Transcript Slide 1

Judith I. Stallmann
University of Missouri-Columbia
College of Agriculture, Food and Natural Resources
May 3, 2006
Hancock Amendment
and local governments
in Missouri: The
practice of economic
development
Tax and Expenditure Limitations
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Balanced budget
Supermajority to raise taxes
Revenue Limitation
Expenditure Limitation (TABOR)
Expenditure and Revenue Limitation
Combinations
TEL usually refers to expenditure and
revenue limitations
Balanced Budget Requirement
 Balance budget submitted based on
projections
 Balance budget passed (based on
projections)
 Actual balance
 Legislative act
 Governor acts if legislature not in session
Figure 2. Legislative Supermajority and
Voter Approval to Raise Taxes, 2005
Source: National Conference of State Legislatures, 2005.
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Source: National Conference of State Legislatures, 2005.
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Supermajority rule only
TEL based on
 Tied to:
 Population
 CPI
 Income
 Baseline or previous year?
 Excess revenues
 Rainy day or other fund
 Refunded
Figure 1. State Tax and Expenditure Limits, 2005
Source: National Conference of State Legislatures, 2005
L
A
A
A
A
A Appropriations limited to a % of projected revenues
L Some appropriations limited to rate of personal income growth
Hancock--state
 Revenues limited to 5.64% of personal
income
 Any tax, or combination of taxes, over $70
million (adjusted annually) must be
approved by voters
 Excess revenues must be refunded
 Income tax rolls are used for refunds—challenged
and upheld in court seven though sales taxes are
almost equally important in state revenues
 Balanced budget empowers governor to cut
funding when legislature not in session
TELs and Local Governments
 Traditional restrictions
 Types of taxes limited
 Caps on tax rates
 TEL restrictions on local governments
 Citizen vote to raise taxes
 Restrictions on increase in assessed values
 Tax rate rollback to revenue neutral level if
assessed values increase beyond some rate
 Restrictions on increase of the tax paid on
the property
Missouri local
 All taxes must be approved by voters
 Taxes to payback bonds approved by 4/7s
 Other taxes approved by majority
 If assessed values of existing
properties increase by more than the
previous year CPI, tax rates must be
rolled back to revenue neutral amount.
 In Missouri this results in now having
different tax rates for different types of
property in some jurisdictions
 Many properties are reassessed only every 2years but restricted to one-year CPI
Research
 Limited research on states
 TELs not binding with strong economic
growth
 Many are new and do not yet have a track
record that allows research
 Colorado cities.
Research limited
 Local government data problems
 Only consistent set is census of
government every 5 years
 Data in some states are not reliable
 If the local governments do not have to
report fiscal data to the state, the census
of governments date are not necessarily
reliable
Colorado Cities (Brown)
Property tax amendment in 1982
TABOR (1992)—all taxes by voters
356 local votes with 325 approvals
In two rural regions revenues per
capita have fallen
 Use of fees and permits has increased
 Increased number of special taxing
districts
 State budget cuts seem to hurt rural
regions more
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Research questions
 Control the growth of government—
implicit assumption that this is good
 Causes a ratcheting-down effect—
depends on wording of law
 The petition currently being circulated
seems to have a ratcheting down effect
Research questions
 Are excess revenues refunded
equitably?
 Often use the income tax mechanism
when sales taxes may be nearly as
important in state revenues.
 Use of income tax biases refund to
higher income households.
Research questions
 Force government to prioritize
 Assumes they have not
 Ignores that mandates may not allow
priorities
 Cuts will be in non-mandated programs
 Make government more efficient—
difficult research question given that
it is not a “market”
Research questions
 Governments use more creative
financing—creative can have good or
bad effects—need to look at what has
been done and impacts
 States have substituted other revenues
 Fees (can see this in University fees)
 One-time revenues, such as the
tobacco settlement (Generally would
suggest these should be used for
assets, not operating)
 MOHELA
Missouri--local
 Increase in special taxing districts
 Seem more willing to vote for local
tax increases than state. No state
vote has passed but the majority of
local votes pass.
 Use of fees by local governments up
238% compared with 27% nationally
Research question
 Shift decisions from elected officials
 What new decision-making mechanisms
have evolved?
 What mechanisms are now used more
often than in the past?
 More citizen control—assumes they have
the information to make decisions
 Likely to have more information at the local
than the state level
Missouri local
 Tax increment financing
 Way for cities (mainly) to increase tax
revenues without a vote
 Creative financing
 Decreases citizen input
 Definition of blight is mixed with the
issue of the use of eminent domain to
increase tax revenues
 Pole Town in Michigan 20 years was an
example of the eminent domain issue
 The use for ED seems to have become
more common—is it because of TELs?
Tax Increment Financing
 TIF commission includes 6 appointed by
municipality, rest represent the
overlaying taxing authorities and it
votes on the plan
 For: Blighted area, conservation area
(50% of buildings over 35 years old and
in danger of blight), or economic
development
 And that would not develop otherwise
 There can be county TIFs and countycity TIFs—but are mainly city
Tax Increment Financing, cont.
 For up to 23 years
 Taxes on increased assessed value of
real property go to TIF district
 50% of taxes generated by increased
economic activities in the project
area—mainly sales taxes, but also
utility taxes
 Excludes personal property taxes,
hotel/motel taxes, special assessments
and others
P
r
o
p
e
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t
y
v
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l
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“And would not
develop otherwise”
is Trend #2
Growth with TIF
Growth
trend #1or
baseline
TIF freeze
Growth
trend #2 or
baseline
Year TIF
formed
Years
Tax Increment Financing, cont.
 Raises that jurisdiction’s tax revenues
without raising its taxes
 Does not take into account that other
jurisdictions might have increased
costs because of the project that are
outside the project area.
 How they are affected in that case
depends on their reliance on different
taxes
Revenues of Local Governments: 2002
90.0%
80.0%
Federal & state
revenues
70.0%
Property tax
Percentage
60.0%
Sales tax
50.0%
Other taxes
40.0%
30.0%
Current
charges
20.0%
Miscellaneous
revenues
10.0%
0.0%
County
Municipal
Township
Special
District
School District
Source: US Census Bureau, "Census of Governments 2002"
Tax Increment Financing, cont.
The district can also receive up to 50%
of new state revenues (personal income
and general revenues sales tax) if the
project is located in
 enterprise zone,
 federal empowerment zone,
 central business district (MODESTA), or
 urban core area
Missouri local
 Transportation Development Districts
(TDD)
 Contiguous with boundaries of a political
jurisdiction and by a vote of the people
 There were 0 TDDs
 Law changed and use growing rapidly
 Can be smaller than a political jurisdiction
 If no voters in the district, all business
owners can apply to the Circuit Court,
which approves district and tax
Transportation Development
Districts, cont.
 Financed by new special assessments,
property taxes, sales taxes or tolls
 May issue revenue bonds and TDD owns
project until bonds paid
 All properties in TDD must benefit, even
if project not located in TDD
(interchange)
 Improvements in past paid for by
developers are now financed by taxes
Chapter 100 bonds
 Originally were Industrial Revenue Bonds
but in 1986 federal government cracked
down on the use of such bonds
 City holds the property, so it is not taxable
by city or any overlaying jurisdiction
 Bond paid by rent on the property
 Rent below market value, is taxable
 Can include both real and personal
property
 Cannot be used for retail