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Budget trends for local governments
Judith I. [email protected]
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