Fed analyst says local officials too cautious in revenue estimates

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WASHINGTON – City finance officers are taking an overly cautious approach in their 2017 revenue projections, a Federal Reserve Board analyst said Tuesday.

“There should be a solid increase in property tax growth,’’ Byron Lutz, chief of the Fed's fiscal analysis section, said during a roundtable discussion of a National League of Cities survey released Monday that found municipalities are at the start of a fiscal slowdown.

Early census data finds local property tax values growing at 6% to 7% this year, Lutz said.

That's much higher than the 1.6% increase in property tax revenue growth that finance officials who participated in the survey estimated for 2017, following a 4.3% increase last year.

But the increase cited by Lutz may not result in the same actual amount of increased property tax revenue because some communities impose local caps on that revenue, said participants at the roundtable, which included local officials and their representatives.

Property taxes are the main source of revenue for most cities, although some rely heavily on local sales taxes and income taxes for funding. While nearly all cities have access to a local property tax, more than half are also authorized to collect local sales taxes, the NLC report said.

Only about 10% of municipalities have access to income tax revenue, Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois-Chicago and co-author of the NLC report, said during the roundtable.

Cities have budgeted for only a 0.9% increase in general fund revenue this year following increases of 2.61% in 2016 and a post-recession peak of 3.26% in 2015.

The cautious revenue projections in the survey can be traced in part to concerns about reduced revenue sharing with cities by federal and state governments, participants at the roundtable said.

U.S. Rep. Dan Kildee, D-Mich., said Flint’s fiscal troubles can be linked to a long-term drop in state revenue sharing.

“Many cities are one mistake away from falling down that same well,’’ he said.

Kildee said his focus in Congress is on “keeping intact the few investments” the federal government makes in American cities, such as funding for Community Development Block Grants.

Chris Morrill, executive director and CEO of the Government Finance Officers Association, said revenue growth is the major issue for his organization’s members. On the federal level, that means keeping the federal deduction for state and local taxes and the tax exemption for municipal securities as well as getting Congress to enact legislation to enable cities to collect of sales taxes on internet transactions, he said.

“Infrastructure is critical and if there is a way the federal government can have an impact, it’s there,’’ said Ron Carlee, an assistant professor of public service at Old Dominion University. He called on the federal government to aggressively invest in infrastructure.

“We are all arguing for big investments in America’s infrastructure,’’ Kildee said, expressing his hope that whatever infrastructure plan Congress devises will focus on needs to invest in older industrial cities in the Northeast and Midwest.

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