Giving Local Voters a Say in Tax Policy
When revenues can't cover essential services, public officials would do well to engage residents in a dialogue about what's important to them.
Medina, Wash., population 3,217, is getting more than its fair share of media attention. Most of the time this hamlet near Seattle is associated with wealth and famous residents like Bill Gates and Jeff Bezos. But recently it has been noticed for something different: The city is running out of money to pay for such basic services as police, firefighting and parks.
How can this be? As a statement on the city's website puts it, "The cost of providing basic services is growing faster than the available revenue streams -- expenses have risen an average of 4-5% per year while revenue has grown at an average of 2.5% per year." Given that the median home price in Medina is over $2 million and the median income, at $186,464 in 2017, is triple that of the rest of the country, the solution to Medina's shortfall may seem obvious: raise taxes.
The problem is, the town can't. Or, to be more precise, its public officials don't have the authority to increase the property tax, which is the mainstay of the town's revenue, by enough to cover the shortfall. Under a 2007 state law, Washington's local governments cannot increase the amount of revenue they collect by more than 1 percent annually. However, the law offers a remedy: Ask voters for permission to raise the cap.
There are strong opinions about the wisdom of not allowing elected officials to control their governments' tax policy. Some think it is onerous and inefficient, while others think it is democracy at its best. Sidestepping whether such a policy is wise or unwise, the reality for cities in Washington and in most other states is that when it comes to increasing property tax rates beyond a state-imposed limit, voters are the deciders, and therefore public officials need to be deliberate about including them.
But how? Each local government is unique, but all would do well to learn from the experience of Roseville, Calif., which undertook a process to educate the community about the budget and learn how it prioritizes city services. EngageRoseville was a cross-departmental initiative that focused on research, education and, as its title suggests, engagement with taxpayers. The research found, unsurprisingly, that the community was not enthusiastic about paying more in taxes. However, it also found that residents were "keenly interested in preventing any erosion of services they value."
Education and engagement strategies included formation of an advisory committee composed of non-governmental leaders, a large-scale "community conversation" with any resident who wanted to participate, and a simulation that started with the budget in deficit, requiring users to indicate what they would cut -- and to see the consequences. The feedback indicated to city staff and the city council that residents wanted to preserve and not cut services, requiring additional revenue, so last year the city council gave voters the option to raise sales taxes by a half-cent. The measure passed with 62 percent of the vote in a conservative city that had never before put a sales tax measure on the ballot. (By way of disclosure, the simulation software Roseville used was built by my company.)
EngageRoseville won the 2019 Government Finance Officers Association Award for Excellence for the best practice of public engagement in the budget process, five awards from the California Association of Public Information Officers, and more. (The leaders of the initiative give a behind-the-scenes presentation on their work in this recorded webinar.)
Most of the state laws limiting tax rates, and therefore requiring voter approval for increases beyond those limits, have come at times of voter anger or stress, such as during the voter revolts in the late 1970s and the recession of the early 1990s. Currently the national economy is thriving, but the shadow of those earlier times looms over Medina and hundreds of other local governments that must now find a way to communicate a complex, sometimes counter-intuitive reality to residents to gain their assent.
EngageRoseville offers a governing blueprint others could adapt, but even when carried out by highly skilled staff the effort took 18 months. As we all know, it can take years to build trust, and it can be lost in a flash. Recently I contacted the finance director in Medina to see if that city might be interested in some of the tools used by Roseville. Her response? "Where were you ten years ago?"
We are living in a time of political division not seen in decades. And while the economy is strong, the current expansion has gone on longer than any sane economist would have predicted. What lies ahead? No one knows, but one certainty is that pre-emptively building an effective relationship with residents on financial issues would not hurt.