Main Street

Tax Caps Aren’t Working

Tax caps have been on the agenda in states, cities, and towns around the country for more than a decade. Those who favor tax caps believe that putting limits on spending will force local and state governments to cut back on spending. At a time when millions of people are out of work, tax revenues are shrinking, and so is federal assistance – the tax cap is forcing local and state governments to make ugly decisions.

The city of Dover, NH passed a tax cap in 2007. In order to meet the tax cap mandate, the high school is being forced to make some difficult choices:

More than a dozen educator positions, all high school busing, and a quarter of athletic program funds could all be slashed as the school district struggles to cut more than $1 million to meet the tax cap mandate.

As one can imagine, these sorts of decisions are unpopular with the parents whose children will be directly affected. In addition to buses and athletic programs, there are likely to be cuts to educational programs.

His proposals also include cutting the new curriculum adoption budget in half, by $200,000; reducing the facilities improvements budget by $25,000; cutting the district’s overall supply budget by $28,000; and partially reducing the Career Technical Center’s biotech program by $50,000.

Proposed personnel cuts include transitioning all of the district’s 15 kindergarten paraprofessionals to part-time positions, essentially eliminating the equivalent of 7.5 positions for a $100,000 savings; cutting an elementary teacher position for $75,000; cutting two high school teachers for $150,000; cutting two middle school teachers for $150,000; and cutting the part-time middle school family and consumer science teacher for $20,000.

These problems are not limited to NH. Mokena, IL is considering eliminating kindergarten and all extracurricular activities to reduce their $2 million budget deficit. Two Houston districts have halted construction on 15 new schools, and are dealing with budget shortfalls caused by tax caps, level property values and greatly reduced sales tax revenues.

Besides delaying school construction, Cy-Fair cut $41 million by eliminating 450 positions primarily through attrition last year, then cut another $14.5 million by deleting another 100 positions this year.

“We’re getting to the point where our district — the largest one rated as ‘recognized’ for academic success in the state — may not look like it used to look,” said Stuart Snow, who oversees the district’s finances.

The Indiana legislature is trying to put their tax caps into their state constitution, despite the budget woes many cities and towns are already experiencing.

Cities already are laying off police officers and firefighters, as well as raising business fees, because the caps have reduced local tax revenues. The state Farm Bureau, which advocates for farmers, has raised concerns that homeowners are getting the biggest tax breaks despite using the most local-government services. Some companies dislike the caps because they set property-tax rates for businesses at three times the rate for homes.

Many communities are being hit hard by the tax caps. State sales tax revenue was supposed to bridge the gap but:

When lawmakers imposed the caps, they raised the state sales tax to 7% from 6%, directing that extra revenue be used to fund schools. But sales-tax revenue has declined so much during the recession that Gov. Mitch Daniels, a Republican, is ordering public schools to cut $300 million, or 3.5%, from their budgets.

The city of Muncie, with about 65,000 residents, was forced by the property-tax caps, disappearing industry and other revenue-shrinking factors to cut 32 firefighters—or about 29% of the department—and close two of seven fire stations. The city has stopped dispatching fire trucks to nonemergency medical calls.

Last week, Oregon voters passed a big tax increase:

Oregon voters bucked decades of anti-tax and anti-Salem sentiment Tuesday, raising taxes on corporations and the wealthy to prevent further erosion of public schools and other state services.

The tax measures passed easily, with late returns showing a 54 percent to 46 percent ratio. Measure 66 raises taxes on households with taxable income above $250,000, and Measure 67 sets higher minimum taxes on corporations and increases the tax rate on upper-level profits.

This is especially interesting, because it marks the first significant tax increase in Oregon in decades, in a state that embraced tax caps.

The double-barreled victory is the first voter-approved statewide income tax increase since the 1930s. Other states, facing similar budget woes, are watching the outcome closely because Oregon, after all, is a state that capped property taxes and locked a surplus tax rebate program into the constitution.

Tax caps don’t cut costs – they just force cuts in spending, which means cutting services. In cities and towns across the country this means cuts to school programs, cuts to libraries, and cuts to police and fire departments. There is no such thing as a “jobless recovery.” Considering that this should be our greatest national priority.

Tags: taxes