PIECE OF MIND Hidden Treasure: Solving the Revenue Puzzle For
Local Government CPBB Conference Denver 2014
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Agenda Just the Facts Please National Survey Data Stats and
Findings Why Revenue Enhancement ? Because its there and its needed
Equity among taxpayers Changing landscape challenges How? Sources
and Methods More local control of revenues Training, attention,
focus the Hunt
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Just the Facts Survey Of 1,140 City Finance Officers 31 %
Response 17.2% over 300K pop 39.7% 100K-299K pop 24.0% 50K-99K pop
19.1% 10K-49K pop Variety of Scope and Function of Governments
Revenue Generating Authority Varies State to State 3 Primary
Sources of Local Government Revenue: Property Tax (nearly all)
Sales Tax (50%) Income Tax (10%) Source: NLC 2013 Survey of
Cities
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Revenue Actions 2 in 5 (39%) of city finance officers report
raised fee levels Approximately 1 in 4 cities increased the number
of fees that are applied to city services (22%), and 1 in 5 (19%)
cities increased the local property tax in 2013
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Proportion of Total State and Local Tax Revenues by Tax Type
and State Fiscal Year 2010 State Property Taxes Sales & Gross
Receipts Personal Income Corporate Income Motor Vehicle Licenses
and Other Taxes Alabama 19.40%47.50%20.30%3.20% 9.60% Alaska
21.40%10.90%--10.40% 57.30% Arizona 37.30%44.40%12.30%2.10% 4.00%
Arkansas 18.30%50.50%22.00%4.10% 5.10% California
31.20%30.10%26.40%5.30% 7.00% Colorado 39.10%32.90%20.00%1.80%
6.20% Connecticut 42.00%25.10%26.90%2.40% 3.60% Delaware
18.60%13.20%25.30%4.10% 38.80% Florida 42.90%46.90%--2.70% 7.40%
Georgia 35.20%36.50%23.30%2.30% 2.80% Hawaii
21.10%49.20%23.20%1.20% 5.40% Idaho 30.20%35.30%24.60%2.30% 7.70%
Illinois 43.60%31.70%15.90%2.50% 6.30% Indiana
32.80%37.00%23.30%2.60% 4.30% Iowa 34.80%33.50%23.00%1.60% 7.10%
Kansas 34.40% 23.60%3.10% 4.50%
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State Property Taxes Sales & Gross Receipts Personal Income
Corporate Income Motor Vehicle Licenses and Other Taxes Kentucky
21.50%38.00%30.40%3.50% 6.50% Louisiana 20.90%54.00%14.20%2.40%
8.50% Maine 40.70%28.70%22.30%3.00% 5.40% Maryland
30.10%24.40%35.60%3.20% 6.70% Massachusetts 38.80%20.90%30.30%5.50%
4.60% Michigan 40.30%36.50%16.40%1.90% 4.80% Minnesota
30.70%33.50%26.50%3.00% 6.40% Mississippi 28.20%46.70%15.10%3.50%
6.50% Missouri 30.20%37.70%24.30%1.40% 6.30% Montana
39.80%16.80%22.20%2.90% 18.40% Nebraska 36.80%31.90%20.60%2.10%
8.60% Nevada 34.50%50.50%-- 15.00% New Hampshire
64.60%16.00%1.60%10.00% 7.80% New Jersey 48.40%22.40%20.20%4.00%
5.00% New Mexico 19.80%49.80%14.60%1.90% 13.80% New York
32.40%25.30%31.20%6.70% 4.40% North Carolina
26.20%36.00%27.90%4.00% 5.90%
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State Property Taxes Sales & Gross Receipts Personal Income
Corporate Income Motor Vehicle Licenses and Other Taxes North
Dakota 19.80%31.00%8.70%2.50% 38% - Severance Taxes Ohio
30.00%32.50%27.70%0.60% 9.10% Oklahoma 21.10%41.90%19.50%1.90%
15.60% Oregon 37.60%10.00%37.70%3.00% 11.60% Pennsylvania
30.40%31.20%25.40%3.70% 9.40% Rhode Island 45.60%29.50%18.90%2.50%
3.50% South Carolina 35.80%34.50%20.30%1.10% 8.20% South Dakota
35.90%53.60%--1.20% 9.30% Tennessee 27.60%56.80%1.00%4.90% 9.80%
Texas 45.20%44.30%-- 10.50% Utah 27.60%37.50%25.30%3.00% 6.60%
Vermont 45.90%29.20%16.60%2.90% 5.50% Virginia
36.10%26.50%27.80%2.50% 7.10% Washington 31.50%60.50%--0.00% 8.00%
West Virginia 21.30%37.50%23.50%3.70% 14.00% Wisconsin
39.50%28.90%23.80%3.50% 4.30% Wyoming 42.50%31.20%-- 26.20% DC
37.00%27.00%22.00%6.50% 7.50% Source: Census Bureau, Tax Foundation
calculations.
