Ionia, Michigan, borrowed half asmuch for a new fire truck last year as it planned, and its maindrag is freshly paved. The benefactor: its income tax.
As the U.S. begins to shake off a recession that bankruptedtwo Michigan automakers, and factories rehire thousands, most ofthe state?s 22 cities with income taxes are getting a windfall.Historically, a volatile levy of last resort because the revenuevaries with economic conditions, it has become a vital safetynet as property taxes flag.
?We are lucky that our income stream is diverse,? IoniaCity Manager Jason Eppler said. ?If we had to rely only onproperty tax and state aid, we?d be in a lot worse shape.?
Ionia?s income-tax receipts rose 33 percent in 2011 from2010. Even Detroit, trying to avoid running out of money thisyear, got a 3 percent gain in 2011, reaching a four-year high,according to U.S. Census Bureau estimates. new York, Baltimore,Pittsburgh and Youngstown, Ohio, also had gains.
?This is all very unusual,? said Eric Scorsone, aneconomist at Michigan State University in East Lansing whocompiled data on income-tax revenue. ?Property taxes havealways been so stable. Now, from a public-financing standpoint,income taxes are providing more stability. a lot of it is drivenby higher pay for existing workers and people working longerhours.?
Local income-tax receipts across the U.S. for the 12 monthsended December 2011 rose 14 percent to the highest since 2008,the previous peak, to $19.9 billion, according to Census data.Local property taxes fell about a third of 1 percent to $453billion, the second-straight annual decline.
More than 4,900 local governments, covering about 23million people in 17 states, have income taxes, according to theTax Foundation, a Washington-based research group. As many as ahalf dozen Michigan cities are considering them, said JohnKaczor, principal for Municipal Analytics LLC in Ann Arbor.
?There has been a significant increase in interest becauseproperty taxes will take decades to recover,? said Kaczor, whoconsults with cities on income-tax proposals. ?They aren?tnecessarily popular, but there are limited other options toincrease revenue.?
Municipalities should consider diversity of revenueregularly, said Jeffrey Esser, chief executive of theGovernment Finance Officers Association in Chicago, whichprovides training and advice.
?The last recession was different than most,? Esser said.?For all those previous recessions, once source that didn?tusually fluctuate that much was property tax. This is a snapshotat a moment in time and it may not be very reliable in makingprojections.?
Auto sales pushed Michigan?s economy in January to itshighest in six years, according to Comerica Bank?s monthlyactivity index. Michigan trailed only North Dakota for economicimprovement since the third quarter of 2009 through the fourthquarter of last year, according to the Bloomberg EconomicEvaluation of States.
Local income-tax receipts collected in the state rose 4percent last year to about $134.4 million as property tax fell 4percent to $2.58 billion, according to Scorsone?s analysis. Thathelps explain why more cities weren?t taken over, he said. Sixcities or school districts are under state financial controlthis year.
In Ionia, 130 miles (210 kilometers) northwest of Detroit,a third of the income-tax gain is from about 400 new jobsrelated to the auto industry. also, residents who were alreadyworking are getting more hours, Scorsone said.
The city, which expected to borrow $400,000, was able topay $230,000 in cash toward a 2011 pumper truck that cost$465,000, Eppler said. The 33-foot-long fire engine replaced a21-year-old model in a seven-vehicle fleet, he said.
A budget surplus helped the city provide matching money toenable a state highway project, Eppler said. The town is home tofour prisons, which make up 5,000 of its 11,200 residents.
In Detroit, 14,000 new people hired downtown as part ofbusiness development there helped income-tax revenue rise to$223.6 million last year, Mayor Dave Bing said in an interview.The city figures workers owe another $200 million, he said.
City income taxes began after the Great Depression,according to the Tax Foundation report.
The first emerged in Philadelphia in 1939, the group said.Pennsylvania leads all states, with more than 2,900 localincome-tax jurisdictions, according to the Tax Foundation.
Pittsburgh collected $71.8 million from it in 2011,compared with the budgeted estimate of $70.4 million, accordingto Joanna Doven, a spokeswoman for Mayor Luke Ravenstahl.
Controller Michael Lamb said in a telephone interview thatthe city likely will report a budget surplus for 2011.
Communities that impose taxes pay a price in lostdevelopment as companies and residents locate in towns withoutextra costs, said Travis Brown, chairman of the Kansas City,Missouri, group let Voters Decide.
Brown led a campaign for a ballot initiative to block thelocal spread of income taxes in Missouri and require theirregular reauthorization in St. Louis and Kansas City. He isbacking efforts to get statewide income taxes repealed inMissouri, Kansas, Oklahoma and new Jersey.
?This is all based on a failed assumption that income wasnot mobile,? Brown said. ?Mayors figured the jobs weren?tlikely to move. Well, they moved.?
For now, cities are just glad for breathing room, said KyleMiasek, deputy finance director in Youngstown. in his town,income-tax revenue rose about 6.9 percent last year, letting thecity match funds from a state program to demolish some of its2,000 vacant structures and bolster a program to help smallbusinesses.
?At least we?re moving in the right direction again,?Miasek said in an interview. ?We had a pretty sizable declineand, without it, the dent would be even deeper.?
To contact the reporter on this story:Jeff Green in Southfield, Michigan, at ;
To contact the editor responsible for this story:Mark Tannenbaum at .
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