City Officials Disapprove Overall Handling of State and Federal Tax Issues

As a precursor to a report expected next month from the President's Commission on Tax Reform, the National League of Cities (NLC) recently issued its findings from a survey citing disapproval of how state and federal tax issues are being handled by the Administration, Congress, and state governors and legislatures. NLC outlined recommendations and called on the federal government to convene a national economic summit to address the issues.

According to a research brief summarizing the report, Local Budget and Tax Policy in the U.S.: Perceptions of City Officials, 84 percent of responding city officials said the federal deficit, in particular, poses a problem for cities. The report points to several governmental challenges that are negatively impacting fiscal policy. Among those challenges are federal and state unfunded mandates, cuts or limits in federal and state support, and federal or state preemption of local authority.

The majority of city officials stated that if cuts in services are required as a result of revenue and spending pressures, they are likely to eliminate general government areas of administration and personnel, as well as cultural and leisure-related services such as parks and libraries. One in three city officials favors across-the-board cuts in city services, the brief states.

Bart Peterson, NLC 2nd vice president and mayor of Indianapolis, said that cities can no longer rely on the creation of sale and manufactured goods, given the changing economy. As the economy relies more on information-based technology and sales, he added, so should the ability to tax. The tax reform recommendations include:

• Design a fairer way to raise tax revenues by broadening the tax base and eliminating private-sector, special privilege tax exemptions;
• Extend sales tax to mail-order catalogs and to Internet sales;
• Eliminate the alternative minimum tax or adjust it so that it serves its original intent;
• Maintain tax-exempt status of municipal bonds to continue to attract investors in cities; and,
• Prevent the elimination of state and local tax exemptions.

City officials agree that user fees will most likely be used to raise additional revenue in the future; however, they rate local property taxes as the best overall source of local revenue. The survey and research brief are available from NLC at: http://www.nlc.org/home/