Transcript www.premacorp.com

PIECE OF MIND
Hidden Treasure: Solving the Revenue
Puzzle For Local Government
CPBB Conference Denver 2014
Agenda
• Just the Facts Please
– National Survey Data
– Stats and Findings
• Why Revenue Enhancement?
– Because it’s there and it’s needed
– Equity among taxpayers
– Changing landscape challenges
• How? Sources and Methods
– More local control of revenues
– Training, attention, focus
– the Hunt
Just the Facts
• Survey Of 1,140 City Finance Officers
– 31 % Response
•
•
•
•
17.2% over 300K pop
39.7% 100K-299K pop
24.0% 50K-99K pop
19.1% 10K-49K pop
• Variety of Scope and Function of Governments
• Revenue Generating Authority Varies State to State
• 3 Primary Sources of Local Government Revenue:
– Property Tax (nearly all)
– Sales Tax (›50%)
– Income Tax (‹10%)
Source: NLC 2013 Survey of Cities
Revenue Actions
As has been the case for much of the past two
decades, regardless of the state of national,
regional, or local economies, the most common
action taken to boost local revenues has been to
increase the amount of fees charged for services.
 2 in 5 (39%) of city finance officers report raised fee
levels
 Approximately 1 in 4 cities increased the number
of fees that are applied to city services (22%), and
 1 in 5 (19%) cities increased the local property tax
in 2013
Proportion of Total State and Local Tax
Revenues by Tax Type and State Fiscal Year 2010
State
Property Sales & Gross Personal Corporate Motor Vehicle Licenses
Taxes
Receipts
Income
Income
and Other Taxes
Alabama
19.40%
47.50%
20.30%
3.20%
9.60%
Alaska
21.40%
10.90%
--
10.40%
57.30%
Arizona
37.30%
44.40%
12.30%
2.10%
4.00%
Arkansas
18.30%
50.50%
22.00%
4.10%
5.10%
California
31.20%
30.10%
26.40%
5.30%
7.00%
Colorado
39.10%
32.90%
20.00%
1.80%
6.20%
Connecticut
42.00%
25.10%
26.90%
2.40%
3.60%
Delaware
18.60%
13.20%
25.30%
4.10%
38.80%
Florida
42.90%
46.90%
--
2.70%
7.40%
Georgia
35.20%
36.50%
23.30%
2.30%
2.80%
Hawaii
21.10%
49.20%
23.20%
1.20%
5.40%
Idaho
30.20%
35.30%
24.60%
2.30%
7.70%
Illinois
43.60%
31.70%
15.90%
2.50%
6.30%
Indiana
32.80%
37.00%
23.30%
2.60%
4.30%
State
Property Sales & Gross Personal Corporate Motor Vehicle Licenses
Taxes
Receipts
Income
Income
and Other Taxes
Kentucky
21.50%
38.00%
30.40%
3.50%
6.50%
Louisiana
20.90%
54.00%
14.20%
2.40%
8.50%
Maine
40.70%
28.70%
22.30%
3.00%
5.40%
Maryland
30.10%
24.40%
35.60%
3.20%
6.70%
Massachusetts
38.80%
20.90%
30.30%
5.50%
4.60%
Michigan
40.30%
36.50%
16.40%
1.90%
4.80%
Minnesota
30.70%
33.50%
26.50%
3.00%
6.40%
Mississippi
28.20%
46.70%
15.10%
3.50%
6.50%
Missouri
30.20%
37.70%
24.30%
1.40%
6.30%
Montana
39.80%
16.80%
22.20%
2.90%
18.40%
Nebraska
36.80%
31.90%
20.60%
2.10%
8.60%
Nevada
34.50%
50.50%
--
--
15.00%
New Hampshire
64.60%
16.00%
1.60%
10.00%
7.80%
New Jersey
48.40%
22.40%
20.20%
4.00%
5.00%
New Mexico
19.80%
49.80%
14.60%
1.90%
13.80%
New York
32.40%
25.30%
31.20%
6.70%
4.40%
North Carolina
26.20%
36.00%
27.90%
4.00%
5.90%
State
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
DC
Property Sales & Gross Personal Corporate Motor Vehicle Licenses
Taxes
Receipts
Income
Income
and Other Taxes
19.80%
31.00%
8.70%
2.50% 38% - Severance Taxes
30.00%
32.50%
27.70%
0.60%
9.10%
21.10%
41.90%
19.50%
1.90%
15.60%
37.60%
10.00%
37.70%
3.00%
11.60%
30.40%
31.20%
25.40%
3.70%
9.40%
45.60%
29.50%
18.90%
2.50%
3.50%
35.80%
34.50%
20.30%
1.10%
8.20%
35.90%
53.60%
-1.20%
9.30%
27.60%
56.80%
1.00%
4.90%
9.80%
45.20%
44.30%
--10.50%
27.60%
37.50%
25.30%
3.00%
6.60%
45.90%
