October 31, 2009

Consolidation as Another Means of Redistribution

Justin Katz

If you should attempt to discuss state-to-state migration trends related to taxation, Tom Sgouros will proclaim the whole thing far too complicated, with insufficient data available, to make broad statements. When it comes to people moving from town to town within the state related to taxes and services, well, he's not so reserved:

When a family moves from Cranston to Exeter, Cranston loses a little of its tax money, and Exeter sees an increase in the demand for its services. For most services, Cranston can't cut expenses as fast as they lose dollars. This isn't because of unions, but simply because of arithmetic. A hundred fourth-graders in a school make four classrooms. But ninety-nine students also make four classrooms. Just because you've cut the students doesn't mean you can cut the payroll, and the same effect is apparent with police, fire protection, sewers and more.

On the flip side, many studies have shown that the new residents of a town like Exeter seldom pay enough in taxes to cover the services they demand. This is especially true since most services cost more to provide way out in the burbs, where people are far apart from each other. It's why towns invented developer impact fees.

But what this means is that when people move from one town to another, the town they move from feels pressure on their tax collections and the town they move to feels pressure on their services. The result is that taxes can go up in both towns.

At best, you can say that this assessment is true under a certain, extremely limited, range of household types, and even then, the scenario by which taxes always go up everywhere whenever anybody moves requires a slew of assumptions. For example, if the property left behind in Cranston is reoccupied by somebody else, there is no loss of taxes. The same is true in the opposite direction in Exeter, unless the house was newly built. If the family has no children, there is no change in the schooling requirements for either town. And in the same way that removing a child from a class doesn't necessarily reduce the need for teachers, adding a child to a class doesn't necessarily increase that need.

In order for cities and towns even to come close to functioning, they must have somewhat of a balance between taxes and services, which means it simply can't be the case that every resident uses more in services than he or she provides in public revenue. And were that the case, to the extent that some other source of municipal income supplements the budget, loss of a taxpaying resident must represent a net gain.

Sgouros wants you to believe that towns aren't able to raise taxes quickly enough to cover new residents and that cities aren't able to cut services quickly enough to make up for lost revenue, but what he's claiming to be true doesn't make any sense:

The paradox of Rhode Island town finance is that today, the places with low taxes are the suburbs where the services are most expensive to provide, while the places with the highest taxes are the cities, where services are cheapest. It's the movement of people, and what it does to the tax rolls in towns, that bring us to this peculiar, and probably not stable, spot.

The problem is that the paradox only exists if one blacks out half of the relevant information. Consider some various data for the two towns that Sgouros uses as a hypothetical resident movement — from Cranston to Exeter:

Cranston Exeter
Residential tax rate (per $1,000) $15.34 $12.33
Municipal residential tax levy $101,633,398 $9,516,802
State aid $16,361,405 $1,053,443
Population 79,269 6,045
Occupied housing units (OHUs) 30,954 2,085
State aid per capita $206.40 $174.27
State aid + tax levy per capita $1,488.54 $1,748.59
State aid + tax levy per OHU $3,811.94 $5,069.66

Even though the tax rate is lower in Exeter, and even though it receives less per person in state aid, the actual amount of money that it collects per person is higher. Services may cost more to provide in the suburbs, but there's no paradox, because the towns are paying more for those services. And it isn't just that families are larger in Cranston, because Exeter pays even more on a per-household basis.

When one digs through all of the rhetoric and odd mathematical assertions, the disparity between urban and suburban areas derives from the fact that property is worth more outside of the city while city dwellers tend toward the end of the spectrum that uses more public services. (We're leaving political waste and corruption out of the picture, to allow clearer thinking.) What Sgouros actually sees in consolidation, therefore, is another means of redistributing money.

Like me, he's skeptical that consolidation will save appreciable money through economies of scale, but at the end of the article, and the end of the day, he's not concerned with saving money, but "reduc[ing] pressure." He wants to "insulate" town finances "from the effects of people moving." That is, to the greatest extent possible, he wants to trap Rhode Islanders into paying for expensive government programs that urbanites demand and government functionaries are only too happy to provide.

As some of us have begun to suspect, "consolidation" and "regionalization" are merely newly en vogue terms for big government and a decrease in citizen influence.

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

Justin, I agree with you that Tom's assessment is off. There's only so granular one can go, and we're living in a society, not a massive collection of individual cases. Exeter doesn't add an entire class when they need to squeeze one more child in, they have ways to make-do for the year.

As for regionalization as a 'handout' to the cities... I agree that it is, but disagree that it's a bad thing. I wonder what Tiverton would look like next year if Providence was hit by a meteor, it probably wouldn't be good (I suppose we'd finally 'clean house' at the assembly ).

Suburbs are a function of cities, not a spontaneous occurring phenomenon. Right now in the mid-west we have suburbs literally falling off the map because the cities that provide their jobs are shrinking. Just as much as you feel that it would be unfair to finance Providence's schools, I feel that it's unfair for people to make a living here in the city, then drive home to the suburbs where their property tax stays in-house. The real unfairness is in the overwhelming reliance on property tax itself, there has to be a way for suburbs and cities to coexist without both sides walking away feeling raped.

As much as you are opposed to Tiverton losing autonomy, from Pawtucket I can't see why the entire East Bay (except for East Providence) shouldn't be one government unit. I also can't see why Pawtucket, Providence, East Providence, North Providence, Cranston, most of Johnston, and Warwick shouldn't be one unit.

Sure, I'd hate to lose the representation of my neighborhood, but the current situation virtually guarantees that we'll have strong representation of tiny fiefdoms by complete nincompoops. I'd rather be governed competently by region than be governed incompetently neighbohood-by-neighborhood.

Let's be honest, good governance is -hard- and it doesn't pay very well. There are only so many really competent people in such a tiny place who are willing to forgo corporate wages to make things better (examples: Moderate party only has 17 committees so far, so few races against long-time incumbents, school committees run by complete bozos). Regionalization does mean a dilution of localities' strength, but it also means that instead of having the 'best school administrator in Tiverton', Tiverton would get 'the best school administrator in the East Bay', likely at a significant discount over your current scheme.

Posted by: mangeek at November 1, 2009 11:15 AM
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