The Elbert files: City finances: Nowhere to turn
Friday, March 08, 2013 7:00 AM
The question that Tom Urban posed during a recent Capital Crossroads meeting was deceptively simple.
What, Urban asked Des Moines City Manager Rick Clark, could the two dozen people gathered around a U-shaped table at the Greater Des Moines Botanical Garden do “to make life easier for the city, to help loosen the financial handcuffs?”
The question hit on a problem that few people understand as well as Urban. He wrestled with it when he was mayor of Des Moines during the 1960s, when he was chief executive of Pioneer Hi-Bred International Inc. during the 1980s, when he taught at Harvard University during the 1990s and since he’s returned to Des Moines during the past decade.
The crux of the problem, Clark explained during an interview, is that older, larger cities, like Des Moines, “have a structural deficit. Expenses tend to rise on average 4 to 5 percent per year, while revenue rises at a rate of 2 to 3 percent per year.”
The reason is unfunded mandates from state and federal governments for expenditures ranging from sewer projects to pension payments and public access for the disabled.
All are valid expenses, Clark said, “but every year, the gap increases.”
“Since the year 2000, we have cut the number of permanent employees in the city by well over 300 people, from roughly 1,950 to 1,650 employees,” he said.
During his seven years as city manager, Clark added, “we have cut $27 million (about 15 percent) out of our general fund budget.”
“We’re already up against the wall,” he said, adding that further cuts would have a “profound impact on services.”
Which is why Urban asked the question.
There are three options. Unfortunately, the best long-term solution – a major restructuring of the way cities are financed – is also the least likely.
Property taxes are the main source of income for cities. But as most of us know, they are not equitable or even reliable at this point.
Replacing the property tax with an income tax surcharge would solve a lot of problems in ways that are too complicated to explain here, but it does not matter, because a new income tax will never fly.
So, let’s move on to Option No. 2. Other taxes could pick up some of the slack.
An increase in the gasoline tax is one possibility. Twenty-five percent of the money raised from it goes to cities, which can definitely use more money to build 21st-century transportation systems.
An increase in the local option sales tax is also an option. For a variety of reasons, Polk County is among the handful of areas in the state that have failed to boost the sales tax to 7 percent with the added levy going to local governments. So in this case, we cut our own throat.
If lawmakers wanted, they could increase the hotel/motel tax from 7 percent to as much as 20 percent or more, which is what some areas of the country charge.
Lawmakers could also allow cities to charge higher sales-tax-like fees on utility-like services, including electricity, natural gas, telephone or cable TV. So-called “franchise fees” would require nonprofits, including schools and cultural venues, to pay more of their share of the burden for local police and fire protection.
The third option is lowering expenses. The biggest target here is the mandatory 8 percent annual increase in police and fire pensions. With the exception of overpaid private-sector CEOs, no one gets that kind of increase these days.
So, there you have it.
The way cities are financed, Clark admitted, is archaic.
Unfortunately, it’s unlikely to change any time soon.
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