Posted on Fri, Jan. 02, 2004


Local government needs flexibility for funding



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.





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