THE NEW GILDED AGE (Part 2)
THE NEW GILDED AGE (Part 2)
06th August, 2020 0
As we’ve reported previously, the current operating budget for Saginaw County for the 2019-20 fiscal year is currently set at $44,050,603, which represents a $2,234,194 increase over the previous year’s budget. This 5.59% increase comes on the heels of three millage proposals approved by only 30.22% of registered voters in 2018 for non-mandated services, which increased the amount of property taxes paid by the owners & renters of 89,000 parcels of property in Saginaw County by approximately $3,454,616.
When Gov. Gretchen Whitmer announced the first COVID-19 lockdown back in March, closing not only all ‘non-essential’ businesses about also all ‘non-essential’ governmental operations, many of the services that private citizens and businesses pay for through property tax assessments were also suspended.
As anybody who received their Summer Property Tax bill from the City & County of Saginaw is well aware, many of the items we’ve been invoiced and assessed for such as the closure of our parks, the suspension of yard waste collection for six weeks in the Spring, and the fact that our court system has essentially been closed and stopped functioning, with five months of civil and criminal legal matters currently sitting in limbo, leads to one obvious question: Seeing as taxpayers have been assessed and paid for these services, will we be seeing any proportional tax credits from city and county municipalities for those services we have paid for but have not received?
Given that states and municipalities were issued $150 billion dollars from the Federal government for relief through the COVID crisis that runs through December, it would appear that property tax rebates & credits should be forthcoming, given the shutdown or suspension of services such as those mentioned above, coupled with the fact municipalities are already getting reimbursed from the Feds.
Anything less would be an obvious case of ‘double-dipping’.
Recently The REVIEW reached out to Saginaw County Controller Robert Belleman and Saginaw City Manager Tim Morales to discuss these issues, however neither of them responded in time for this deadline.
When reaching out to Saginaw County Commissioner Kathy Dwan to see if any discussions of these credits or rebates to taxpayers have been placed upon the agenda, she responded that to date she has not heard of any discussion of county government ‘returning’ any tax dollars to the people paying them.
“I would ask the same question of the State of Michigan as well as the school districts,” she responded. “If kids weren’t in school from mid-March through now....like, what the heck? I could use some of that money back, too.”
“I would highly doubt there will be a vote on tax rebates,” she continued, “but I will certainly have a conversation on that topic with Mr Belleman. Especially in light of our Sheriff asking for approximately a 25% INCREASE in his millage from the people of Saginaw county. It amounts to a $2.4 million dollar increase. He currently gets $6.2 million and with the passage of this millage it jumps to $8.5 million for 10 years.”
The global pandemic and accompanying economic crisis have knocked states and cities across the country back on their heels. States are hemorrhaging money to stand up medical systems and field unemployment claims while watching their revenue plummet. People have been ordered to stay at home, meaning sales tax revenues are way down, and as layoffs take hold, revenue from income tax is falling as well.
Governors and state lawmakers, many of whom are faced with constitutional balanced budget requirements, are going to have to make big cuts fast, unless the federal government does more to step in.
“Whether it’s tax increases or spending cuts, states tend to take money out of the economy during periods of stress, and that is not only financially difficult for their residents, but it also tends to delay the economic recovery,” said Josh Goodman, state economic development officer at Pew Charitable Trusts.
He estimates states missed out on $283 billion in the decade following the 2008 crisis, and state funding to education and local governments is still down across much of the country. State budget shortfalls this time around could total more than $500 billion in a single year, and cities and states across the country are sounding the alarm.
“We cut services because of that recession that we never restored,” Gallego said. “We are starting this decline already lean.”
The ways states and cities make money are drying up
About 70 percent of tax revenue for states comes from sales and income taxes, explains Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities (CBPP). And given that economic activity has been brought to a stop across much of the country — thousands of businesses have closed, millions of people have been laid off — you can start to see the problem.
“There’s no question that sales tax revenue has completely fallen off the table, so that’s about one-third of state revenues that are completely collapsing, and then income taxes are also falling rapidly with all those people getting laid off. And with the stock market decline, that means that quarterly tax payments that wealthy people and corporations pay will be lower,” Leachman said. “That’s two major revenue sources that are in very sharp decline, much steeper than anything from the Great Recession.”
Other sources of revenue that will also be impacted — gas taxes, alcohol taxes, lottery revenue — vary by state as well. The drop in oil prices is doing harm in places such as Texas and North Dakota. Tourism-heavy places like Las Vegas and Florida are losing out on money they won’t get back. And then there’s the simple fact that some states and cities are being hit by the coronavirus crisis and accompanying recession more than others.
