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Local Governments Facing Fiscal "Timebomb," So Watch Your Wallet

Leonard Gilroy
June 11, 2009, 12:18pm

Given the size and expected duration of their budget deficits and fiscal woes, states are getting a lot of attention these days. Less recognized is that many local governments across the country are in the same fiscal boat. As National Public Radio's Morning Edition reports today, the hull has been breached and the ship is sinking:

After facing tight budgets in recent years, many city and county governments now see a new financial time bomb in their future. In states like Florida, California and Nevada, the collapse of the housing market has driven down home values dramatically. That means lower property tax revenue. Counties across the country say property tax collections may decline by 10 percent or more over the next few years.

In Miami-Dade County in Florida, officials have determined that the property tax rolls have already declined nearly 10 percent from last year. County Mayor Carlos Alvarez says that comes after two tough years when officials wrestled with budget deficits and spending cuts.

"What we're talking about is trying to fill a gap — a revenue shortfall — of anywhere from $350 [million] to $400 million," he says. "That's on top of the $440 million shortfall that we have faced the last two years. So, compounded, you have some very, very serious challenges." [...]

In South Florida and around the country, there are few signs that the housing market has hit bottom yet. Foreclosures continue to rise in many areas. In overbuilt communities like Homestead, lower home values — and lower property tax revenue — are likely to be a fact of life for the foreseeable future.

It's a similar picture in other parts of the country where the housing boom has gone bust. One thing that differs, though, is the timing. Home values dropped 23 percent over the past year in the Phoenix area. But county officials say the bills going out to homeowners this summer are based on last year's property tax assessments — giving them another year to prepare for the worst.

In California's Riverside County, budget officials are staring at an 11 percent drop in property tax receipts. In the Las Vegas area, "we're going to see the first property tax decrease that we've ever seen in I don't know how many years — probably at least 30," says Michele Shafe, the assistant director of the Clark County assessor's office. "We're looking at about a 5 percent property tax decrease."

Also, check out Monday's edition of NPR's Talk of the Nation, which focused on the state fiscal crunch.

Both stories raise the specter of the dreaded "T" word—higher taxes to close the growing budget gaps. But before taxpayers buy into the party line that governments have "cut to the bone" (if so, then why do they still own and operate money-losing golf courses, for example?) and that "everyone is going to have to 'sacrifice' through higher taxes," they need to put the situation into perspective.

Government budget processes suffer from some major deficiencies, and signing off on tax hikes is essentially an abdication of responsibility on the part of policymakers to revamp and restructure their systems to accommodate the real world of revenue ebbs and flows. Why would any sane person give policymakers carte blanche on higher taxes before demanding evidence of competence and accountability in budgeting that has been woefully lacking to date?

This isn't exactly rocket science: more money down the same black holes + the same people/policymakers/politics running the system tomorrow as yesterday = the same problems tomorrow. So why are we talking about pouring money into the same inept system that led us to this point, instead of just tearing apart the current system and putting a better one in place?

For example, taxpayers should be demanding a shift to performance-based budgeting, in which policymakers and the public collaboratively decide budget priorities—effectively ranking programs and functions relative to each other with regard to what gets funded first, etc.— and then "buy down" that list until you run out of money. Then you can't complain about critical services being cut to the bone because you've already decided in the political process that those critical services get funded first before less-critical services. This is what we all do around the kitchen table, right? Government should operate no differently.

Instead, we get the chronic problem of auto-pilot budgeting, the default assumption that last year's budget dollar was a good dollar spent and thus, that next year it should rise to $1.03 spent. There's usually no assessment of if the spending worked, if the program achieved its goals, if the program delivered on efficiency (i.e. bang for the buck), etc. It's the "trust us, we know what's good for you" approach to budgeting, and it serves taxpayers poorly.

Why people would allow themselves to get suckered yet again to buy into the "we're-really-hurting-and-the-sky-will-fall-if-you-don't-open-up-your-wallet-a-little-wider" line is beyond me. Hopefully, voters will look to these proposals and the policymakers that promote them and reject them outright, as California voters did a few weeks ago.


Leonard Gilroy is Director of Government Reform


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