29.20%
16.60%
2.90%
5.50%
36.10%
26.50%
27.80%
2.50%
7.10%
31.50%
60.50%
-0.00%
8.00%
21.30%
37.50%
23.50%
3.70%
14.00%
39.50%
28.90%
23.80%
3.50%
4.30%
42.50%
31.20%
--26.20%
37.00%
27.00%
22.00%
6.50%
7.50%
Source: Census Bureau, Tax Foundation calculations.
Shrinking Staff Levels
Government job cuts not falling evenly
Number of employees at each level
April 2009
Federal (Postal Service)
April 2013
Absolute
Change
Percent
Change
721,800
589,500
-132,300
-18.3%
Federal (Other)
2,199,200
2,179,200
-20,000
-0.9%
State (Education)
2,366,600
2,397,800
31,200
1.3%
State (Other)
2,815,500
2,655,200
-160,300
-5.7%
Local (Education)
8,094,300
7,758,000
-336,300
-4.2%
Local (Other)
6,482,000
6,264,400
-217,600
-3.4%
22,679,400
21,844,100
835,300
-3.7%
Total
Source: Pew Research analysis of Bureau of Labor Statistics data
PEW RESEARCH CENTER
Pressure Factors (As Noted by City Finance Officers)
• City Budget
–
–
–
–
Infrastructure Costs
Public Safety Costs
Employee Costs: Health Care, Pensions, Wages
Cuts in State & Federal Aid
• Leading the List
– Health Benefit Costs (84%)
– Pension Costs (80%)
• Most Often Noted Increase in Service Demands
– Infrastructure (79%)
– Public Safety (69%)
• Other Notable Increase
– Costs of Services (81%).
Pressure Factors (continued)
Confronted with these pressures, cities are
maintaining local services while continuing to
reduce personnel costs for pensions, health care
benefits, and wages.
• Levels of Federal Aid (49%) and State Aid (48%)
• 33 States have Tax/Expenditure Limits (TELs)
constraining their ability to raise revenue locally
– About 50% are constitutionally imposed and 50% are legislative
• 15 states require a “supermajority” of the legislature to
raise taxes (2/3 to 3/4 vote)
The Money’s Out There
REVENUE
ENHANCEMENT?
F.P.S.-Fiscal Policy Space (Pagano)
City & County
Revenue Enhancement
• Enhance – “to increase or improve” (Webster)
• The identification and collection of unpaid revenues
from non-compliant taxpayers subject to existing
revenue laws
• Staff training and education
• Over $24,500,000 discovered to date from Business
License and other Taxes from existing businesses
• A “no risk” program based on a contingency of new
revenue discovered and collected
Address the Issues
• Most State Governments Restrict Local
Government From Adding New Taxes, TELs
• Pent Up Infrastructure And Maintenance Needs
• Increased Operational Costs – Pensions, Health,
Public Safety, Bond Ratings, The Future,
• Tax & License Databases Outdated, Inaccurate
• Revenue Departments Understaffed, Lack of
Training, Overworked, Complacent
22
The “Trend Gap”
The difference between governments long-term ability to
provide services the public demands, and the citizens’
willingness to pay for them
• 2010: Gap exceeded $1,100 per capita, i.e., the revenue
raising capacity of governments fell short of the amount
needed by more than $1,000 per person
• Trend Gap varies greatly by region:
– Pacific is highest at $1,600;
– New England at $1,250; and
– East-South-Central states at $750 per capita
• Revenues have increased since recession. Gap continues
to rise due to long-term obligations (Medicaid and
Pensions)
•
Source: US Census Bureau, Pew Research Ctr
Local Tax Revenues
• Not Trending Close to Pre 2010 Levels
Levels
Actual U.S. Local Government Tax Revenues
$700
The yellow line shows how revenues were
trending before the Great Recession,
when U.S. growth was much higher
This difference is a reason
why some local govt.
