Tag Archives: tax caps

Taxes, Politics And The Urban/Rural Divide

Michael Hicks directs the Center for Business and Economic Research at Ball State University. His columns appear in the Indianapolis Business Journal, among other publications, and while I have my disagreements with certain of his research perspectives, he often raises issues worth considering.

Last week, he focused on the urban/rural divide–and what we might call a “maker/taker” taxation paradigm.

Hicks began by cautioning against the prevailing image of rural America as a monolith. It’s an important caution: rural communities differ from each other economically and in the degree of diversity of their populations.

That said, they also share common challenges and characteristics.

Over the last century, America’s rural counties haven’t really grown. We have roughly the same number of rural residents as we did in Teddy Roosevelt’s administration, but urban America is more than five times larger. Four out of five Americans live in urban counties as designated by the Office of Management and Budget. To be fair, many of the urban counties have plenty of row crops in them, and rural counties have many small cities. Also, much of the growth in urban places came in formerly rural counties, as has always been the case. Still, urban counties differ in other meaningful ways that are likely to influence future policy. The second big issue is taxes and spending.

Rural places are large beneficiaries of federal dollars. By some estimates, per capita spending by the federal government is twice as high in rural than urban places. Most of this goes into agriculture subsidies, so rural communities probably don’t perceive the spending. Most may not actually benefit from it. Still, that is a legitimate critique offered by urban taxpayers, who foot most of the bill. Rural residents ought to be more conscious that these large subsidies provide few benefits for their community, while alienating urban taxpayers.

There’s no national study, but here in Indiana, rural places are also big beneficiaries of state tax dollars. This is per a 2011 study jointly authored by Ball State and the Indiana Fiscal Policy Institute. In that study, we estimated that rural places get more than $560 more per resident in taxes than they pay, while urban places get almost $160 less per resident than they pay. It is a plain fact that state and federal taxpayers subsidize rural places at the expense of cities and suburbs. What is not so clear is whether or not this spending makes a meaningful difference in the lives of rural people. I suspect it does not. This is almost certainly true in every other state.

Not only do state and federal distribution formulas advantage rural areas over urban ones, but Hicks notes that rural communities tax themselves less than urban places. In Indiana, per capita taxes are approximately ten percent lower in rural areas than they are in urban counties, and it is likely that this is true nationally.

As Hicks acknowledges, this pattern means that taxpayers in growing metropolitan places–places that need to repair and extend their infrastructures and municipal services–are subsidizing static and declining rural areas. He suggests there will be a reckoning–and certainly, in Indiana, with our ill-advised constitutionalized tax caps, that reckoning will come sooner rather than later, because the state’s urban areas are being starved of desperately needed resources.

What Hicks doesn’t mention is a significant political reason for this disparity in resources: gerrymandering.

In Indiana–and other red states where Republicans control redistricting– a majority of electoral districts have been drawn to ensure that they contain majorities of reliably Republican voters–and those voters are overwhelmingly rural. The result is that a super- majority of the state’s lawmakers are responsive to rural interests and dismissive of the needs of the urban areas that have been carved up by map-makers–despite the indisputable fact that the urban areas are the state’s economic drivers.

Talk about “makers” and “takers”!

It’s one more inequity we won’t get rid of until we get rid of gerrymandering.

Politics as Usual

Contemporary politics has a lot in common with tantrums in a nursery school classroom. So it is understandable, although not very helpful, to see every dispute between the City-County Council and the Ballard Administration characterized–and dismissed–by local pundits as “politics as usual.”

Not every difference of opinion between the Council and the Mayor–or between Congress and the President–can be dismissed as “playing politics.” Some reflect genuine disputes over what constitutes good policy.

Take the current dispute between the Mayor and Council over funding for expanded preschool. That dispute is not over the value of preschool or the need for expansion; it is about identifying a funding mechanism that is both reliable and fiscally responsible. It is about how, not whether. Both sides have principled arguments worth weighing; it would be nice if we had local journalists willing and able to help readers understand the different perspectives.

