The 1980s were a decade of federal fiscal devolution. Federal cutbacks reflected the Reagan administration's commitment to decentralization and the realities of federal budget deficits. Cutbacks increased fiscal pressure on state and local governments, while restrictions on their borrowing capacity made it more difficult to use long-term tax-exempt debt to raise revenue in the short term. These restrictions also made it more difficult to finance public-private partnerships. To cope, state and local governments improved management techniques, transferred functions to the private sector and to other units of government, diversified their revenue systems, and looked for more discretionary revenue. Revenue enhancement was often limited by restrictive statutes, intergovernmental competition, and public opposition. Growing cynicism about the fairness of taxes prompted passage of the Tax Reform Act of 1986. This act significantly affected state and local taxing and borrowing. It did little, however, to allay state and local fears that the federal government would continue to capture more revenue for itself. As we enter the 1990s, the major question will undoubtedly be, Which governments can or should pay for what?
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References
1.
1. In Garcia v. San Antonio Metropolitan Transit Authority (1985), the Court ruled that Congress can regulate the terms of employment of state and local employees. In South Carolina v. Baker (1988), the Court ruled that Congress has the power to regulate tax-exempt bonds. In City of Richmond v. J.A. Croson (1989), the Court limited the right of municipalities to contract, striking down many state and local government purchasing programs with minority-contractor set-aside requirements.
2.
2. Robert B. Hawkins, Jr., “The Chairman's View,”Intergovernmental Perspective, 15: 35 (Spring 1989).
3.
3. International City Management Association, Preliminary Survey Results: Introducing Private Delivery of Public Services (Washington, DC: International City Management Association, 1987).
4.
4. Susan A. MacManus, “Transferring Functions among Local Governments and the Private Sector in High-Growth Areas: Divestitute Strategies to Control Public Sector Expenditures,” in Decentralisation: New Intergovernmental Agendas, ed. R. J. Bennett (New York: Oxford University Press, 1989).
5.
5. One study reported 21 city-city consolidations across the U.S. between 1980 and 1988. See Gary Halter, “City-City Consolidations in the United States 1970-1988” (Paper delivered at the annual meeting of the Southwestern Political Science Association, Little Rock, AR, 29 Mar.-1 Apr. 1989).
6.
Academy for State and Local Government , Where Will the Money Come From? Finding Reliable Revenue for State and Local Government in a Changing Economy, vol. 1, Summary of the Fiscal Futures Study (Washington, DC: Academy for State and Local Government, 1986).
7.
7. Bowman and Mikesell, Local Government Tax Authority and Use.
8.
8. U.S. Advisory Commission on Intergovernmental Relations, Local Revenue Diversification: Local Income Taxes (Washington, DC: Advisory Commission on Intergovernmental Relations, 1988).
9.
9. For example, see U.S. Advisory Commission on Intergovernmental Relations, Changing Public Attitudes on Governments and Taxes 1988 (Washington, DC: Advisory Commission on Intergovernmental Relations, 1988), p. 49.
10.
10. Bland, Revenue Guide for Local Government, p. 55.
11.
11. U.S. Advisory Commission on Intergovernmental Relations, Significant Features of Fiscal Federalism, 1989 ed. (Washington, DC: Advisory Commission on Intergovernmental Relations, 1989), 1: 58-59.
12.
12. There are three types of excise taxes: benefits based, sumptuary, and privilege. Benefits-based taxes, such as hotel occupancy taxes, gas taxes, and utility taxes, recover at least part of the cost of a public service from those who benefit from it. Sumptuary, or sin, taxes, such as taxes on alcohol and cigarettes, are designed to discourage consumption of those goods. Privilege taxes, such as occupational license taxes, admission taxes, taxes on restaurant meals, deed transfer taxes, and bank franchise taxes, are more regulatory in nature and are levied on the privilege of conducting a particular type of business.
13.
13. Bowman and Mikesell, Local Government Tax Authority and Use, p. 96.
14.
14. See Statistical Abstract of the United States: 1988 (Washington, DC: Government Printing Office, 1987), tab. 475, “Revenue Losses Estimates for Selected Tax Expenditures by Function: 1975 to 1987,” p. 296.
15.
15. Bland, Revenue Guide for Local Government, p. 153.
16.