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Shrinking Staff Levels Government job cuts not falling evenly
Number of employees at each level April 2009April 2013 Absolute
Change Percent Change Federal (Postal
Service)721,800589,500-132,300-18.3% Federal
(Other)2,199,2002,179,200-20,000-0.9% State
(Education)2,366,6002,397,80031,2001.3% State
(Other)2,815,5002,655,200-160,300-5.7% Local
(Education)8,094,3007,758,000-336,300-4.2% Local
(Other)6,482,0006,264,400-217,600-3.4%
Total22,679,40021,844,100835,300-3.7% Source: Pew Research analysis
of Bureau of Labor Statistics data PEW RESEARCH CENTER
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Pressure Factors (As Noted by City Finance Officers) City
Budget Infrastructure Costs Public Safety Costs Employee Costs:
Health Care, Pensions, Wages Cuts in State & Federal Aid
Leading the List Health Benefit Costs (84%) Pension Costs (80%)
Most Often Noted Increase in Service Demands Infrastructure (79%)
Public Safety (69%) Other Notable Increase Costs of Services
(81%).
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Pressure Factors (continued) Confronted with these pressures,
cities are maintaining local services while continuing to reduce
personnel costs for pensions, health care benefits, and wages.
Levels of Federal Aid (49%) and State Aid (48%) 33 States have
Tax/Expenditure Limits (TELs) constraining their ability to raise
revenue locally About 50% are constitutionally imposed and 50% are
legislative 15 states require a supermajority of the legislature to
raise taxes (2/3 to 3/4 vote)
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REVENUE ENHANCEMENT? The Moneys Out There
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F.P.S.-Fiscal Policy Space (Pagano) City & County
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Revenue Enhancement Enhance to increase or improve (Webster)
The identification and collection of unpaid revenues from
non-compliant taxpayers subject to existing revenue laws Staff
training and education Over $24,500,000 discovered to date from
Business License and other Taxes from existing businesses A no risk
program based on a contingency of new revenue discovered and
collected
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Address the Issues Most State Governments Restrict Local
Government From Adding New Taxes, TELs Pent Up Infrastructure And
Maintenance Needs Increased Operational Costs Pensions, Health,
Public Safety, Bond Ratings, The Future, Tax & License
Databases Outdated, Inaccurate Revenue Departments Understaffed,
Lack of Training, Overworked, Complacent 22
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The Trend Gap The difference between governments long-term
ability to provide services the public demands, and the citizens
willingness to pay for them 2010: Gap exceeded $1,100 per capita,
i.e., the revenue raising capacity of governments fell short of the
amount needed by more than $1,000 per person Trend Gap varies
greatly by region: Pacific is highest at $1,600; New England at
$1,250; and East-South-Central states at $750 per capita Revenues
have increased since recession. Gap continues to rise due to
long-term obligations (Medicaid and Pensions) Source: US Census
Bureau, Pew Research Ctr
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Not Trending Close to Pre 2010 Levels Source: US Census Bureau,
and Janney FIS. Levels $300 $500 $700 200420072010201320162019
Actual U.S. Local Government Tax Revenues The yellow line shows how
revenues were trending before the Great Recession, when U.S. growth
was much higher The green line is a revenue trend based on local
govt revenues from just post 2010 results This difference is a
reason why some local govt. issuers are susceptible to rating
downgrades Notice the trend of local govt tax revenues since 2010
is barely higher, this is not a positive for local government
credit quality Local Tax Revenues
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Gap Consequences Shifts fiscal burden to future generations of
taxpayers Requires significant cut backs on public services harming
residents quality of life and local businesses Credit Ratings will
suffer increasing borrowing costs Los Angeles 2020 Commission A
Time for Truth Challenging Issues Widespread poverty, job
stagnation, pension obligations, and paralyzing traffic Barely
treading water and year by year our city is becoming less
livable
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Can Governments Give People What They Want? Current demand for
services outpaces ability of government to meet, even by raising
taxes Officials tend to focus on next budget or election Short-term
outlook fails to open discussion on what services have to cease as
we continue to consume more without developing new revenue
resources Somethings gotta give Believe the arithmetic Achieve
Service level solvency Source: Governing
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NLC Report 80% of Americans Live in Cities Cities Produce 75%
of Economic Output Need to Form Partnerships with Local
Governments, Citizens, Business, NPOs, Feds, State, County CITIES
ARE DETERMINED RENEWED OPTIMISM CREATIVE LEADERSHIP CITIZEN
ENGAGEMENT PARTNERSHIPS
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NLC Report (continued) 10 Critical Imperatives Face Cities in
2014 & Beyond 1.Fragile Fiscal Health 2.Deteriorating
Transportation Infrastructure 3.Shrinking Middle Class 4.Inadequate
Access to Higher Education 5.Need for Affordable Housing
6.Returning Veterans 7.Gang Violence 8.Broken Immigration System
9.Climate Change and Extreme Weather 10.Lack of Public Trust
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Why Revenue Enhancement? Achieves equity and compliance among
taxpayers through uniform application of the existing tax and
revenue laws Provides an opportunity to increase revenue and pay
for program with a % of new revenue collected Levels the playing
field Improves credibility with the stakeholders Provides current
year revenue boost and annually recurring revenues Records