Instead, we get naive admonitions to “play nice.”

Which brings me to yet another unfortunate consequence of lawmakers’ decision to constitutionalize property tax caps.

A couple of weeks ago, this particular dispute sparked a friendly argument. I didn’t understand the Council’s reluctance to approve the Mayor’s funding proposal by eliminating a local property-tax credit. Why not? I asked. It’s not a biggie, and if it would fund preschool, great. My friend insisted that elimination of the credit would cause a revenue shift that would end up costing both IPS and the Library significant revenues, and would cost township schools nearly 3.9 million. But he couldn’t explain why.

I couldn’t see how that would be true, and refused to believe him, so he sent me an analysis by the Indiana Fiscal Policy Institute that confirmed those shifts, which are a result of whether individual property owners have or have not hit the cap.

Here’s the thing: I read the analysis, and another posted by Ed Delaney, several times. Call me dense (many do), but the operation of the tax caps on local property taxes is so complicated, I am still at a loss to understand precisely how it works. I gave the analyses to a colleague whose area is Public Finance, and he patiently explained it–but only after even he’d struggled to work through the formula.

When the operation of tax law is so complicated that even former lawyers and professors of public finance have trouble figuring it all out, you have a prescription for mischief–and worse. Transparency in government doesn’t only mean that citizens need to know what their elected officials are doing, it also requires rules that are comprehensible to most of us.

Until I looked at the issue, I simply did not believe the Councilors who said the proposed funding mechanism would shift money–would create winners and losers. Now, it may be that funding preschool expansion is worth doing even if it does take revenue from other units of local government, but that is a very different argument than the “should we/ shouldn’t we have preschool” debate portrayed by local media.

The moral(s) of the story:

In the absence of clear and understandable laws, We the People simply cannot make intelligent decisions about policy and policymakers.

In the absence of a local media capable of analyzing and reporting on the reasons for disagreements, we lack any basis upon which to render democratic judgments. We the People are not well-served by a media that characterizes even legitimate differences over policy as “playing politics,” and fails to do the hard work needed to understand and explain the arguments .


Mayor Ballard’s Very Strange, Utterly Misplaced Priorities

Anyone who lives in Indianapolis and reads or listens to the news knows that Mayor Ballard recently vetoed a bipartisan measure passed by the City-County Council that would have increased the size of the police recruit class. He says we can’t afford it.

The news also confirms that Ballard is hell-bent on spending $6 million dollars to build a Cricket field.

A friend recently sent me the following clip from a news story, in which Ballard defended his priorities.

During an interview last week, Ballard grew impassioned when asked about the decision-making behind the nearly 50-acre sports complex and the shaky history of the United States of America Cricket Association. (It has new leadership after struggling to put on cricket tournaments in recent years.) He called local reaction to the plans “very upsetting.” “We have basketball courts, swimming pools, tennis courts, baseball fields — we have all these other sports — and these guys have nowhere to play rugby, hurling, lacrosse, Australian-rules football, cricket,” Ballard said. “Why are they not allowed to have their fields, too? … I think, as a mayor, that’s a good thing to be doing.”

Let’s deconstruct this. (I will try to do so without hurling.)

Because our parks have swimming pools and basketball courts, we have an obligation to offer cricket and lacrosse fields? Why not dodgeball (which actually has more fans than cricket, at least judging from Facebook likes)? How about people who compete in hammer-throw tournaments? Curling? Surely Ballard is not suggesting that this is some sort of equal protection issue–that taxpayers have an obligation to meet the sports needs of aficionados of even the least popular sports?

And I’m still debating the propriety of government providing golf courses…

If there is one thing on which virtually all Americans agree, it is that providing public safety is a government obligation. (That may be the only thing Americans all agree on.) Police may not be as exciting as cricket (actually, they are; I’ve seen cricket), but providing adequate police protection is–along with ensuring that we can flush–an absolutely basic government function.

