Backgrounder: The Problem Is Spending, not Tax Caps

October 30, 2016

by Ryan Cummins

It’s municipal budget season and is anyone else tired of listening to sky-is-falling rhetoric from officeholders unwilling to make hard decisions about spending in a tight economy? Last week, yet another Indiana mayor weighed in on the fiscal “disaster” wrought by property-tax caps.

David Kitchell of Logansport, in the always sympathetic Fort Wayne Journal Gazette, didn’t waste any time launching into his version of the Washington Monument Syndrome in which losing the most visible or appreciated service is the reflexive action when faced with a budget cut: “It means there may be fewer police on the streets and deputies on the road . . . It means there may be fewer firefighters and teachers . . .”

When the tax-dollar gravy train is in danger of derailing, you see, try to paint a picture of anarchy in the streets. Surely that will get them to cough up more money for all the vital services supplied by government. So the mayor goes on, arriving at the solution of those without the principles or courage to actually solve the problems of government: “. . . other local taxes will probably have to be raised to compensate for the loss in property-tax funding”

If you are a taxpayer in Logansport, then, grab hold of your wallet. If you are a business person currently considering Logansport, let Mayor Kitchell’s declaration sink in before you make your investment decision. For if the mayor there has a beef with property-tax caps and their negative effects on his city, you should know that the negative effects are only on his ability to spend other people’s money without constraint.

Kitchell of course is not the only Indiana mayor making this case. But standing in opposition have been researchers who for 10 years have countered his policies of convenience. They have made clear in cited article after cited article that caps on property taxes are not a mere policy glitch that must be smoothed out but the signal that there has to be a significant change in the fundamental way local government operates.

Local government spending was causing crushing tax burdens that seriously affected homes and businesses. Caps were the answer implemented by the state legislature to spending that could not or would not be reined in by mayors, commissioners or councils.

Agree with that rationale or not, once a tax cap was passed it should have been obviously necessary for cities and counties to make those fundamental changes in the way they operated — that or prepare to face financial ruin, bankruptcy, etc. It could have been no secret or surprise to anyone who was paying attention that revenues would decline.

The obviously necessary was ignored. Virtually no Indiana local government changed. Instead, they implemented new fees, charges and direct taxes so they didn’t have to make those tough decisions on spending or how cities operate. The motivating factors? Lack of principles, lack of political courage and fear of public employee unions, not legislatively imposed tax caps.

Now mayors and councils are complaining about the tax-cap “wolf” at the door. Their beleaguered constituencies should know, though, that there isn’t a revenue problem, there is a spending problem. And if they don’t correct it, the State Board of Accounts will be telling more cities what they recently told mine, that there is “substantial doubts about it’s ability to continue to operate as a city.”

Allowing tax levels to creep back up may make life easier for local government it will make it more difficult for taxpayers — even worse than before caps, in my opinion.

So what is a modern electorate to do? Independent groups such as the Indiana Policy Review have documented in detail the challenges that come with property-tax caps. They have listed the specific steps necessary to meet them and remain financially solvent. They are summarized here:

• Limit local government to only the truly essential functions, e.g., the protection of life, liberty, and property. If it’s not essential, stop funding it.
• Put essential functions to the market test.
• Base compensation on objective, measurable standards; require public employees to compete both with each other and potential market providers of the same or similar services.

Mayors, commissioners, council members have a duty to the citizen taxpayer, not to public employees, bureaucrats, politically favored businesses or groups. At least as far as public employees and associated bureaucrats are concerned, they exist to serve citizens, not to be served.

Indeed, those mayors, commissioners and council members who free their cities, who seek and achieve substantially lower tax and regulatory burdens, will have a competitive advantage. For property tax caps literally mean that money stays in the pockets of those who earn it rather than going to government. That is always a good thing. For everything that local government does — or at any level, for that matter — is not vital in the full sense of the word.

Again, there was a reason tax caps were implemented. It was to protect property owners and other taxpayers from short-sighted, disastrous, out-of-control spending policies pushed by mayors such as the one in Logansport.

Ryan Cummins, an adjunct scholar of the foundation and the owner of a family business, served two terms on the Terre Haute Council, including a year as chairman of its appropriations committee.

Resources

http://www.journalgazette.net/opinion/columns/Circuit-broken-15878907

http://www.tribstar.com/news/local_news/state-audit-finds-doubt-about-city-s-financial-future/article_528db627-7816-5ff2-9b33-602743f56d53.html

http://www.pageturnpro.com/Indiana-Policy-Review-Foundation/9498-Winter-2010/index.html#1

http://inpolicy.org/wp-content/themes/IPR10/journals/winter2011.pdf

Our Site

Full use of this site, including access to the search function and the archive of past articles and journals, is now available to everyone.

Connect with Us

 

Our mission is to marshal the best thought on governmental, economic and educational issues at the state and municipal levels. We seek to accomplish this in ways that:

• Exalt the truths of the Declaration of Independence, especially as they apply to the interrelated freedoms of religion, property and speech.
• Emphasize the primacy of the individual in addressing public concerns.
• Recognize that equality of opportunity is sacrificed in pursuit of equality of results.

The Indiana Policy Review Foundation is a non-profit education foundation focused on state and municipal issues. It is free of outside control by any individual, organization or group. It exists solely to conduct and distribute research on Indiana issues. Nothing written here is to be construed as reflecting the views of the Indiana Policy Review Foundation or as an attempt to aid or hinder the passage of any bill before the legislature or to further any political campaign.

The foundation's white papers are intended to make scholarly research on Indiana issues more widely available to policy analysts and researchers. White Papers represent research in progress and are published to invite comment and discussion as preparation for their submission to academic journals and other professional publications. The authors are solely responsible for the content of their research and analysis.