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STRUCTURING HEALTHY COMMUNITIES. TAX REVENUE GENERATION AND FISCAL HEALTH. Presentation to the Governmental Research Association August, 2007. LeeAnne Clayberger Kerry Moyer. STUDY OBJECTIVES. Detail the relative fiscal health of Pennsylvania’s municipalities

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structuring healthy communities



study objectives
  • Detail the relative fiscal health of Pennsylvania’s municipalities
  • Identify formidable threats to revenue generation (for instance, existing state legislation)
  • Determine public attitudes toward local government and fiscal health
the study
  • Includes 2,551 municipalities
  • Compares fiscal health with tax effort and tax capacity
  • Looks at changes from 1970 to 2003
  • Uses maps to tell the story
fiscal health measures
Fiscal Health Measures
  • EFFORT (two components)

Total Non-Real Estate Resident Tax Revenue

Aggregate Household Income

Total Real Estate Revenue

STEB Market Value (Market Based Millage)

fiscal health measures1
Fiscal Health Measures

5% of STEB Market Value +

Aggregate Household Income

Number of Households

five stages of municipal fiscal health
Five Stages of Municipal Fiscal Health
  • Prosperity with low taxes
  • Increasing demand for services and gradually rising tax rates and service fees
  • Taxes increase; reductions in non-core services
  • Tax revenues decrease; reductions in core services
  • Loss of tax base, population, and increasing fiscal distress
current set of tools is insufficient to reverse the current momentum
Act 511 of 1965-menu of taxes, rates, caps

Act 111 of 1968-strikes and binding arbitration

Act 195 of 1970-right to organize/negotiate

Act 205 of 1984-funding employee retirement obligations

Act 47 of 1987-declaration of fiscal distress

Current set of tools is insufficient to reverse the current momentum
keep local municipal identity but administer regionally
Keep local municipal identity but administer regionally
  • Fundamental mismatch between fluid economy and structured municipal boundaries
  • Pennsylvanians like their local governments to remain local
  • Research does not show a public outcry for consolidations and mergers of municipalities
pennsylvania s cities
Pennsylvania’s Cities
  • Fiscally, PA’s most-distressed municipalities
  • All 56 fall below, and most fall significantly below, the state average for tax effort/capacity
pennsylvania s boroughs
Pennsylvania’s Boroughs
  • Most severe negative change seen for boroughs in Adams, Allegheny, Beaver, Berks, Cambria, Chester, Dauphin, Delaware, Erie, Lawrence, Lehigh, Perry, Somerset and Westmoreland Counties
pennsylvania s first class townships
Pennsylvania’s First Class Townships
  • 70 of 91 lost ground since 1970
  • One township moved from below to above average
  • 25 moved from above to below average
pennsylvania s second class townships
Pennsylvania’s Second Class Townships
  • Group shows relative fiscal health with 948 (about 65%) above the state average
  • Since 1970 more townships became healthier (57%) than less healthy (43%)
the nature of clusters and subclusters
Boroughs cluster within fiscally distressed regions, but not within fiscally healthy regions

Many counties have subclusters with varied fiscal health

Clusters may present better ways to functionally consolidate services than groupings of adjacent communities

The Nature of Clusters and Subclusters
reality vs tax policy

Since 1970:

  • Significant population shifts (sprawl or suburbanization)
  • Growth in households, not population
  • Continued reliance on property taxes
problems identified
Overall, municipalities are increasingly fiscally distressed

There is a growing use of earned income taxes and fees, but many communities still rely heavily on property taxes

Revenue caps remain largely unchanged from the 1950s

There is a general lack of flexibility in current legislation

Communities need sufficient discretion in deciding how to tax themselves

Problems identified
representation and responsiveness
Representation and Responsiveness
  • Citizens equate local government to the local officials who run them
  • Support of local government often stems from a fear of losing representation and local funds for local projects
  • Local officials are “people like us”
limited knowledge of local government
Limited Knowledge of Local Government
  • Despite strong sentiment, citizens do not know a great deal about local governments, nor do they spend much time thinking about them
  • Most citizens are not concerned about fiscal distress as this “happens in larger cities”
  • Citizens in larger cities tended to underestimate their fiscal distress
bigger is not necessarily better
Bigger is Not Necessarily Better
  • Local governments represent community norms in a manner that the state cannot
  • Even if wasteful and expensive, those issues are on a smaller scale for local government
  • Most citizens see local government as the primary form of government; state exists to serve local governments
state government is distant and unresponsive
State Government is Distant and Unresponsive

“…these people (local government officials) are all visible to us and I think that there’s probably a sense that the farther government gets away from the people, the less responsive they are going to be.”

some support for functional consolidation
Some Support for Functional Consolidation

There was general support for functional consolidation when:

  • Local governments get their fair share
  • Services are improved
  • Money is saved
  • Directed toward health care and pension sharing, joint administration efforts, and regional police forces
recommendation 1

Allow communities to decide how and how much to tax locally

  • minimum restrictions
  • maximum constituent input
recommendation 2 modernize and enhance existing tax revenue options for municipalities
RECOMMENDATION #2 Modernize and enhance existing tax revenue optionsfor municipalities
  • Occurs on the state level
  • Avoids “one-time fixes”
  • Evaluate outdated legislation and change or replace as necessary
  • Remove restrictions in lieu of local options
RECOMMENDATION #3 Place wide menu of revenue generating tools in communities to avoid future fiscal distress
  • Again, a subtle difference – “communities”, not municipalities
  • Includes sources of revenue in addition to taxes (fees, licensing, debt management)
  • Include counties, school districts, and local authorities
recommendation 4 promote shared expertise for complex issues services
RECOMMENDATION #4 Promote shared expertise for complex issues/services
  • Volunteers especially need assistance
  • Provide incentives, if needed
  • Many municipalities cannot, on their own, afford professional or technical assistance
recommendation 5 conduct further study
RECOMMENDATION #5Conduct further study
  • Define and standardize measures of fiscal health
  • Forecast future municipal fiscal health
  • Analyze the expenditure and services side of the fiscal equation
  • Create a baseline database
  • Pay particular attention to the costs of retirement systems, health care and tax collection (Part 2 will begin early fall)