16. See Robert L. Kemp, “Economic Development: Raising Revenues without Increasing Taxes,”Municipal Finance Journal, 8: 145-149 (Spring 1987).
17.
17. Tax abatement means that “taxes are usually frozen at their predevelopment level for a specified number of years (usually 10-15 years), after which the property is assessed and taxed at the prevailing rate... In exchange for this tax benefit, developers must make the contractually agreed-upon improvements in the designated areas.” Bland, Revenue Guide for Local Government, p. 162.
18.
18. Ibid., p. 156.
19.
19. Larry C. Ledebur, ed., Your City's 1040: Federal Tax Reform and Municipalities (Washington, DC: National League of Cities, 1987), p. 1.
20.
20. The Tax Reform Act of 1986 (Pub. L. 99-514) was actually the fourth major tax measure enacted in the 1980s. The others were the Economic Recovery Tax Act of 1981, Pub. L. 97-34; the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248; and the Deficit Reduction Act of 1984, Pub. L. 98-369. See Congressional Budget Office, The Effects of Tax Reform on Tax Expenditures (Washington, DC: Congressional Budget Office, 1988).
21.
21. Karen J. Boucher and Rick J. Taylor, “The Domino Effect: Federal Tax Reform and the States,”Journal of State Taxation, 6:133 (Summer 1987).
22.
Steven D. Gold , “The Blizzard of 1987: A Year of Tax Reform Activity in the States,”Publius: The Journal of Federalism, 18:17-35 (Summer 1988).
23.
23. Gleason, “Federalism 1986-87,” p. 125.
24.
24. Gold, “Blizzard of 1987.”
25.
25. Gleason, “Federalism 1986-87: Signals of a New Era,” p. 125.
26.
26. Gold, “Blizzard of 1987,” p. 26.
27.
27. Six states do not levy individual income taxes: Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Four states exclude corporations' net income taxes: Nevada, Texas, Washington, and Wyoming.
28.
28. Ledebur, ed., Your City's 1040, p. 2.
29.
29. Ibid., p. 8.
30.
Robert D. Van Brocklin , “The Impact of Federal Budget and Tax Policies on Local Governments,”Municipal Finance Journal, 9:65-70 (Winter 1988).
31.
31. Pagano, Effects of the 1986 Tax Reform Act on City Finances, p. 15.
32.
32. Ledebur, ed., Your City's 1040, p. 9.
33.
Edward D. Einowski, “Editor's Viewpoint: Life after South Carolina: Abandoning the States to the Political Process,” ibid., 9:267-271 (Fall 1988).
34.
34. Penelope Lemov, “How Much Does Washington Plan to Tamper with Municipal Bond Financing?”Governing, 2:19 (Feb. 1989).
35.
35. Jerry Gold, “Tax Reform and the Municipal Bond Market,” in Selected Presentations and Proceedings (Austin, TX: Municipal Treasurers Association of the United States and Canada Annual Conference, 16-19 Aug. 1988), pp. 36-38.
36.
Daphne Brown , “Impact of the Tax Reform Act on Municipal Bond Yields,”Municipal Finance Journal, 9:111-126 (Spring 1988).
37.
37. Basically, the 10 percent rule means that if more than 10 percent of bond proceeds are used by persons other than the general public or the local government, the bond issued cannot be classified as tax exempt, or if more than 10 percent of the bond proceeds are repaid by a firm, individual, or other nongovernmental entity, the bond issued is taxable. Pagano, Effects of the 1986 Tax Reform Act on City Finances.
38.
38. Ibid., p. 12.
39.
39. Elser, “After South Carolina,” p. 19.
40.
40. Stacey Crane, “Treasurers Urge Remedy: Public Works Financing Endangered,”Journal of State Government, 62:37 (Jan.-Feb. 1989).
41.
Sharon Stanton White , “Overview of the Technical and Miscellaneous Revenue Act of 1988 As It Relates to Tax Exempt Obligations,” ibid., pp. 23-53.
42.
42. Van Brocklin, “Year in Review,” pp. 81-82.
43.
John Kincaid , “Rain Clouds over Municipal Diplomacy: Dimensions and Possible Sources of Negative Public Opinion,” in The New International Cities Era, ed. Earl H. Fry, Lee H. Radebaugh, and Panayotis Soldatos (Provo, UT: Brigham Young University, David M. Kennedy Center for International Studies, 1989), pp. 223-249.