issuers are susceptible to
rating downgrades
$500
The green line is a revenue trend
based on local govt revenues from
just post 2010 results
$300
2004
2007
2010
Source: US Census Bureau, and Janney FIS.
2013
Notice the trend of local govt tax
revenues since 2010 is barely
higher,this is not a positive for
local government credit
quality
2016
2019
“Gap” Consequences
• Shifts fiscal burden to future generations of taxpayers
• Requires significant cut backs on public services
harming residents’ quality of life and local businesses
• Credit Ratings will suffer increasing borrowing costs
Los Angeles 2020 Commission – “A Time for Truth”
• Challenging Issues –
– Widespread poverty, job stagnation, pension obligations, and
paralyzing traffic
“Barely treading water and year by year
our city is becoming less livable”
Can Governments Give People What They Want?
• Current demand for services outpaces ability of
government to meet, even by raising taxes
• Officials tend to focus on next budget or election
• Short-term outlook fails to open discussion on what
services have to cease as we continue to consume more
without developing new revenue resources
• “Something’s gotta give” – Believe the arithmetic
Achieve Service level solvency
Source: Governing
NLC Report
• 80% of Americans Live in Cities
• Cities Produce 75% of Economic Output
• Need to Form Partnerships with Local Governments,
Citizens, Business, NPOs, Feds, State, County
CITIES ARE DETERMINED
RENEWED OPTIMISM
CREATIVE LEADERSHIP
CITIZEN ENGAGEMENT
PARTNERSHIPS
NLC Report (continued)
10 Critical Imperatives Face Cities in 2014 & Beyond
1. Fragile Fiscal Health
2. Deteriorating Transportation Infrastructure
3. Shrinking Middle Class
4. Inadequate Access to Higher Education
5. Need for Affordable Housing
6. Returning Veterans
7. Gang Violence
8. Broken Immigration System
9. Climate Change and Extreme Weather
10. Lack of Public Trust
Why Revenue Enhancement?
• Achieves equity and compliance among taxpayers
through uniform application of the existing tax and
revenue laws
• Provides an opportunity to increase revenue and pay
for program with a % of new revenue collected
• Levels the playing field
• Improves credibility with the stakeholders
• Provides current year revenue boost and annually
recurring revenues
• Records businesses and improves databases
The Changing Landscape
Political:
• Continued reduction in State and Federal Assistance
• Paralyzing Gridlock in DC
Social:
• The Perfect Storm: decline in personal income, retail
sales, property values, vacancies and unemployment
• Erosion of Public Trust and Confidence
Cultural:
• E-commerce – Consumer to Business, Business to
Business
• Consumer Spending Trend – Goods to Services
Consumer Spending Trends
Taxable Goods
Non-Taxable Services
1970
39%
2009
32% (excl. groceries)
31%
67%
Reaction has been to increase sales tax rates and base
Between 1970 & 2007 average state sales tax rate
increased from 3.5% to 5.4% in 60% of states (27)
E-Commerce Impact on Sales Tax Revenue
• Tax losses from e-commerce sales estimated $11.4B in
2012 among collections of $34.5B (Fox/Bruce)
• E-Commerce sales:
$2.385 Trillion in 2006 to
$4.0 Trillion in 2012 (U.S. Census Bureau)
• Shop on Main Street – Purchase on-line
• Remote Commerce not included above (mail order,etc)
• Business to Business Sales account for 93%
• Fox/Bruce study assumes 5% compliance with use tax by
consumers
– Consumer use tax near impossible to collect/enforce
Tax on Services ?
