Wednesday, April 6, 2011


Tomorrow I'm going to put out my trash for collection. It could be sitting there for a while.

As funds from the federal stimulus dry up, local governments are learning about the fiscal pecking order the hard way. As Michael Cooper reported in the New York Times, "budgetary pain flows downhill" (NYT article 3/23/11).

Many states are cutting aid to local governments in order to bolster some of their own structural budget deficits. At the beginning of the recession, local governments used state aid to keep property taxes low and continue to provide a stable level of services while using reserve "rainy day" funds to fill their year-to-year deficits.

Now, as recession-level budgets are starting to dry up at the federal and state levels, individual states are eliminating the cushion that has helped local governments operate. Unfortunately, local governments are already operating on a "lean" budget, having probably instituted hiring freezes, eliminated nonessential programs, raised property taxes, or a combination of any or all three or more.

Now, without a rainy day fund or state aid, municipalities may be forced to make even more serious decisions: cutting personnel and/or essential services. Historically, the largest components of local budgets come from public safety (police and fire). And, as Mr. Cooper's article insinuates, some municipalities may also be forced to eliminate specific programs as well. In order to avoid these realities, local governments may raise property taxes and fees for services more than they have already have in the recent past.

What does that mean for you? It could mean that tomorrow there will be fewer police officers or firefighters; your garbage pickup may occur less frequently; educational programs may be cut; capital projects (roads, pipelines, sewer systems etc) will be pushed back - meanwhile, the potholes will still be in your street, the 70-year-old pipes will rust over and the sewer system may remain backed up.

I think we naturally react negatively to raising taxes. However, if you highly value your current tax-service ratio provided by your city, be prepared for lower service levels and higher taxes.

(For example, see this article. This isn't the greatest article written on the subject but serves to demonstrate residents' unwillingness to pay higher taxes to retain normal service. Also, the author fails to date the last time the auto repair shop was appraised which leads to a biased report).

Another excellent article published recently on this topic can be found at this link.


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