Raising Public Funds to Provide Public Services

1
Raising Public Funds to Provide Public Services

• Overview of Taxation Tax Policy

2
Education Expenditures with Respect to Income
3
Where the Money Comes From
4
Where the Money Comes From
Income Taxes
Income and Sales Taxes
Property Taxes
5
Local, State and Federal Involvement over Time
6
Once again.
Federal
1. Increased equity 2. Increased bureaucracy 3.
More rational control 4. Distant from point of
need Note some research indicates that state
governments spend cumulatively less than local
governments when the shift is made.
1. Increased local interest 2. Increased
disparity Note Some suggest that local control
over spending decisions helps retain voter
interest in the quality of services.
State
Local
7
Definitions

• Tax Base
• Wealth (Property etc.)
• Income (Personal, Corporate)
• Consumption (Sales, Luxury, Sin)
• Tax Yield Tax Rate X Tax Base
• Tax Impact (formal payer)
• Tax Incidence (tax passed on)
• Elasticity

8
Typical Revenue Sources

• Income tax
• State and Federal (a few local)
• Primary source of govt revenues
• typically flat (though designed progressive)
• Sales tax
• State (some county and local)
• Major source of state revenues
• Property tax
• Generally local
• Historically primary source of revenues for
  municipal services including

9
Fairness of Taxation?Tax Equity

• Feeling the pain?
• Rate (or levy) levy (percent) applied to base
• Burden cumulative effects of tax levies
• Effort cumulative tax levies relative to
  capacity to pay
• Tax Design
• Progressive increased effort with increased
  capacity
• Regressive decreased effort with increased
  capacity
• Flat Neither progressive nor regressive.

10
Progressiveness/ Regressiveness
Regressive
Effective Rate
Progressive
Capacity to Pay
11
Tax Efficiency Effectiveness

• Economic Effects
• Border wars competitiveness
• Administrative Costs
• Compliance Rates
• Predictability and Stability of Revenues
• Diversifying your portfolio
• Trends in Kansas?
• Political Acceptability
• Exportability
• Question - Why retain the property tax in VT when
  it is effectively applied as an income tax (by
  way of the income cap)?

12
Taxing Income

• Primary source of Federal (43 individual, 11
  corporate) and major source of State Revenues
  (most states)
• Defining income?
• Gross, Adjusted Gross?
• Brackets and Progressivity
• Local income taxes?
• New York (NYC Yonkers)
• Effectiveness
• Increasing compliance costs
• May fluctuate more (more immediately) than
  property tax revenues

13
(No Transcript)
14
Income Tax
15
Consumption Taxes

• Sales Tax
• Major source of state revenues (VT lowest at
  21.7)
• Selective Sales Taxes
• Reduction of burden to low income (food, clothes
  exemptions)
• Increase burden to high income (luxury tax)
• Effectiveness
• Compliance high and relatively inexpensive
• Still generally regressive

16
Consumption/Sales Taxes
17
Taxing Wealth

• Real Property
• Residential
• Corporate Industrial
• Agricultural
• Tangible Property
• Personal, motor vehicle
• Intangible Property
• Investments

18
Property Valuation

• Market Value value for which the property could
  be sold
• Net income Applies to commercial properties
  (small businesses)
• Replacement cost Applies to large business
  properties, utilities, railroads (in combination
  with net income methods)
• Best Use
• Alternatives for farmland
• Deferred taxation
• Preferential use

19
Assessment Rates

• Taxable Wealth is not equivalent to market
  value
• KS assesses residential property at 11.5 of
  value (less the first 20 in value)

20
Exemptions Circuit Breakers

• Homestead exemptions
• Economic development exemptions

21
KS MO School Tax Issues

• Missouri
• Residential 19 FMV
• Commercial 32
• Farm 12
• Tax Rates in Dollars per 100 Assessed Value
• No limits (with 2/3 majority)
• May levy up to 2.75/100 without vote
• Kansas
• Residential 11.5
• Exemption on first 20k value
• Commercial 30
• Motor Vehicles 30 (98-99)
• Agricultural 30 (use value)
• Commercial machinery 20
• Tax Rates in Mills (1/1000)
• Statewide 20 mill levy (but local communities
  retain exemption control)
• Local tax revenue capped

