Research Paper on "Local Agency Budget"

Research Paper 10 pages (3551 words) Sources: 8 Style: APA

[EXCERPT] . . . .

The problem with that is that the missed money was planned for and was likely already spent and planned for. As such, the aforementioned budget adjustment process will have to be put in force due to lower sales tax revenues, income taxes and so forth (Pacula, Kilmer, Wagenaar, Chaloupka & Caulkins, 2014).

There are some studies in the scholarly world that even correlate local taxing and spending with school achievement. Given that so much money for schools comes from local sources, this raises the stakes of municipality taxes and budgets even higher. Indeed, it was found that when a local tax jurisdiction raised local taxes and salary levels for school district administrators, there was a positively related reaction in terms of student test scores. In other words, if more money was collected (or at least allocated from the usual pot of money) to schools, the test scores went up. However, allocating these dollars when there other needs and requirements or when there are lower tax revenues can be a challenge (Menash, Schoderbek, Michael & Sahay, 2013).

Another consideration is that it is often not all that hard for people to "vote with their wallets" and shop elsewhere. Other times, people can even choose what city or municipality to live or not live in given the prevailing tax rates for that area. One example of this are sales tax "holidays" that some areas will engage in. These are often during the holiday season but can really be at any time. Indeed, there was a story that came out in 2014 that reflects that roughly a dozen states that had a sales tax holiday in one or more areas of the state. However, some question the efficacy and wisdom of such holidays given the lower tax revenues that are taken in and the long-term effects on tax revenues and local budgets in general. Indeed, a person quoted in the story said that this strategy is not "tax reform" but is rather a reflection of a "one weekend only" change. However, tax breaks for individuals or businesses are a way for many jurisdicitons to lure consumers and/or businesses to plant roots in their area. The idea is to get more revenue over the long haul rather than just in the short-term (Feran, 2014).

While businesses that are established are usually the beneficiary, Puerto Rico tax authorities took the step of suggesting that entrepreneurs could get a pass on taxes for the first half million they make. Sometimes, a controller or other personnel in a municipality have to grease the proverbial skids to get people and businesses to plant roots in an area and thus help generate revenue for the same. Areas like Puerto Rico are especially vulnerable and apt to resort to tricks like this as Puerto Rico has been in a recession lasting eight years. Puerto Rico recognizes that their chances of keeping positive cash flow at the municipality level is lesser if the younger and brightest leave the area for proverbial greener pastures. Much of the same thing could be said about other areas in the United States like Oakland, Detroit, Saint Louis and Chicago. It is not remotely as simple as looking at the overall tax base that can be taxed and assuming that the taxes will just come in without a problem. It has to be assumed that there will be people that leave, people go and that not everything will break even when that occurs. There could be a net loss or gain of both people and revenue or a combination of the two. Hurricane Katrina and its impact on the population and tax bases of New Orleans is a perfect example of this in motion (Associated Press, 2014).

There can also be an issue with laws being passed that are not enforceable in light of a legal appeal. New York City currently has a tax on its residents. This tax has been in place for quite a while. However, it only applies to people that live in the area rather than simply folks who live there. As an example, if a person lives in the Bronx and works in the Bronx, they pay the tax. If they live in the Bronx but work in Paterson, New Jersey, they still pay the tax because they live in the New York tax area. However, if they live in Paterson, New Jersey and work in the Bronx, they do NOT pay the tax. This has not always been the case, however. The tax used to apply to anyone who lives or worked in the area and this was indeed what was enacted into law. However, the non-resident tax was repealed in the 1990's and that surely was not expected or preferred by the local governments in that area s they were surely coveting and expecting that tax revenue to come through for them. The Affordable Care Act, although not a local piece of legislation or tax law, has experienced similar issues (Hayashi, 2014).

Another piece to the puzzle for controllers and the creation of local or municipal budgets would be the law of diminishing returns and taxpayers getting a little salty about their level of taxation. The diminishing return principle is that there comes a point where taxes get too high and it leads to consumers changing their behavior. It is much like what is seen when gas prices get too high. The latter of those events leads to people driving less and buying smaller cars so as to avoid spending so much on gas. Property taxes are not all that different and this is important for local budget creation and adjustment because property taxes are the largest source of revenue for most jurisdictions. One fatal flaw with many jurisdictions is that there is not a 1:1 value between fair market value of a property and the tax that is paid for that same property. In other words, just because two different homes are valued at $250,000 does not mean that they will pay the same amount of property tax. A lot of that stems from the market value being different from the tax base used by the local tax jurisdiction. Regardless, if a person is paying a tax amount that is clearly at odds with the fair market value of the property, that will lead to a glut of houses going unsold or even unoccupied due to people deciding that they should not have to pay property taxes of a certain level (Hayashi, 2014).

The intent of the local tax, of course, was to negate that and tax everyone that worked or live in the area. This feeds into the competition for tax dollars that some cities have to engage in at times. Some cities are lucky and there are not a lot of cities and counties that have to be competed with New York is in a pickle because some of the major parts of New Jersey, Connecticut and Philadelphia are close to fairly close to the greater New York area. On the other hand, Denver, Colorado really only has to worry about Colorado Springs. There is not much else close to them or even in the broader state and Denver is not close to the state line. Also, there is often a correlation between taxes going up and jobs going down. Indeed, Frontier Airlines has a hub in Denver but they recently had to lay people off. They directly cited the taxes levied by the city of Denver as being a reason for the drawdowns in headcount. They also cited higher landing fees, lesser local tax incentives and an airport operating cost that was higher than other airports. Of course, that is Frontier's take and that surely differs from Denver's and both could be different than the actual reality of things (Keeney, 2015).

There are a few things and factors that should be taken into account whilst summarizing this report. First, there needs to be an orderly process during which the total costs involved are looked, where the money is coming from is looked at, ways to increase revenue, ways to make adjustments, ways to not make adjustments and how not to alienate and enrage the local residents while doing all of the above. It is not hard to find examples of stories where local or city governments have made medium to massive adjustments to keep budgets afloat. Quite often, local governments raid pension funds and other saved money to deal with more pressing problems. However, all of that money comes due at some point and the eyes of the public are on the controller and other administrators that handle the local finances. Also in play much more as of late are union contracts and union-organizing efforts that are ostensibly meant to combat the perceived mismanagement of public employee pay structures and benefits. There are always different options that can be chosen. For example, pensions can be defined… READ MORE

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