Friday, February 29, 2008
Predictable Wrong Prescription for Municipalities
A researcher from the University of Pittsburgh, in conjunction with the new Pittsburgh Today Indicator Project, has released a study that found municipalities in Southwest Pennsylvania are plagued by budget deficits. To solve this problem, the major recommendation is for municipalities to raise taxes to pay for the rising cost of services. Haven’t these people been paying attention? The area’s high taxes have been pushing people out of the region for decades—further increasing the tax burden will only hasten the exodus.
Indeed, the report’s premise is wrong—budget deficits are not “plaguing” the region. If a municipality has a deficit, they often use surpluses or one time special revenues to cover—a tactic frequently used by the City of Pittsburgh before it sought state help. They are also allowed to borrow money to cover any shortfalls, as long as they are able to repay the loan within a year. According to newspaper accounts, the researcher even admitted that “some of those numbers might be skewed because his calculations disregarded the ‘other revenues’ and ‘other expenses’.”
If a municipality is having continued financial difficulty (three or more straight years) they are allowed to petition the Department of Community and Economic Development (DCED) for assistance, commonly known as Act 47, the Municipal Financial Recovery Act. To date 23 municipalities across the state have entered Act 47 status since its inception in 1987 and six have emerged—four of them in Allegheny County and one in Beaver County.
Regardless of the symptoms, the cure may be worse than the disease. Raising taxes on an already overtaxed populace is the wrong prescription for this region. This region has been hemorrhaging population for years. One example given is the affluent municipality of Mt. Lebanon. The researcher notes that Mt. Lebanon has run six deficits since 2000 (only two if “other revenues” are included). But what is not mentioned is that during this period, Mt. Lebanon, a high tax community with more in the offing, has seen its population fall by 6 percent—this despite having some of the best performing schools in the state. This is a community ripe for spending reductions to take into account the declining population.
Why not focus on cutting government costs as a way of avoiding budget deficits? Many of these municipalities are saddled with high personnel costs as a result of the state’s Act 111, binding arbitration for public safety workers, which does not allow the mediators to take into account the financial position of the municipality when awarding contracts. Why no recommendation to repeal the state’s prevailing wage laws that requires municipalities to pay higher union rates on public construction projects instead of allowing lower-cost non-union shops to do the work?
Taxing our way to prosperity has failed every time it has been implemented —whether on the local, state, or national level. The surest and best way to help the economy grow and boost tax receipts over time is to reduce tax rates—which means first cutting spending. Yet this lesson has not permeated the minds of most researchers and policy makers in the region or the state.
Indeed, the report’s premise is wrong—budget deficits are not “plaguing” the region. If a municipality has a deficit, they often use surpluses or one time special revenues to cover—a tactic frequently used by the City of Pittsburgh before it sought state help. They are also allowed to borrow money to cover any shortfalls, as long as they are able to repay the loan within a year. According to newspaper accounts, the researcher even admitted that “some of those numbers might be skewed because his calculations disregarded the ‘other revenues’ and ‘other expenses’.”
If a municipality is having continued financial difficulty (three or more straight years) they are allowed to petition the Department of Community and Economic Development (DCED) for assistance, commonly known as Act 47, the Municipal Financial Recovery Act. To date 23 municipalities across the state have entered Act 47 status since its inception in 1987 and six have emerged—four of them in Allegheny County and one in Beaver County.
Regardless of the symptoms, the cure may be worse than the disease. Raising taxes on an already overtaxed populace is the wrong prescription for this region. This region has been hemorrhaging population for years. One example given is the affluent municipality of Mt. Lebanon. The researcher notes that Mt. Lebanon has run six deficits since 2000 (only two if “other revenues” are included). But what is not mentioned is that during this period, Mt. Lebanon, a high tax community with more in the offing, has seen its population fall by 6 percent—this despite having some of the best performing schools in the state. This is a community ripe for spending reductions to take into account the declining population.
Why not focus on cutting government costs as a way of avoiding budget deficits? Many of these municipalities are saddled with high personnel costs as a result of the state’s Act 111, binding arbitration for public safety workers, which does not allow the mediators to take into account the financial position of the municipality when awarding contracts. Why no recommendation to repeal the state’s prevailing wage laws that requires municipalities to pay higher union rates on public construction projects instead of allowing lower-cost non-union shops to do the work?
Taxing our way to prosperity has failed every time it has been implemented —whether on the local, state, or national level. The surest and best way to help the economy grow and boost tax receipts over time is to reduce tax rates—which means first cutting spending. Yet this lesson has not permeated the minds of most researchers and policy makers in the region or the state.
