Cities and Towns Cities and Towns Mean Mean

Business!Business!Presented by Carolyn Presented by Carolyn

Stager to:Stager to:Legislative Task Force on Legislative Task Force on

Municipal FinanceMunicipal Finance

Representative Dan Sullivan, ChairRepresentative Dan Sullivan, ChairSenator Patrick Anderson, Vice-ChairSenator Patrick Anderson, Vice-Chair

October 7, 2010 October 7, 2010

Municipal Finance Study Municipal Finance Study Oklahoma Municipal LeagueOklahoma Municipal League

TOWNS & CITIES: TOWNS & CITIES: Where rural and urban Where rural and urban

unite!unite! Municipal government is where the rubber Municipal government is where the rubber

meets the road.meets the road.

Pave our streetsPave our streets Keep citizens safe Keep citizens safe Fight wildfires and crimeFight wildfires and crime Put water in the tap (& in the toilet)Put water in the tap (& in the toilet) Remove our trashRemove our trash Prepare us for disaster (& recovery)Prepare us for disaster (& recovery) Economic development (economic engines) Economic development (economic engines)

77% of Oklahomans live in municipalities

91% STATE sales tax is generated from sales within municipalities

80% Oklahoma citizens & businesses receive water from municipal sources

Virtually all commerce, government, education & healthcare occurs inside a city

Cities are the Economic Engines !

To Grow Oklahoma: Grow the Cities and

Towns Across Oklahoma

Municipalities by Municipalities by PopulationPopulation

Oklahoma has 594 municipalitiesOklahoma has 594 municipalities

366366 under 1,000under 1,000

145145 from 1,000 - 5,000from 1,000 - 5,000

4242 from 5,000 - 10,000from 5,000 - 10,000

3333 from 10,000 - 50,000from 10,000 - 50,000

8 8 more than 50,000 (only 3 > 100,000)more than 50,000 (only 3 > 100,000)

Source: US Census Bureau 2008 estimatesSource: US Census Bureau 2008 estimates

Municipal Revenue Sources Municipal Revenue Sources for Oklahoma and U.S. for Oklahoma and U.S.

CitiesCities

All Other Revenues

15%

Property Tax32%

Federal Funds3%

State Funds12%

Income Tax4%

Sales Tax15%

Fees/Charges

10%

Other Taxes9%

Source: National League of Cities

Services & Sales22%

Other Gov1%

State Gov5%

Sales Tax55%

Federal Gov4%

Rents, Int. & Roylalties

9%

Other Lic4%

2009 U.S.2009 U.S. 2008 Oklahoma2008 Oklahoma

Major Sources Major Sources of Operating Revenueof Operating Revenue

StateState Income TaxIncome TaxSales TaxSales TaxGross Production TaxGross Production TaxMotor Vehicle TaxMotor Vehicle Tax

SchoolsSchoolsAd Valorem TaxAd Valorem TaxState Appropriations State Appropriations Federal FundsFederal FundsSale Tax -thru citiesSale Tax -thru cities

CountiesCountiesAd Valorem TaxAd Valorem TaxState AppropriationsState AppropriationsSales TaxSales Tax

Municipalities Municipalities Sales TaxSales Tax

Inco

me

Tax

Sal

es T

ax

Oil

& G

as R

even

ue

StateState sales tax: sales tax: limited limited impact impact

MunicipalMunicipal sales tax: sales tax: BIG BIG IMPACTIMPACT

Towns & Cities

Sal

es T

ax

State

Overdependence on Sales Overdependence on Sales TaxTax

Erosion of sales tax baseErosion of sales tax base

Internet/Catalog “tax haven”Internet/Catalog “tax haven” $106.5 million loss to Oklahoma governments$106.5 million loss to Oklahoma governments

by 2012by 2012

Exemptions by State of OklahomaExemptions by State of Oklahoma3 in 1965, 3 in 1965,

6 in 1980,6 in 1980, 149 in 2009 and climbing149 in 2009 and climbing

State exemptions =State exemptions =no revenue for citiesno revenue for cities

0

2040

6080

100

120140

160

Year

# of

Exe

mpt

ions

Increases in sales tax Increases in sales tax exemptionsexemptions

Exemptions are likeExemptions are like::

Death by a thousand duck BITES !Death by a thousand duck BITES !

Overdependence on Sales Overdependence on Sales TaxTax

Pressure for more deductionsPressure for more deductionsGrocery sales tax - $190 million in 2010Grocery sales tax - $190 million in 2010

Expand Sales tax holiday - $2.4 million in 2007Expand Sales tax holiday - $2.4 million in 2007

Sales Tax HolidaySales Tax Holiday

Currently is “hold harmless” which means that Currently is “hold harmless” which means that the state reimburses towns for the revenue the state reimburses towns for the revenue they lost, BUT –they lost, BUT –

State can eliminate the refund at anytimeState can eliminate the refund at anytime

Towns and cities are never sure that the Towns and cities are never sure that the reimbursement is equal to the revenues lost.reimbursement is equal to the revenues lost.

Overdependence on Sales Overdependence on Sales TaxTax

Diminished capacityDiminished capacity

Now counties (74 of 77) have sales taxNow counties (74 of 77) have sales tax

Municipal sales tax earmarked for local schools, Municipal sales tax earmarked for local schools, hospitals, econ. development, collegeshospitals, econ. development, colleges

In some areas combined local rates – state, In some areas combined local rates – state, county and town are at 10%!county and town are at 10%!

