budget trends for local governments judith i. stallmann stallmannj@missouri.edu community...

Budget trends for local governments

Judith I. Stallmannstallmannj@missouri.edu

Community Development Extension

Centra meeting

August 9, 2006

Budget trends for local governments

• Overview of taxes

• Local expenditure trends

• Local revenues

• Sales taxes– Sales taxes and the economy– Sales tax holiday– Internet sales

©Judith I. Stallmann

% of income11.21% - 13.21%10.51% - 11.12%10.18% - 10.50%9.64% - 10.12%8.37% - 9.63%

State and Local Taxesas a percentage of income

©Judith I. Stallmann

Missouri’s tax rankings, 2002 State and local combined

% of income Rank

Per capita Rank

All taxes 9.52% 42nd $2667 35th

Property

(mainly local)

2.44% 39th $684 37th

Sales and gross receipts (local)

3.80%

1.5%

22nd $1066 27th

Charges and fees

(local)

2.44%

2.0%

40th $685 41st

©Judith I. Stallmann

Missiouri local property and sales taxes and current charges as a percentage of personal income: 1992, 1997

and 2002

0%

1%

1%

2%

2%

3%

3%

Property tax Sales and gross receipts Current charges

Perc

enta

ge

1992

1997

2002

©Judith I. Stallmann

Local budgets

Missouri local governments direct expenditure by funtion: 1992, 1997 and 2002

600

2,600

4,600

6,600

8,600

10,600

12,600

14,600

16,600

1992 1997 2002

Mill

ions

of d

olla

rs

Government administration,interest on general debtand general expenditure

Environment and housing

Public safety

Transportation

Social services and incomemaintenance

Education services

Missouri local governments direct expenditure by funtion: 1992, 1997 and 2002

(without education expenditure)

300

1,300

2,300

3,300

4,300

5,300

6,300

7,300

8,300

1992 1997 2002

Mill

ions

of d

olla

rs

Interest on generaldebt

Governmentadministration andgeneral expenditureEnvironment andhousing

Public safety

Transportation

Social services andincome maintenance

2002 Expenditures of Local Governments (percentages)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

County Municipal Township SpecialDistrict

SchoolDistrict

Source: US Census Bureau, "Census of Governments 2002"

Pe

rc

en

tag

e

Education& libraries

Socialsevices &incomesupportTransportation

Publicsafety

Parks,housing,sewer,wasteGeneraladministration

Otherexpenditures

©Judith I. Stallmann

Local government taxes: 1992, 1997 and 2002

0%

10%

20%

30%

40%

50%

60%

70%

80%

Property Sales and gross receipts Other taxes

Pe

rce

nta

ge

All states

MO

MO

MO

All states

All states

All states 92

All states 97

All states 02

MO 92

MO 97

MO 02

©Judith I. Stallmann

Revenues of Local Governments: 2002

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

County Municipal Township SpecialDistrict

School District

Source: US Census Bureau, "Census of Governments 2002"

Pe

rce

nta

ge

Federal & staterevenues

Property tax

Sales tax

Other taxes

Currentcharges

Miscellaneousrevenues

©Judith I. Stallmann

Population, per capita income, and consumer price index growth rates: 1981- 2004

-5%

0%

5%

10%

15%

20%

25%

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cen

tag

e

US Consumer Price Index

MO percapita income

MO population

©Judith I. Stallmann

Local sales tax revenues

Local Sales Taxes

• Currently lists 46 sales taxes for local governments in the state

• Some available to all cities and counties

• Others available only for specific cities or counties

• Some available to special districts—new but growing in importance

© Judith I. Stallmann©Judith I. Stallmann

Missouri state taxes as a percentage of gross state product: 1980 - 2004

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cent

age

Individual incometax

Sales and use taxes

Corporate incomeand franchise taxes

Licences, fees andpermits

All other taxes

©Judith I. Stallmann

Food exemption

Missouri state taxes as a percentage of personal income: 1980 - 2004

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cent

age

Individual incometax

Sales and usetaxes

Corporate incometax

Licences, feesand permits

All other taxes

©Judith I. Stallmann

Food exemption

Changes affecting sales tax revenues

• Changes in tax laws

• Business cycles

• People spending a smaller percentage of their income on things subject to sales tax– Retail prices for many items have fallen

resulting in lower tax collections – People spending a larger percentage of their

income on services, most of which are not taxed

• Internet and catalog sales increasing©Judith I. Stallmann

Source: DED http://www.ded.mo.gov/researchandplanning/indicators/taxable_sales/index.stm

Economic Share in Missouri by County 2004

Change in Economic Share by County: 1994-2004

http://www.ded.mo.gov/researchandplanning/indicators/share.stmhttp://www.ded.mo.gov/researchandplanning/indicators/share.stm

Change in Economic Share by County: 1994-2004

Population trends: 1900-2000

http://www.ded.mo.gov/researchandplanning/indicators/share.stmSource: Rex Campbell

Internet taxes

StageAdoptedParticipated in negotiationsJoined laterNot participating No general sales tax

States adopting streamlined sales taxJanuary, 2004

© Judith I. Stallmann

Internet sales tax revenuesPotential gains

• Catalog sales not currently taxed

• “Pure” e-commerce

Gains or losses

• State and local: Standard definition of tax base is boarder or narrower than that currently used by state

• Local: Taxation at point of delivery when seller is in another local taxation jurisdiction

© Judith I. Stallmann

from point of sale collections

Data © Judith I. Stallmann

© Judith I. StallmannData

Internet taxation

• Largest potential revenues are not consumer expenditures but business expenditures on the internet

© Judith I. Stallmann

Sales tax holiday

Rank on state and local sales taxes as a % of income, 2002

State Rank State rate Local option

Arkansas 7 5.125 Co., city

Kansas 19 4.9 Co., city

Illinois 35 6.25 Co., city, other

Indiana 39 6 None

Iowa 30 5 Co.

Missouri 21 4.225 Co., city, other

Nebraska 28 5 Co., city

Oklahoma 20 4.5 Co., city

Tennessee 9 6 (8) Co., city© Judith I. Stallmann © Judith I. Stallmann

Participating in sales tax holiday

• Cities in counties on the state border are more likely to participate

• Cities in counties that are participating are more likely to participate

© Judith I. Stallmann

Not participating in sales tax holiday

• Larger cities are less likely to participate—they have the retail and less competition from other cities

• Cities with higher sales tax rates are less likely to participate—they have more to lose

• If there are a large number of cities in a county a city is less likely to participate– The number of cities in surrounding counties

does not affect participation by cities© Judith I. Stallmann

If the family spent the entire tax savings on tax-free items, for every $100 spent they could spend $7.53 more:

1/(1-tax rate)1/(1-.07)1/.93 = 107.53

Tax holiday

© Judith I. Stallmann

For every $100 spent on tax-free items, consumers have to spent an additional $100 on taxable items that they would not have otherwise spent for the city to break-even on tax revenues. Not many families can spend outside of their budgets to that degree.

Tax holiday

© Judith I. Stallmann

Why is sales tax so popular?

• Paid in small amounts rather than a large chunk like property or income tax so not as noticeable to consumer

• Some of the tax falls on people outside the community

• For the local government, revenues flow throughout the year

• The state provides the collection mechanism at fairly low cost

© Judith I. Stallmann

Thank-you