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Cities and Towns Cities and Towns Mean Mean
Business!Business!Presented by Carolyn Presented by Carolyn
Stager to:Stager to:Legislative Task Force on Legislative Task Force on
Municipal FinanceMunicipal Finance
Representative Dan Sullivan, ChairRepresentative Dan Sullivan, ChairSenator Patrick Anderson, Vice-ChairSenator Patrick Anderson, Vice-Chair
October 7, 2010 October 7, 2010
Municipal Finance Study Municipal Finance Study Oklahoma Municipal LeagueOklahoma Municipal League
TOWNS & CITIES: TOWNS & CITIES: Where rural and urban Where rural and urban
unite!unite! Municipal government is where the rubber Municipal government is where the rubber
meets the road.meets the road.
Pave our streetsPave our streets Keep citizens safe Keep citizens safe Fight wildfires and crimeFight wildfires and crime Put water in the tap (& in the toilet)Put water in the tap (& in the toilet) Remove our trashRemove our trash Prepare us for disaster (& recovery)Prepare us for disaster (& recovery) Economic development (economic engines) Economic development (economic engines)
77% of Oklahomans live in municipalities
91% STATE sales tax is generated from sales within municipalities
80% Oklahoma citizens & businesses receive water from municipal sources
Virtually all commerce, government, education & healthcare occurs inside a city
Cities are the Economic Engines !
To Grow Oklahoma: Grow the Cities and
Towns Across Oklahoma
Municipalities by Municipalities by PopulationPopulation
Oklahoma has 594 municipalitiesOklahoma has 594 municipalities
366366 under 1,000under 1,000
145145 from 1,000 - 5,000from 1,000 - 5,000
4242 from 5,000 - 10,000from 5,000 - 10,000
3333 from 10,000 - 50,000from 10,000 - 50,000
8 8 more than 50,000 (only 3 > 100,000)more than 50,000 (only 3 > 100,000)
Source: US Census Bureau 2008 estimatesSource: US Census Bureau 2008 estimates
Municipal Revenue Sources Municipal Revenue Sources for Oklahoma and U.S. for Oklahoma and U.S.
CitiesCities
All Other Revenues
15%
Property Tax32%
Federal Funds3%
State Funds12%
Income Tax4%
Sales Tax15%
Fees/Charges
10%
Other Taxes9%
Source: National League of Cities
Services & Sales22%
Other Gov1%
State Gov5%
Sales Tax55%
Federal Gov4%
Rents, Int. & Roylalties
9%
Other Lic4%
2009 U.S.2009 U.S. 2008 Oklahoma2008 Oklahoma
Major Sources Major Sources of Operating Revenueof Operating Revenue
StateState Income TaxIncome TaxSales TaxSales TaxGross Production TaxGross Production TaxMotor Vehicle TaxMotor Vehicle Tax
SchoolsSchoolsAd Valorem TaxAd Valorem TaxState Appropriations State Appropriations Federal FundsFederal FundsSale Tax -thru citiesSale Tax -thru cities
CountiesCountiesAd Valorem TaxAd Valorem TaxState AppropriationsState AppropriationsSales TaxSales Tax
Municipalities Municipalities Sales TaxSales Tax
Inco
me
Tax
Sal
es T
ax
Oil
& G
as R
even
ue
StateState sales tax: sales tax: limited limited impact impact
MunicipalMunicipal sales tax: sales tax: BIG BIG IMPACTIMPACT
Towns & Cities
Sal
es T
ax
State
Overdependence on Sales Overdependence on Sales TaxTax
Erosion of sales tax baseErosion of sales tax base
Internet/Catalog “tax haven”Internet/Catalog “tax haven” $106.5 million loss to Oklahoma governments$106.5 million loss to Oklahoma governments
by 2012by 2012
Exemptions by State of OklahomaExemptions by State of Oklahoma3 in 1965, 3 in 1965,
6 in 1980,6 in 1980, 149 in 2009 and climbing149 in 2009 and climbing
State exemptions =State exemptions =no revenue for citiesno revenue for cities
0
2040
6080
100
120140
160
Year
# of
Exe
mpt
ions
Increases in sales tax Increases in sales tax exemptionsexemptions
Exemptions are likeExemptions are like::
Death by a thousand duck BITES !Death by a thousand duck BITES !
Overdependence on Sales Overdependence on Sales TaxTax
Pressure for more deductionsPressure for more deductionsGrocery sales tax - $190 million in 2010Grocery sales tax - $190 million in 2010
Expand Sales tax holiday - $2.4 million in 2007Expand Sales tax holiday - $2.4 million in 2007
Sales Tax HolidaySales Tax Holiday
Currently is “hold harmless” which means that Currently is “hold harmless” which means that the state reimburses towns for the revenue the state reimburses towns for the revenue they lost, BUT –they lost, BUT –
State can eliminate the refund at anytimeState can eliminate the refund at anytime
Towns and cities are never sure that the Towns and cities are never sure that the reimbursement is equal to the revenues lost.reimbursement is equal to the revenues lost.
Overdependence on Sales Overdependence on Sales TaxTax
Diminished capacityDiminished capacity
Now counties (74 of 77) have sales taxNow counties (74 of 77) have sales tax
Municipal sales tax earmarked for local schools, Municipal sales tax earmarked for local schools, hospitals, econ. development, collegeshospitals, econ. development, colleges
In some areas combined local rates – state, In some areas combined local rates – state, county and town are at 10%!county and town are at 10%!
