New Taxes That Work: How Local Governments Can Raise New Revenues
Publication date: January 2019 | Author: Shayne Kavanagh
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The Government Finance Officers Association (GFOA) represents approximately 20,000 public finance officers throughout the United States and Canada. GFOA’s mission is to promote excellence in state and local government financial management. GFOA views its role as a resource, educator, facilitator, and advocate for both its members and the governments they serve and provides best practice guidance, leadership, professional development, resources and tools, networking opportunities, award programs, and advisory services.
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Overview
Local government leaders often consider it a truism that citizens will not vote for more taxes. Public opinion on local taxes, however, may not be as rigid as the conventional wisdom suggests. To illustrate, since 2004, 3,023 different local revenue initiatives were posed to California voters
and 2,094—or 69%—of them passed!
Of course, these statistics do not show that the public is eager for new taxes. For example, local governments in communities with a strong anti-tax sentiment would probably not submit a local revenue initiative to voters in the first place. These statistics do suggest, however, that the public is often willing to consider new taxes. This 69% passage rate is even more impressive when one considers that, due to the requirements of California election laws, 38% of the 3,023 revenue initiatives were held under rules that required approval by two-thirds of voters to pass, instead of the customary simple majority.
The public’s willingness to consider new taxes is not limited to California or other higher-tax states. The objective of this paper is to identify the key features a proposed new tax should exhibit in order to be successful. To do so, we examine the experiences of local governments from Florida, Oklahoma, Missouri, and other states. Before reviewing these and other examples and distilling the features of a successful tax, it is important to understand a critical tension at the heart of public management that impacts any local government’s strategy for raising revenue.
Accountability vs. Flexibility: The Classic Dilemma of Public Administration
The tension between: A) the responsibility of public officials to demonstrate “accountability” to the public and B) the “flexibility” of officials to take discretionary action in the pursuit of public goals can be described as a classic dilemma of public administration.3 This tension applies to raising revenue. Public officials, naturally, would like the flexibility to raise revenues in the way and amount they judge necessary—and use the revenue as they see fit. The public, however, often prefers to stress accountability, where the ability of officials to raise and use revenues is closely monitored, if not circumscribed.
Although there is a tension between accountability and flexibility, communities do not have to pick one or the other for their local government. Rather, there is a continuum between the two, as shown in Exhibit 1. Communities can give up some accountability to grant more flexibility to local officials and vice versa. For example, some states have highly restrictive tax and expenditure limitations written into state law. This means that local officials can’t raises taxes against citizens’ wishes.
The public may feel that this arrangement makes local officials accountable to the public’s views. This arrangement, however, also provides less flexibility for local communities to determine their own future. Successful revenue raising demands that citizens and their local governments find the right way to balance accountability and flexibility for their community. In the following pages, we will examine features of a potential new tax that influence its chances for success.
Our analysis shows that taxes put forward for voter approval in California received an average of 6.2 percentage points more support when the sponsoring government identified a specific service that the tax would be used for, such as schools, road improvements, parks, etc.4 Of course, it is understandable that the public would be more supportive of a tax when they know what they will get in return for their money.
Public safety and streets are two services that sometimes resonate with a wide range of citizens. For example, the City of Oklahoma City, Oklahoma, found that street quality was a perennial concern in its annual citizen survey: bottoming out with only 9% of citizens approving of street quality. For the City of Plant City, Florida, 50% of its 160 miles of streets were in poor condition. Staff estimated that it would take up to 60 years to resurface or reconstruct all roads in the city, based on available resources at the time. In both cities, street quality served as the foundation for a new tax.
A new tax does not necessarily need to be associated with a highly visible service like public safety or streets in order to succeed. For example, the people of Broward County, Florida, approved a new property tax and a special district to provide services for disadvantaged children. The new district was the Broward County Children’s Services Council. Though most people would not personally use the services provided by the proposed tax and Children’s Services Council, the case was made that the current approach was failing, including:
Four Grand Jury reports related to failings of the foster care system
Cutbacks in summer school programs and services, especially for children with special needs
Increases in juvenile crime
The proposal for the Broward County Children’s Services Council and its new tax passed with 57% approval.
Our examples above show that the public is willing to support new taxes for different kinds of services and our analysis of the California ballot data support this. In general, the California data did not show large differences in the support a proposed tax received based on the type of service the revenue was pledged to. In other words, no particular service stood out as being universally more popular with the voting public. The lessons appear to be that there must be a clear need for a service in the community in order for the citizens of that community to tax themselves to provide it, and that the public might be willing to consider new taxes across many different service areas. In fact, according to an interview we did with a public opinion research firm that specializes in local tax initiatives, taxes receive more… [Continue to Full Report]