Counties and the Revenue Crisis that Won’t Go Away

Saddled with antiquated revenue structures, county governments don’t have the flexibility they need to meet modern expectations for service delivery.
by | May 7, 2012

As we lurch into a sixth year of economic crisis, state and local governments continue to face enormous pressure to hold down spending. With personnel as the major cost driver, they have responded in large part by reducing staff by more than 600,000. Governing's Mike Maciag reports that while we have not reached bottom yet, workforce cuts are slowing.

These governments may be coming to the end of their capacity to cut spending. And while there are signs that the revenue picture is starting to improve (particularly for states), county governments — dependent as they are on property taxes — face unique structural revenue problems. Here are cases from three states illustrate this:

• Lancaster County, Pa., has a population of about 520,000. The property tax is the county's sole source of revenue, and in the recession revenue from the county's some 185,000 parcels of real property has fallen sharply. Scott Martin, chairman of the county commission, says that the revenue structure simply doesn't work and that while in his view issues like pension reform and changes in collective bargaining are big, revenue reform is crucial. He'd like the state legislature to give counties the flexibility to set up revenue structures that suit their individual needs. Lancaster County, for example, has a large tourism industry, and a sales tax would take some pressure off of property taxes and allow some taxes to be exported to non-residents. On the other hand, he says, Forest County, with a population of only 7,000 and more deer than people, might want a different tax structure.

• Sarah Gates, an assistant to Oregon's chief operating officer, describes the desperate straits faced by some Oregon counties as the result of a tax base that simply cannot sustain a basic minimum of services. Much of the land in Oregon's counties is forestland owned by the federal government, and Washington has cut payments to the counties precipitously.

• Virgil Moon, director of support services for Cobb County, Ga., has been with the county for 32 years and says he has never seen the county's financial situation as bad as it is now. The county doesn't tax services, food or drugs, and property tax revenues have declined for the past three years after rising every year for a half-century. "We're still taxing the same things that were taxed 100 years ago," he says. "The revenue stream doesn't keep up with the changing economic environment."

Until a few years ago, the revenue picture in many local governments was masked by gimmicks and good times. The recession has starkly revealed the underlying problems. If we are going to retain counties as a component of the system of delivery of services, then we are going to have to modernize and rationalize their revenue structures.

In Pennsylvania, Oregon, Georgia and many other states, it's time to give local governments the flexibility they need to design revenue systems that support the services their residents want in a way those residents choose.

View changes in total state and local government employment dating back to 2009:

Mark Funkhouser  |  Director, GOVERNING Institute
mfunkhouser@governing.com  | 

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