OUR TAX SYSTEM LEAVES cities and counties with little choice but
to rely heavily on property taxes to pay for fire and police
service, to run the jail and the courts and to provide all the other
services that residents expect and demand.
This causes several problems. Since property taxes are among the
most disliked taxes, raising them (or, often, simply keeping them
where they are) results in public anger. And since industry must pay
at an extremely high rate, property taxes can have a chilling effect
on job growth. That risk, combined with public sentiment, can tempt
council members to scrimp on essential services to keep the taxes
artificially low.
This is one reason we have long advocated giving cities and
counties a wider range of options for raising money, much as the
General Assembly has a full range of options for raising money to
operate state government. After all, city and county council members
are no less answerable to the public than legislators; in fact, the
councils as a whole may be more accountable, since any one voter has
more proportional sway over the actions of a local council than over
the Legislature.
But legislators have largely opposed such options, and attached
heavy strings to the few they provide.
The local option sales tax allows counties to collect a 1 percent
sales tax in order to lower property taxes. But lawmakers require a
public referendum, which subverts the idea of representative
democracy: that we should elect representatives to make such routine
decisions as levying taxes. The local sales tax that cities and
counties can levy on restaurant meals has a more practical problem:
Legislators insisted that money from this tax only be used to pay
for nonessential items.
This legislative resistance to full local government autonomy is
one reason we are intrigued by a proposal by Reps. Rick Quinn and
Vincent Sheheen to eliminate the property taxes that pay for
schools, and a proposal by a group of school finance officers to
lower those property taxes. On the surface, these proposals seem to
have nothing to do with the problems faced by local governments.
However, lowering or eliminating school property taxes — which
constitute the bulk of the property tax bill — would take a great
deal of pressure off of local governments to keep a lid on city and
county property taxes. This wouldn’t help the local governments
diversify their tax base, but it could give them more leeway to make
decisions about the appropriate level of funding, without having to
worry about their actions having such a huge impact on economic, and
even political, decisions. And that could result in many local
governments doing away with their local sales taxes, which are
regressive — thus creating a better-balanced system of state and
local government taxation.
This certainly isn’t a perfect way to empower local governments.
It would be better to simply offer them a full menu of tax options
(although that can create its own problems with the overall
state/local tax system). But it does offer one way through a problem
that legislators have been unwilling to address directly. And that
can’t be
dismissed.