Source: Oklahoma Tax CommissionSource: Oklahoma Tax Commission
Problems with Over DependenceProblems with Over Dependenceon Sales Taxon Sales Tax
Sales tax is a volatile source of revenueSales tax is a volatile source of revenue
Consumer switch to Internet salesConsumer switch to Internet salesLoss to Oklahoma municipalities Loss to Oklahoma municipalities
projected to be $55-60 mil. annually projected to be $55-60 mil. annually by 2012by 2012
Combined state & counties crowd out Combined state & counties crowd out the ability for cities to increase sales the ability for cities to increase sales tax. (Some combined rates 10%)tax. (Some combined rates 10%)
Oklahoma is the only state that Oklahoma is the only state that does not provide property tax for the does not provide property tax for the
general operating budgetgeneral operating budget
One or more sourcesOne or more sourcesProperty TaxProperty TaxSales TaxSales TaxIncome TaxIncome TaxState AidState Aid
How Do Other StatesFund
Municipalities?
Overdependence on Sales Overdependence on Sales TaxTax
Texas: Sources of Municipal Revenue
Sales Tax, 26.60%
Other Sources, 11.3%
Property Tax, 34.8%
Interest Earning, 0.8%
Court Fines, 3.90%
Franchises, 9.80%
Transfers from Other Funds,
5.6%Permits/Fees,
7.2%
Overdependence on Sales Overdependence on Sales TaxTax
Missouri: Sources of Municipal Revenue
Property Tax19%
Sale & Use Tax53%Utility Tax
11%
Fuel Tax9%
Misc.8%
THE BASICS:THE BASICS: Oklahoma Oklahoma Municipal Expenditures Municipal Expenditures
20082008
Source: Oklahoma Municipal League &
2008 SA&I U.S. Census Forms
Public Safety35%
Central Services
20%
Health4%Transport.
15%
Recreation19%
Debt Interest
5%
All Other2%
Municipal Street FundingMunicipal Street Funding
Municipal Roads Vital to Economic DevelopmentMunicipal Roads Vital to Economic Development
Municipalities maintain > 27,000 miles of roadMunicipalities maintain > 27,000 miles of road
Counties maintain only 3000 miles in small Counties maintain only 3000 miles in small towns, usually with the town providing the towns, usually with the town providing the materialsmaterials
State Motor Vehicle Apportionments –State Motor Vehicle Apportionments –
Municipalities $24 mil. statewideMunicipalities $24 mil. statewide Counties $235 mil. statewideCounties $235 mil. statewide
Vote higher sales taxesVote higher sales taxes
Transfer funds from utilitiesTransfer funds from utilities
Raise fines and feesRaise fines and fees
Reduce servicesReduce services
Balancing the city budget?
Citizens will vote sales taxesCitizens will vote sales taxes
for a good cause if-for a good cause if-
Combined rates aren’t too high!Combined rates aren’t too high!
Transfer Funds from Transfer Funds from UtilitiesUtilities
Robbing utility revenues means:Robbing utility revenues means:
Neglected maintenanceNeglected maintenance
38% of Oklahoma’s water treatment 38% of Oklahoma’s water treatment facilities are Under a DEQ consent order.facilities are Under a DEQ consent order.
EPA estimates EPA estimates $5.4 billion$5.4 billion to bring to bring municipal water and sewer up to standard municipal water and sewer up to standard in Oklahomain Oklahoma
Higher utility rates for customersHigher utility rates for customers
HB3054 - Requires a Municipal Impact HB3054 - Requires a Municipal Impact Statement on new legislationStatement on new legislation
HB2653 - Created interim study on HB2653 - Created interim study on municipal financemunicipal finance
HB3291 – Preserves REAP funding for HB3291 – Preserves REAP funding for small municipalitiessmall municipalities
Actions to Help: PassedActions to Help: Passed
Actions to Help: PassedActions to Help: Passed
SB1998 - Allows counties to help with SB1998 - Allows counties to help with municipal roads in additional municipal roads in additional communities under 15,000 (more needs communities under 15,000 (more needs to be done)to be done)
SB1631- Allows municipal public trusts SB1631- Allows municipal public trusts to participate in retail operationsto participate in retail operations
HB2359 – Allows improved collection of HB2359 – Allows improved collection of municipal sales taxmunicipal sales tax
Actions to Help: FutureActions to Help: Future
Moratorium on Sales Tax ExemptionsMoratorium on Sales Tax ExemptionsStudy the cost vs. benefitStudy the cost vs. benefit Implementation CostsImplementation CostsRepeal sales tax exemptions with low benefitRepeal sales tax exemptions with low benefit
Restructure the Municipal Tax BaseRestructure the Municipal Tax Base Reduce dependence of volatile sales taxReduce dependence of volatile sales taxProvide more diversification and stabilityProvide more diversification and stabilityProvide access to property tax for servicesProvide access to property tax for services
Actions to Help: FutureActions to Help: Future Increase state funding for municipal roadsIncrease state funding for municipal roads
Enable municipal fire and police public safety Enable municipal fire and police public safety districtsdistricts
Fully fund state payments for emergency Fully fund state payments for emergency disaster reimbursementsdisaster reimbursements
Remove population limitations on county’s Remove population limitations on county’s ability to assist with street building and repairability to assist with street building and repair
Improve Tax Commission effectiveness in Improve Tax Commission effectiveness in municipal sales tax collection.municipal sales tax collection.
Cities and Towns Cities and Towns Mean Business!Mean Business!
To Grow Oklahoma:To Grow Oklahoma:Grow the Cities and TownsGrow the Cities and Towns
Across OklahomaAcross Oklahoma
Municipal Finance Study Municipal Finance Study Oklahoma Municipal LeagueOklahoma Municipal League