businesses and improves databases
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The Changing Landscape Political: Continued reduction in State
and Federal Assistance Paralyzing Gridlock in DC Social: The
Perfect Storm: decline in personal income, retail sales, property
values, vacancies and unemployment Erosion of Public Trust and
Confidence Cultural: E-commerce Consumer to Business, Business to
Business Consumer Spending Trend Goods to Services
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Consumer Spending Trends Reaction has been to increase sales
tax rates and base Between 1970 & 2007 average state sales tax
rate increased from 3.5% to 5.4% in 60% of states (27) 19702009
Taxable Goods39%32% (excl. groceries) Non-Taxable
Services31%67%
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E-Commerce Impact on Sales Tax Revenue Tax losses from
e-commerce sales estimated $11.4B in 2012 among collections of
$34.5B (Fox/Bruce) E-Commerce sales: $2.385 Trillion in 2006 to
$4.0 Trillion in 2012 (U.S. Census Bureau) Shop on Main Street
Purchase on-line Remote Commerce not included above (mail
order,etc) Business to Business Sales account for 93% Fox/Bruce
study assumes 5% compliance with use tax by consumers Consumer use
tax near impossible to collect/enforce
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Tax on Services ? 2009 Estimate $1.621 Trillion in purchases of
feasibly taxable services $87B revenue to States based on sales tax
rates Yield ranges from $13B in CA to $137M in Wyoming Some
services currently taxed in some states
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HOW DO WE ENHANCE REVENUES The Moneys Out There
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Property, Sales, and IncomeWhat else is there? Financial
Institution Tax Utility, Cable and Telecommunication Franchise Fees
E-911 Fees Business Inventory General Sales and Use Alcohol
Beverage Excise Tax Personal Property Tax Motor Vehicle
Business/Occupation Tax Cell Tower Rental Income Aircraft, and
Boats Personal Property Tax Billboard Advertising Fees and Taxes
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State License Taxes 2009-2013 20092013 Total License Taxes$49.7
Billion$55.5 Billion Motor Vehicle License Tax$19.9 Billion$23.2
Billion Corporate License Tax*$10.0 Billion$11.4 Billion *2009 was
the first decrease in Corporate License Taxes in over 16
years.
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Training - Lessons Learned Technology: Review current software
capabilities to ensure local tax databases are current and contain
relevant taxpayer information Analysis: Analyze taxpayer data for
reporting and accuracy, trends, anomalies Training and Education:
Revenue staff should develop complete understanding of requirements
and importance of accuracy and detail Avoid: Practices that do not
follow local ordinances Focus: On compliance and revenue
opportunities Communication: Reinforce value of front counter and
celebrate successes Communicate with your taxpayers
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Due to limited personnel, the complexity of modern commerce,
and borderline questions relating to the taxing power, a
municipality is certain to lose some revenue through tax and
license escapes. Nevertheless, there are steps which a municipality
may take to enforce its taxes and licenses that will limit those
losses. Strict tax and license enforcement is the fairest license
enforcement because it closes the door on the competitive advantage
which escapees enjoy over others in the same license
classification. Source: ALM Selected Readings for the Municipal
Official Escapees Paid to Evade
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The Hunt Examine Local Revenue authorizing document(s) Business
License/Tax: If unable to adopt as tax, adopt as Fee for Revenue
and Regulation Review all existing revenue sources for com-
pliance, accuracy, reporting (including NPOs) Investigate business
operations and transactions not registered or reported Identify
properties with cell towers and equipment Develop list of
advertising billboards: locations and type of ad copy
Interdepartmental cooperation for finding/reporting unlicensed
businesses and enforcement
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The Hunt (continued) Work with Tax Assessor and Commissioner to
inspect personal property tax records Develop understanding with
DOR for liaison relationship for Sales and Use Tax, License, etc.
Diligently pursue total compliance and maximum revenue yield from
existing opportunities Cross check State, County, and City revenue
databases Develop cost of services model to monitor development
costs and associated fees and the desired level of recovery/subsidy
Boots on the Ground
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Seek Local Control of Revenues Push state governments to
authorize local revenue generation ability to match operational
expenses, mandates, and infrastructure costs Reform the fiscal
architecture eliminate TELs, diversify and broaden the sales tax
base, consider a sales tax on services Explore public-private and
public-public partnerships to jointly provide services and share
costs freeing up revenue for other uses Fiscal revenue reform focus
on long-term rehab of finances and restoration of financial health
Get serious about collection and enforcement
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Conclusion - The Perfect Storm Took years to gather strength
before hitting economies with unprecedented force in 2008 Recovery
will be slow No quick fix Solutions within reach Time for
collaboration and resilience like never before
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A New Day For A New Wave
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Sources National League of Cities National Conference of State
Legislatures ICMA The Tax Foundation Janney Montgomery Scott U.S.
Census Bureau Pew Center for Research The Economic Policy Institute
National Association of State Budget Officials Governing National
Association of Counties