Source: Oklahoma Tax CommissionSource: Oklahoma Tax Commission

Problems with Over DependenceProblems with Over Dependenceon Sales Taxon Sales Tax

Sales tax is a volatile source of revenueSales tax is a volatile source of revenue

Consumer switch to Internet salesConsumer switch to Internet salesLoss to Oklahoma municipalities Loss to Oklahoma municipalities

projected to be $55-60 mil. annually projected to be $55-60 mil. annually by 2012by 2012

Combined state & counties crowd out Combined state & counties crowd out the ability for cities to increase sales the ability for cities to increase sales tax. (Some combined rates 10%)tax. (Some combined rates 10%)

Oklahoma is the only state that Oklahoma is the only state that does not provide property tax for the does not provide property tax for the

general operating budgetgeneral operating budget

One or more sourcesOne or more sourcesProperty TaxProperty TaxSales TaxSales TaxIncome TaxIncome TaxState AidState Aid

How Do Other StatesFund

Municipalities?

Overdependence on Sales Overdependence on Sales TaxTax

Texas: Sources of Municipal Revenue

Sales Tax, 26.60%

Other Sources, 11.3%

Property Tax, 34.8%

Interest Earning, 0.8%

Court Fines, 3.90%

Franchises, 9.80%

Transfers from Other Funds,

5.6%Permits/Fees,

7.2%

Overdependence on Sales Overdependence on Sales TaxTax

Missouri: Sources of Municipal Revenue

Property Tax19%

Sale & Use Tax53%Utility Tax

11%

Fuel Tax9%

Misc.8%

THE BASICS:THE BASICS: Oklahoma Oklahoma Municipal Expenditures Municipal Expenditures

20082008

Source: Oklahoma Municipal League &

2008 SA&I U.S. Census Forms

Public Safety35%

Central Services

20%

Health4%Transport.

15%

Recreation19%

Debt Interest

5%

All Other2%

Municipal Street FundingMunicipal Street Funding

Municipal Roads Vital to Economic DevelopmentMunicipal Roads Vital to Economic Development

Municipalities maintain > 27,000 miles of roadMunicipalities maintain > 27,000 miles of road

Counties maintain only 3000 miles in small Counties maintain only 3000 miles in small towns, usually with the town providing the towns, usually with the town providing the materialsmaterials

State Motor Vehicle Apportionments –State Motor Vehicle Apportionments –

Municipalities $24 mil. statewideMunicipalities $24 mil. statewide Counties $235 mil. statewideCounties $235 mil. statewide

Vote higher sales taxesVote higher sales taxes

Transfer funds from utilitiesTransfer funds from utilities

Raise fines and feesRaise fines and fees

Reduce servicesReduce services

Balancing the city budget?

Citizens will vote sales taxesCitizens will vote sales taxes

for a good cause if-for a good cause if-

Combined rates aren’t too high!Combined rates aren’t too high!

Transfer Funds from Transfer Funds from UtilitiesUtilities

Robbing utility revenues means:Robbing utility revenues means:

Neglected maintenanceNeglected maintenance

38% of Oklahoma’s water treatment 38% of Oklahoma’s water treatment facilities are Under a DEQ consent order.facilities are Under a DEQ consent order.

EPA estimates EPA estimates $5.4 billion$5.4 billion to bring to bring municipal water and sewer up to standard municipal water and sewer up to standard in Oklahomain Oklahoma

Higher utility rates for customersHigher utility rates for customers

HB3054 - Requires a Municipal Impact HB3054 - Requires a Municipal Impact Statement on new legislationStatement on new legislation

HB2653 - Created interim study on HB2653 - Created interim study on municipal financemunicipal finance

HB3291 – Preserves REAP funding for HB3291 – Preserves REAP funding for small municipalitiessmall municipalities

Actions to Help: PassedActions to Help: Passed

Actions to Help: PassedActions to Help: Passed

SB1998 - Allows counties to help with SB1998 - Allows counties to help with municipal roads in additional municipal roads in additional communities under 15,000 (more needs communities under 15,000 (more needs to be done)to be done)

SB1631- Allows municipal public trusts SB1631- Allows municipal public trusts to participate in retail operationsto participate in retail operations

HB2359 – Allows improved collection of HB2359 – Allows improved collection of municipal sales taxmunicipal sales tax

Actions to Help: FutureActions to Help: Future

Moratorium on Sales Tax ExemptionsMoratorium on Sales Tax ExemptionsStudy the cost vs. benefitStudy the cost vs. benefit Implementation CostsImplementation CostsRepeal sales tax exemptions with low benefitRepeal sales tax exemptions with low benefit

Restructure the Municipal Tax BaseRestructure the Municipal Tax Base Reduce dependence of volatile sales taxReduce dependence of volatile sales taxProvide more diversification and stabilityProvide more diversification and stabilityProvide access to property tax for servicesProvide access to property tax for services

Actions to Help: FutureActions to Help: Future Increase state funding for municipal roadsIncrease state funding for municipal roads

Enable municipal fire and police public safety Enable municipal fire and police public safety districtsdistricts

Fully fund state payments for emergency Fully fund state payments for emergency disaster reimbursementsdisaster reimbursements

Remove population limitations on county’s Remove population limitations on county’s ability to assist with street building and repairability to assist with street building and repair

Improve Tax Commission effectiveness in Improve Tax Commission effectiveness in municipal sales tax collection.municipal sales tax collection.

Cities and Towns Cities and Towns Mean Business!Mean Business!

To Grow Oklahoma:To Grow Oklahoma:Grow the Cities and TownsGrow the Cities and Towns

Across OklahomaAcross Oklahoma

Municipal Finance Study Municipal Finance Study Oklahoma Municipal LeagueOklahoma Municipal League