New Federalism

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• New Federalism
• Beginning in the 1980s, there was a dramatic
  reduction in federal assistance to states and
  local governments. In program after program,
  federal funding has either dropped sharply or, as
  with Urban Development Action Grants and general
  revenue sharing, has been eliminated altogether.
  The 1991 federal budget showed an overall decline
  of 68 percent in dollars targeted to urban
  programs over a ten-year period.

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Fiscal Effects of Devolution

• By 1980 three-quarters of the revenues in cities
  like Detroit and D.C. came from the Federal
  Government
• This has declined steadily over the last 20-30
  years.
• Weir (1996) States poach from local revenue
  sources
• Welfare reform will reduce incomes of urban poor

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Local Financing 101

• 1. Income sources are limited
• Not all cities have the power to use sales or
  income taxes.
• Intergovernmental revenue is diminishing
• Voter initiatives have lowered property taxes
• Voter initiatives requiring majorities or super
  majorities to pass any type of tax or fee hikes

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• 2. cities have gotten around these with creative
  borrowing techniques
• general bond obligations
• revenue bonds
• moral obligation bonds
• lease-purchasing agreements
• 3. other techniques
• privatization
• gambling

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• Municipal Finance and Taxes
• Four questions arise when considering municipal
  finance.
• 1 Why should the government provide goods and
  services?
• 2 Which goods and services are usually provided
  by governments?
• 3 How are they paid for? i.e. what is the source
  of revenues?
• 4 What are the planning implications of these
  provisions and methods of payment?

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• Question 1. Why should Government provide goods
  and services?
• a. Public or Collective goods
• b. Economy of scale- Water, sewer, electricity,
  postal service, telephones, etc.
• c. Merit Goods - Everyone benefits e.g. education
  and health.
• d. Externalities - e.g. water and air pollution.
• e. Social Preference -- Public Responsibility -
  libraries, jails, voting
• f. Government Responsibility for Income
  Redistribution. Examples public housing, school
  lunches, food stamps, welfare payments, public
  hospitals, Medicaid, free vaccinations etc.

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The Sexy Services

• Criminal Justice
• Police
• Courts
• Jails
• Education
• Health Welfare
• The poor
• Children services
• Mentally ill

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The Not So Sexy

• Solid Waste Disposal
• Parks
• Libraries
• Water Services
• Fire protection
• Transportation
• http//phoenix.gov/CITYGOV/stats.html

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These services seem trivial when adequately
provided but they are vitally important to the
well being of individuals and cities.
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How to save money on services?

• Cut services
• Which ones?
• Privatization
• What sectors?
• Education
• Fire
• Ambulance
• Jails
• Airport
• Rent government office space

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EDUCATION

• Las Vegas Schools
• Growing Pains 38 new schools in three years and
  1,000 new students a month.
• Nevadas budget allocation per student has
  historically been about 1,000 less than the
  national average
• The school district is the sixth largest in the
  country and one of the fastest growing
• The district's budget is more than 1 billion.

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Argument for Privatization

• Competition
• Circumvent civil service system
• Less capital outlays for infrastructure
• Easier to add or cut services

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Argument Against Privatization

• Not always efficient (economy of scale)
• Initial bid is low but often cost increase
• Private company cut corners-deliver inferior
  services
• Private sector less responsive to citizens
• Contracting reduces the expertise of government
  employees
• Affirmative Action issues/Union issues

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Privatization and Education

• Milwaukee
• Not difference in test results
• Little oversight of voucher schools
• East Harlem
• Gave parents a choice
• Gave teachers great autonomy
• Selection bias (outside students)/more money?
• Charter Schools
• Test results showed charter students lagged
  behind traditional public schools

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• 3. How are the Services Financed?
• There are four principle sources of government
  revenue
• Taxes
• User Charges
• Inter government transfers
• Debt Financing.

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• Taxes
• Primarily property tax - Such taxes are dependent
  upon the expertise and/or honesty of the property
  assessor
• Inventory tax, personal property tax (car
  registration), hotel tax
• Excise taxes e.g., cigarettes, liquor, jewelry,
  etc.
• Income taxes - Generally reserved for states and
  nations
• In Ohio - 60,000 annual income
• Federal (28) State (5.7) Municipal (2)
• Sales taxes - tend to be regressive

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Income Tax
Nevada's Individual and Corporate Income Tax
System Nevada assesses no corporate or
individual income tax, joining Texas, Washington,
South Dakota and Wyoming as the only states to
levy neither type of income tax.
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Property Taxes

• Oldest and most common local funding source
• Characteristics
• Easy to design taxing area to fit any purpose
• Highly unpopular
• Seen as inequitable, arbitrary
• Rates now capped due to tax revolts
• Nevadas ranking 30th highest nationally

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How much property taxes do we pay and where does
it go?
http//accessclarkcounty.com/finance/TaxBreakdown.
htm
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Las Vegas and Clark County, NV
Vehicle privilege taxes Las Vegas
Beltway Gasoline taxes Streets and roads Sales
taxes Transit Aviation fuel taxes Airport access
projects Lodging taxes Las Vegas Blvd, other
tourism-related roads
Las Vegas Beltway under construction
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Motor Fuel Taxes

• Not widely used as a local tax
• Narrow base ? high marginal tax rates
• Regressive
• In most of the 15 states that allow local fuel
  taxes
• Expenditures restricted to roads or
  transportation
• Voter approval required about half the time
• Revenues put in county road/bridge funds

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Motor Fuel Taxes
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Sales Taxes

• Characteristics
• Regressive but perceived to be fair
• High revenues for low pain
• Outsiders contribute large share of revenue

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Sales Taxes
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Overall Trends

• Expanding use
• Sales taxes
• Development taxes
• Tourism taxes (hotels, restaurants, rental cars,
  etc.)
• No clear trend
• Fuel taxes
• Vehicle taxes
• Income taxes
• Property taxes

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Vehicle Taxes

• Two primary taxing traditions.
• Registration Tax a.k.a. Wheel Tax
• Usually flat fee, based on vehicle weight or
  class
• Transportation user fee
• License Tax a.k.a. Ad Valorem Tax
• Usually based on vehicle value or age
• Originated as a personal property tax
• General revenue source
• In practice, distinctions not so clear

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Vehicle Taxes
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• B. User Charges
• Direct charge to consumers for things used , e.g.
  toll bridges, water, sewers, parking, licenses,
  tuition, rents, fees, fines, trash collection
  etc.
• Works well and fits the free market ideals of
  western society
• Somewhat regressive in that the poor use a larger
  part of their income for consumption than to the
  wealthy

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C. Inter governmental transfers May aid in
redistributing wealth geographically They also
allow state and federal governments to encourage
certain goods, services and behaviors by local
governments. Some transfers are restricted for
certain purposes (categorical grants) Some are
for purposes to be chosen by local governments or
states (block grants)
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• D. Debt Financing
• Many expenses are covered at about the same time
  they are incurred
• Some costs such as bridges, dams, reservoirs,
  schools, buildings, subways, etc. create benefits
  which will accrue to future generations.
• These benefits may carry on for 10-100 years or
  more.
• Appropriate to charge future generations for them
  as well as the current population by borrowing
  money to pay for them now and repaying that money
  over the next 10-30 years.
• One way is to issue municipal bonds