22
DISTRICT A
100k ea x 10 1,000,000
1 child per house 10 Children 1 Tax Rate x
1,000,000 10,000 Total Revenue 10,000 Total
Revenue/10 Children 1,000 per Pupil
23
DISTRICT B
100k ea x 10 1,000,000 1,000,000 Taxable
Value of Oil Reserves
1 child per house 10 Children 1 Tax Rate x
2,000,000 10,000 Total Revenue 20,000 Total
Revenue/10 Children 2,000 per Pupil
24
Property Tax Evaluation
25
Benefit perspective on Property Taxes

• Empirical analyses support the argument that the
  quality of local public schools influences
  property values
• Unfortunately, our shortsighted nature tends to
  make us frown on this benefit, because it
  generally means a higher tax bill for the same
  tax rate (we worry more about our annual taxes on
  the home than the profit we might make from the
  eventual sale of the home)

26
More on distortions

• Effect of tax on value of structure
• Disincentive to improve value of property
• Alternative Land value tax

27
Evaluating Lotteries
28
Tax Limits

• 1.      Overall property tax rate limits that set
  a ceiling that cannot be exceeded without a
  popular vote These limits apply to the aggregate
  rate of tax on all local governments (not just
  school property taxes)
• 2.      Specific property tax rate limits that
  set a ceiling that cannot be exceeded without a
  popular vote These limits apply to specific
  types of local jurisdictions
• 3.      Property tax levy limits that constrain
  the total revenue that can be raised from the
  property tax, independent of the rate
• 4.      Assessment increase limits that control
  the ability of local governments to raise revenue
  by reassessment of property or through natural or
  administrative escalation of property values
• 5.      Full disclosure and Truth in Taxation
  provisions that require public discussion and
  specific legislative vote before enactment of tax
  rate or levy increases.

29
Alternatives

• Statewide non-residential property tax
• tightens capitalization benefit by allowing
  local residents the option to tax only their
  primary residential properties toward enhancing
  local public services
• Creates equity advantages by distributing the
  taxable value of commercial and industrial
  properties (note that most commercial properties
  retain a certain value not solely due to local
  consumers. The same is even more true of
  utilities and industrial real estate)
• May reduce/soften economic shocks to local
  communities

30
Property Taxes, Yield Tax Effort
Taxable MHU .115 x (MHU 20,000) Tax Burden
Median Tax Bill / Median Family Income
31
Other Revenues

• 1.      User fees Busing, food service, textbook
  and lab fees, activities fees
• 2.      Non-student user fees Leasing of space
  (athletic complexes, classrooms, auditorium) or
  providing services to local community members and
  groups
• 3.      Business partnerships
• 4.      Volunteers Though not revenue per se,
  volunteer time is a resource that might be
  assigned a dollar value
• 5.      Investment returns Most investment of
  public tax revenues is typically short term, and
  restricted to relatively low yield, insured
  accounts. Note, however, that many of the
  alternative revenues on this list are not so
  constrained.
• 6.      Donations Donations of money or
  materials, supplies and equipment.
• 7.      Educational foundations Independently
  operated charitable not-for-profit organizations
  whose primary mission is to raise funds for local
  public school districts.

32
Foundation Revenues in Vermont
33
Foundation Revenues and Equity Concerns
Brent, 2002
34
Foundations in Kansas
Annual Revenue Summary
35
Kansas Tax Issues

• Reduction of required school property taxes
• Followed by expansion of local discretionary
  local property taxes
• Use of county and municipal sales taxes to
  circumvent limitations
• Growing disparity since 1992

36
(No Transcript)
37
(No Transcript)
38
(No Transcript)
39
(No Transcript)
40
Missouri Tax Issues

• State imposed cap on property taxes
• override by state Supreme Court (Implications -
  Can a court levy indirectly a tax?)
• Amendment (Hancock) re surplus
• Increased reliance on gaming revenues (Casino
  Lottery)
• Note research suggests lotteries are (1)
  inefficient (high administrative costs) (2)
  regressive