Monday, February 11, 2013

The Next Move

My wife and I are trying to figure out our next move. We moved to Minneapolis so that I could attend the Humphrey School, but I will earn my degree this spring and then we will likely move. A lot of cities are on the table, including our last home of Colorado Springs: a city with dry air, sunshine, mountains, and complicated political problems. Those problems, in many ways, find their roots in Colorado's state and local government finance laws. 

The Laws

In 1982 the Gallagher Amendment was passed which limited residential property tax contributions to a maximum of 45% of total property tax revenue. While non-residential rates remained relatively stable, the residential tax rate is adjusted every two years to maintain this balance. One overall effect is that residential properties have been paying progressively lower rates (Overview of Gallagher and TABOR).   

This was followed in 1992 by the Tax Payer's Bill of Rights, or TABOR, which has severely restricted the state's ability to be responsive to fiscal crises (Bell Policy Center Overview). TABOR is extremely controversial in Colorado and was originally created to limit the growth of government. Popular provisions of TABOR include the mandate that taxes cannot be raised without a popular vote, while less-loved provisions include the "ratchet-down" effect that limites government spending to last year's total, adjusted for inflation and population growth (The Independent's Opinion). This functionally means that in a recession public spending decreases, forming a new cap for government spending. Once the economy recovers, unless the tax payers approve of the government keeping and using revenue above this cap, all excess funds must be refunded to the tax payers.

Concerned about declining educational quality, in 2000 Colorado voters approved Amendment 23 that increased per-pupal spending to at least 1% over inflation for ten years and then at inflation, at a minimum, after that (Center for Budget and Policy Priorities' [CBPP] Overview of Colorado Laws). The problem, according to CBPP, is that revenue for education doesn't necessarily increase.

Amendment C was passed in 2005 giving the state a five year reprieve from some of the demands of TABOR and ultimately removing the ratchet-down effect for the state (Bell Policy Center on Amendment C). Cities do not necessarily have the same freedom. 

The Effects

One side effect of this body of laws is that local governments have become much more dependent on sales tax to finance government operations. In 2009, sales and use taxes accounted for 49.89% of the city's total budget. Property tax accounted for 9.74% of the total budget (Colorado Springs' 2009 Revenue Summary). While this is consistant with the general trend of cities relying more heavily on sales tax, tying the city's revenue to sales is especially dangerous in a recession.

I wonder if the dependence on sales tax distorts land use decisions in favor of development that will produce the most sales tax for this government. This could lead to inflated inter- and intra-city competition for retail properties, and a situation where retail doesn't just follow roof tops but instead subsidizes them. The need for sales tax begins to direct land use decisions, not out of a vision for a community, but rather out of an acute need for revenue. In my opinion, this also distracts attention from other pressing issues like the quality and sustainability of the built environment.

Many have also written about the effects of TABOR on education, including the Colorado Springs Gazette, quoting Colorado Springs School District 11's CFO as stating that the district has lost $35 million in the last six years as a result of TABOR (Recent Colorado Springs Gazette Article). Other more visible concerns were broadcast nationally by This American Life in March 2012 when it did a story on shrinking government and the privatization of city services (This American Life). That story addressed issues that I saw when I lived in Colorado Springs, including turning off and partially privatizing street lights. 

A Counter Example

In contrast to the approach of Colorado Springs, the St Paul Port Authority (SPPA) is aware of many of these issues and is arguing for a balanced tax base for the city. Their strategy relies on promoting and preserving industrial development for a number of reasons, including the fact that for every dollar of tax paid by industrial properties, those same properties consume only about 60 to 70 cents in city expenditures. Conversely, residential properties require $1.06 to $1.15 of expendatures for every dollar paid in tax (SPPA Report).  Since a large percentage of the city is industrial properties, this approach seems to abide by the Benefit Principle, which states that fiscal responsibilities should be carried on the same level that their benefits accrue. 

Back to the Move

These issues are relevant because they help to establish the political climate of a community and they focus major political battles on a single issue. But my deeper fear is that they also distract from Colorado Springs having a vision for its future when most of its political capital is spent on survival. 

My wife and I loved the climate, mountains, and people in Colorado. But I'm not always optimistic about the state of local government finance and we're not sure that's where we want to call our next home. Then again, it might be.