• 2009 Estimate $1.621 Trillion in purchases
of feasibly taxable services
• $87B revenue to States based on sales tax rates
• Yield ranges from $13B in CA to $137M in Wyoming
• Some services currently taxed in some states
The Money’s Out There
HOW DO WE
ENHANCE REVENUES
Property, Sales, and Income—What else is there?
• Financial Institution Tax
• Utility, Cable and
Telecommunication
Franchise Fees
• E-911 Fees
• Business Inventory
• General Sales and Use
• Alcohol Beverage Excise
Tax
• Personal Property Tax
Motor Vehicle
• Business/Occupation
Tax
• Cell Tower Rental
Income
• Aircraft, and Boats
– Personal Property Tax
• Billboard Advertising
Fees and Taxes
36
State License Taxes 2009-2013
2009
2013
Total License Taxes
$49.7 Billion $55.5 Billion
Motor Vehicle License Tax $19.9 Billion $23.2 Billion
Corporate License Tax*
$10.0 Billion $11.4 Billion
*2009 was the first decrease in Corporate
License Taxes in over 16 years.
Training - Lessons Learned
• Technology: Review current software capabilities to
ensure local tax databases are current and contain
relevant taxpayer information
• Analysis: Analyze taxpayer data for reporting and
accuracy, trends, anomalies
• Training and Education: Revenue staff should develop
complete understanding of requirements and importance
of accuracy and detail
• Avoid: “Practices” that do not follow local ordinances
• Focus: On compliance and revenue opportunities
• Communication:
– Reinforce value of front counter and celebrate successes
– Communicate with your taxpayers
“Escapees” Paid to Evade
• Due to limited personnel, the complexity of modern
commerce, and borderline questions relating to the taxing
power, a municipality is certain to lose some revenue
through tax and license escapes. Nevertheless, there are
steps which a municipality may take to enforce its taxes
and licenses that will limit those losses.
Strict tax and license enforcement is the
fairest license enforcement because it
closes the door on the competitive
advantage which “escapees” enjoy over
others in the same license classification.
Source: ALM Selected Readings for the Municipal Official
The Hunt
• Examine Local Revenue authorizing document(s)
• Business License/Tax:
– If unable to adopt as tax, adopt as Fee for Revenue
and Regulation
• Review all existing revenue sources for compliance, accuracy, reporting (including NPOs)
• Investigate business operations and transactions
not registered or reported
• Identify properties with cell towers and equipment
• Develop list of advertising billboards: locations and type
of ad copy
• Interdepartmental cooperation for finding/reporting
unlicensed businesses and enforcement
The Hunt (continued)
• Work with Tax Assessor and Commissioner
to inspect personal property tax records
• Develop understanding with DOR for liaison
relationship for Sales and Use Tax, License, etc.
• Diligently pursue total compliance and maximum
revenue yield from existing opportunities
• Cross check State, County, and City revenue databases
• Develop cost of services model to monitor development
costs and associated fees and the desired level of
recovery/subsidy
• “Boots on the Ground”
Seek Local Control of Revenues
• Push state governments to authorize local revenue
generation ability to match operational expenses,
mandates, and infrastructure costs
• Reform the fiscal architecture – eliminate TELs, diversify
and broaden the sales tax base, consider a sales tax on
services
• Explore public-private and public-public partnerships to
jointly provide services and share costs freeing up revenue
for other uses
• Fiscal revenue reform focus on long-term rehab of
finances and restoration of financial health
• Get serious about collection and enforcement
Conclusion - The Perfect Storm
Took years to gather strength before hitting
economies with unprecedented force in 2008
Recovery will be slow – No quick fix
Solutions within reach – Time for collaboration
and resilience like never before
A New Day For A New Wave
Let’s Treat Our Revenue
with the Respect it
Deserves
Sources
•
•
•
•
•
•
•
•
•
•
National League of Cities
National Conference of State Legislatures
ICMA
The Tax Foundation
Janney Montgomery Scott
U.S. Census Bureau – Pew Center for Research
The Economic Policy Institute
National Association of State Budget Officials
Governing
National Association of Counties