fed­eral de­duc­tion for state and lo­cal taxes and the tax ex­emp­tion for mu­nic­i­pal se­cu­ri­ties as well as get­ting Congress to en­act leg­is­la­tion to en­able ci­ties to col­lect of sales taxes on in­ter­net trans­ac­tions, he said.

“In­fra­struc­ture is crit­i­cal and if there is a way the fed­eral gov­ern­ment can have an im­pact, it’s there,’’ said Ron Car­lee, an as­sis­tant pro­fes­sor of pub­lic ser­vice at Old Do­min­ion Univer­sity. He called on the fed­eral gov­ern­ment to ag­gres­sively in­vest in in­fra­struc­ture.

“We are all ar­gu­ing for big in­vest­ments in America’s in­fra­struc­ture,’’ Kildee said, ex­press­ing his hope that what­ever in­fra­struc­ture plan Congress de­vises will fo­cus on needs to in­vest in older in­dus­trial ci­ties in the North­east and Mid­west. ◽

U.S. Rep. Dan Kildee, D-Mich., said his fo­cus in Congress is on “keep­ing in­tact the few in­vest­ments” the fed­eral gov­ern­ment makes in Amer­i­can ci­ties.

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