“There is no one whose budget is looking like it is fantastic, but how bad the downturn is going to be is going to depend on what taxes you rely on and what’s going on in your labor force, your economy, and your population,” said Kim Rueben, director of the state and local finance initiative at the Urban Institute. She warned that if the coronavirus crisis begins to become a bigger issue in more rural counties, “that can be fiscally devastating because some of those places are much closer to the margins.”
“States don’t have armies, but they pay for health care, they pay for unemployment insurance and a few other things, and in recessions, Medicaid bills go way up, people lose their employer-sponsored health insurance, they go on Medicaid. And at a time like now, they might need medical care even more than usual,” said Danny Yagan, an economist at the University of California Berkeley.
“Unemployment insurance claims go up, further draining from state coffers, and states don’t issue their own currency or may even have balanced budget amendments, so they can’t borrow the way the federal government does.”
States and cities are starting to sound the alarm
Most states follow a fiscal year that goes from July 1 to June 30 for their budgets (Alabama, Michigan, New York, and Texas are different). For many places, the numbers were looking pretty rosy just a few months ago. Now they’re not.
In Maryland, the state said it could see a $2.8 billion shortfall in the last three months of the fiscal year alone. New York state is expecting tax revenue losses of $10 billion to $15 billion.
Some states aren’t imposing cuts yet, in part because legislatures are not in session, some due to social distancing measures. But they’re going to start soon. Whatever estimates they made at the start of the year will basically have to be blown up and rewritten under much more dire fiscal circumstances.
States and cities aren’t like the federal government, which can run a large deficit. Many have balanced budget amendments, meaning they’re supposed to take in as much as they put out.
States have “rainy day” funds that they can dip into if they need — the 50-state total recently reached $75 billion. But those rainy day funds can only go so far — the CBPP estimates state budget shortfalls due to coronavirus and the economic crisis could total more than $500 billion.
Some states are better-positioned to weather the storm — and some are worse off. According to data from Moody’s Analytics, about one-third of states were unprepared for even a moderate recession heading into the crisis. Among them: Illinois, New Jersey, Florida, Louisiana, and Mississippi. The same thing goes for cities.
While talking about state and city budgets can seem pretty vague, ultimately, they come down to businesses and, really, people.
Most states have imposed stay-at-home orders and have mandated thousands of businesses shut. No more restaurants or bars, no department stores or boutiques, no hair salons, no barber shops, etc. There’s no tourism. People are spending a lot of money at the grocery stores, but they’re not the end-all, be-all of business, and a lot of grocery purchases aren’t taxed.
And it’s not just about keeping employees compensated and the bills paid. If and when businesses are given the go-ahead to reopen, they’re going to need some help, too. A coffee shop that’s been closed needs to get new inventory, get their workers back in the building, and let customers know they’re back in business. “If you think about the Main Street businesses, they’re small, they don’t need a lot, but they need an injection of energy,” Hughes said, estimating $2,500 or $5,000 would go a long way toward many businesses opening their doors again.
Of course, that’s assuming they stay afloat at all, and that the virus is under control sooner rather than later. “Businesses are saying that if this goes on for another period of time, I can withstand another 30 days, I can withstand another 60 days, but after that, I’m not going to be able to survive,” she said.
And when states and cities start looking at their budgets for places to cut, that translates to the people they employ. According to one recent survey, more than 1,000 cities are planning to scale back public services, and 600 think they’ll have to lay off workers.
The decisions made about budget cuts now will have lasting effects.
And the worse off states and cities are, the slower the recovery if and when we get out of the health crisis end of things. Laid-off workers, shuttered businesses, and reduced services drag down the economy. “Once consumers and businesses have jumped out of the economic water, they dip their toes back in only very slowly, and the initial shock is often locally concentrated.
There are mechanisms in place for states and cities to get financial help as they try to ride this out, but there’s broad agreement that they’re probably going to need more.
The $2.2 trillion CARES Act provides $150 billion to state, tribal, and local governments. The package also includes $30 billion for education, $25 billion for mass transit systems, $5 billion for community development block grants, $3.5 billion for child care, and $400 million for elections.
The Federal Reserve has also said it will buy some municipal bonds, putting up to $500 billion into short-term loans for states, cities, and counties. But a Brookings Institution study finds that because of the program’s eligibility criteria, only 10 cities and 15 counties will be able to access it directly.
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THE NEW GILDED AGE (Part 2)