Sat, 06 Jun 2009

The fun only lasts until the music stops

A couple of weeks ago, during a hearing at the Senate Finance committee, chairman Daniel DaPonte (D -- East Providence and Pawtucket) made some disparaging remarks about our cities and towns. In response to a witness who made a comment about how cuts in municipal aid were forcing cities and towns to raise property taxes, Senator DaPonte said, "There's no evidence that giving cities and towns more money will result in property tax cuts. We've raised municipal aid and property taxes haven't come down."

In fact, the chairman is right that municipal aid has gone up a lot, but he's wrong, too. Municipal aid grew from $28 million in 1990 to $234 million in 2008. What are the towns doing with all that money? Flushing it down the toilets in town hall?

In fact, they can't flush it because they don't get even half of it. That number serves to nurse the standard story about what's wrong with local government, but it doesn't have much to do with paying bills at town hall. You see, to make the sum as large as $234 million, the state budget writers include $135 million in reimbursement for car taxes. This is real money, certainly, but it goes to taxpayers, not towns. It does not help balance municipal budgets

If you ignore the car tax reimbursements, state aid to cities and towns is down, pretty much any way you slice it: as a proportion of state spending, as a proportion of municipal budgets, and as a proportion of the state's economy.

1990 was an interesting moment in this history. For all his faults, Ed DiPrete was once a mayor, and therefore was the last governor who had ever balanced a local budget, and it showed. At the time, state aid was funding 29% of municipal budgets, including about 50% of education costs. Official state policy was that we'd eventually be funding 60% of local education.

But the 1991-92 fiscal crisis knocked everyone for a loop, and Bruce Sundlun was a lot of things, but mayor was never one of them. State aid fell to 23% of municipal budgets. Lincoln Almond's administration pushed it back up to 33%, but it's been declining ever since Governor Carcieri took over, and we're down to 27% as of 2008 (including 36% of education costs, counting generously). It's a little hard to say what's the case in 2009, since the dust hasn't settled, but the only real question is how great the decline.

For cities and towns, what's the difference between Lincoln Almond (33%) and Don Carcieri (27%)? $160 million in local aid, that's what. But you'd rather have a couple of replacement bridges, wouldn't you?

"Wait a minute," you say. "Even though municipal aid is down so much, you're measuring it in relation to other numbers that have gone up. What about the real number?"

Fair enough. As of 1990, Rhode Island cities and towns received about $1.3 billion, between state aid, property taxes and various municipal fees. In 2008, this was just a bit short of $3 billion (still not counting the car tax). If you're keeping score, that's growth of about 1.9% per year after correcting for inflation. This is troubling, but it's not necessarily evidence of mismanagement. Inflation measures the price of goods and a few services, while towns spend their money on services and a few goods.

If you want a yardstick with which to measure a service-oriented enterprise like a town, how about a private-sector service like Federal Express? Fedex is widely considered a fierce (and nonunion) competitor who relies on technology to keep costs down. How have they done over the same time? Well, in 1990, it cost $11 to send an overnight letter to California, and today it's about $25.50 for the same service. After correcting for inflation, that's up about 2% a year. Health care is also a service industry, and I think we'd all be much happier if it had kept its costs down to 2% growth. On the other hand, movie ticket prices are actually down compared to inflation, so not all service industries see this degree of cost inflation.

What about the state? After accounting for inflation in the same way, the state's general revenue has gone up 2.4% per year since 1990, and overall expenses are up even more.

This is what makes it so galling to sit around in town hall these days. Here you are, running your town more efficiently than Fedex, and way more efficiently than the state, but look how you're treated.

I'm not saying 1.9% a year is great. My income hasn't gone up that fast. It's a cause for concern for me, and should be for you, too. I'm not counseling complacency; government needs watchdogs. But we're not going to fix anything by getting all the important answers wrong. In this case, putting the blame on the cities and towns tends to absolve the state, which by comparison has been downright reckless with its finances at the same time it starves the cities and towns.

We have nearly doubled the state debt since 2002, for example, taking on giant road projeects we can't afford. We have stolen from the following fiscal year in service of the current year. And we've given millions of tax dollars to the wealthiest of our citizens, tax cuts the state's budget-writers still haven't given up on, despite the crisis.

The big difference between the state and the municipalities here is the state's tax revenue grows in step with the economy, while towns have to raise tax rates in order to keep up. Towns pay for their tax increases in the form of property tax riots, while the state gets its increases for free, as it were. For years, all those cost-of-living adjustments and allowances for the rising price of fuel are built into the state's funding source, so they're easy to build into the budgets. Except for the fastest-growing towns, this was a pleasure denied to municipalities. Legislators and the Governor can tsk the way they do at the locals because the state has been insulated from their budgetary recklessness by this constantly growing stream of income.

Until, of course, the music stops. This year, collections from the state income and sales taxes have declined, and the state is reeling from accumulated years of irresponsible budgeting, and naturally, the state is blaming cities and towns again. Some things never change.

08:01 - 06 Jun 2009 [/y9/cols] link

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