So, as Ed Koch might have asked, how are we doing?

According to the Mayor’s own task force, the Indianapolis police force is short 685 uniformed officers. The national average is 2.5 officers per 1000 residents; the current IMPD ratio is 1.7 officers per 1000.

The murder rate in New York City is 3.4 per 100,000. The murder rate in Indianapolis is 17.5 per 100,000.

The City is shifting IMPD assignments in a desperate effort to put more cops on the street without actually adding personnel, but given our current staffing levels, that’s equivalent to rearranging the chairs on the deck of the Titanic. The Mayor’s own task force reported that there is no alternative to hiring more officers–redeploying may help at the margins, but there is no alternative to hiring more police.

Now, I’m not unsympathetic to the fiscal problems created by Mitch Daniels’ tax caps. (Caps that Ballard supported, unbelievable as that is.) Constitutionalizing those caps was brilliant politics, and terrible government. The caps starve units of local government of badly needed resources, requiring not only creative fiscal management (we are running out of public assets to sell off), but also those “hard decisions” that politicians talk about endlessly but rarely if ever actually make.

The Council’s proposal would have paid for the recruiting class only for the first year; the City would have to come up with the money to pay for the additional officers going forward. That would require hard trade-offs–at a minimum, fewer subsidies to local sports franchises, fewer cushy deals for developer friends of the Mayor. It might also require the Mayor to actually appear at the legislature–something he’s been loathe to do, especially if such appearances would interfere with one of his frequent “economic development” junkets–and petition our state-level rulers to get rid of the 40 plus “funds” that currently prevent Indianapolis from setting its own priorities.

The problem is, unless the citizens of Indianapolis feel safe, we can’t accomplish any of our other goals. We can’t revitalize neighborhoods. Economic development efforts will go nowhere. The bike lanes, the Monon Trail and the justifiably lauded Cultural Trail will empty. Downtown businesses will suffer. There will be a downward spiral that will make all other efforts immeasurably more difficult.

We have a real public safety crisis in Indianapolis right now–a public safety crisis that could undo the years of progress we have enjoyed.

And instead of focusing on that crisis and working with the legislature to address it, we have an utterly clueless Mayor who is spending what little political capital he has on a cricket field.






The Politics of Pay

Whatever the merits of Mayor Ballard’s decision to give his staff huge pay raises, the “optics,” as they say, are terrible. The upcoming city budget will be more than painful, thanks largely to the ill-conceived “tax caps,” and the cuts to services will be draconian in some places. Giving your buddies in the Mayor’s office 20% raises at a time like this is simply tone-deaf. (Someone reminded me yesterday that former Mayor Peterson actually cut pay for his office staff at a time of tight budget constraints.)

For all I know, the raises were an effort to keep people from fleeing the administration; Michael Huber–far and away the most effective member of the Mayor’s staff–has already announced his departure, and this is the time in most second terms when people who can leave–who are actually employable elsewhere–begin their job hunting.

Whatever the calculus, this was a bone-headed move that will make it much harder for the Mayor to get the sort of political concessions he will need during the give-and-take of budget negotiations. It is one more bit of evidence–as if we needed any–that the “Mr. Smith Goes to Washington” American delusion is just that. Delusional.

Ballard may be a nice enough fellow, but he ran for office proudly proclaiming his “outsider” status. He asked people to vote for him because he wasn’t a “politician”–in other words, because he wasn’t someone who understood how the system worked. Voters bought it; they elected him over two opponents who actually did understand urban issues and politics. The results have been mixed, to put it mildly, and Ballard has relied heavily on outside “advisers” who have had their own interests to advance.

Cities can function with inept leadership when times are reasonably good–when we can afford the learning curve. But when the fiscal belt tightens, we need leadership that understands how cities work, what the priorities must be and how to achieve important goals.

It’s no time for the tone-deaf.