Thoughtful budgeting needed as cities like SJ expand ineffective local programs
Mark Moses, senior fellow at the California Policy Center, explores the key factors that made city budgeting easier this year: recent federal aid, slowed spending, and higher-than-expected sales and property tax revenue. Despite these temporary positives, many cities are encountering fiscal disaster, yet they continue pouring money into unnecessary, unhelpful programs (see SJ’s persistent efforts to house homeless residents without addressing root causes—$65+ million recently added to the pot). Moses implores cities to weigh programs’ usefulness against cost for taxpayers/local gov’t. To receive daily updates of new Opp Now stories, click here.
Most U.S. cities are experiencing an administrative and financial crisis. This appears to be at odds with the confident tone of recent budget hearings where most of the attention was placed on how to spend remaining 2021 federal relief funds and so called “discretionary funds.”
Cities have been able to adopt viable budgets this year because of four factors – none of which reflect proficient management. First, the 2021 federal relief (American Rescue Plan Act) mitigated the impact of pandemic-related revenue losses and provided a fresh source for new spending. Second, cities benefited from unplanned passive savings (i.e., slowed spending) as a consequence of the delayed hiring and reduced activity during and following the lockdowns. Third, most cities have recorded better-than-expected sales tax results, driven by changes in consumer spending, sales tax collection regulations, and inflation. And finally, many cities are collecting more property taxes as a result of domestic migration and inflation (e.g., property transfer taxes and reassessments). Not only are these factors unrelated to municipal management; they are all either one-time or cyclical contributors to financial results.
Meanwhile, cities continue to increase the scope of their organizational activity and spending – e.g., in the areas of homelessness, housing, and experimental programs such as universal basic income. This increased spending occurs at a time in which pension contributions are certain to rise. Inflation pressures have driven up benefits for current retirees while simultaneously driving up the salaries of current employees and the cost of their future benefits. At the same time, investment returns are lagging, thus exacerbating pension funding challenges and draining resources that could address deficiencies in retiree medical benefit funding.
Worse, the problems cities are casting money at – homelessness, housing, public safety – are not being solved…
This excerpt originally appeared in the California Policy Center. Read the whole thing here.
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