By Paul Rozycki
If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet.
George Harrison, The Beatles, “Taxman”
Like many at this time of the year, I’ve just hit the ‘File’ button on my Turbo Tax, and I’ve stuffed all my W2s, 1040s, 1099s, bank statements, receipts, random papers and memos back into a folder to be ignored until next year. But for all the headaches of filling out our annual 1040s for the feds, taxes (or the lack of them) may have an even greater impact on the future of Flint. It seems that mind-numbing numbers are always part of the tax system, but they are inescapable, and they are a major (maybe THE major) problem that Flint faces in the years to come. In the long run, they will be more important than the latest city hall conflict between the mayor and the council, the most recent recall attempts, and perhaps even more important than the Flint water crisis (though that will dominate the horizon well into the future.)
For all of our frustrations with taxes, they are the price we pay for the services we expect in a civilized society. As a nation they have been the motivating force behind protests from “No taxation without representation” in the American Revolution of 1776, to the Tea Party of today. (Apparently, we don’t like taxation WITH representation all that much either.) However they are collected, taxes should have one major goal. They should be adequate to fund what we expect from government, either national, state or local.
Michigan’s many taxes
There is a long list of taxes that the state of Michigan collects. The Citizens Research Council of Michigan lists approximately 60 types of taxes imposed by the state and its local governments. Some of them are well known to everyone, such as the local property tax, state sales tax or the state income tax. Others are simply strange and impenetrable such as the Hydroponics and Aquaculture Facilities Specific Tax, the Neighborhood Enterprise Zone Facilities Tax, or the Foreign Insurance Company Retaliatory Tax. However for most local governments, there are two major taxes that are most critical to their survival—the property tax and the income tax.
Flint’s shrinking tax base
And the problem for Flint, and many similar cities, is that the revenue for those two taxes has taken a huge hit in recent years. By one recent study (MSU: Flint Fiscal Playbook: An Assessment of the Emergency Manager Years, 2011-2015) Flint has lost nearly 75% of its tax base from those two sources. Personal income has fallen from $3.5 billion to about $400 million from 1996 to 2013 and the value of taxable property has fallen similarly from about $1.5 billion to about $750 million. With numbers like that it’s not surprising that Flint has been facing a decades-long series of financial emergencies, with or without the water crisis. No mayor, city council, or emergency manager can be expected to work miracles and find huge, untapped sources of funds, especially when the state has cut revenue sharing to local governments over the same period of time.
While Flint has faced some of the largest losses in population, jobs and property value, is isn’t alone. Recently Bridge Magazine published a study showing the decline in property value of all of Michigan’s counties, townships and cities. From the start of the ‘great recession’ in 2008 until 2016 the city of Flint has seen a 63% decline in property values. While many economic indicators have improved statewide, few areas have recovered to 2008 levels. The decline isn’t unusual, the great majority of local governments saw property values plummet, but Flint had one of the greatest declines.
The picture is even more dismal than those numbers suggest. First, Flint is still facing serious legacy/retirement costs that were incurred for a city of 200,000 people, while we have less than half that today. When a city downsizes, as Flint has, the costs don’t decline as quickly as he population does. Second, when property values do recover from a deep recession, (and that has happened to some degree in Flint) the tax revenues usually can’t rise faster than the rate of inflation. Even when property values return to their old levels, it can take a long time for revenues to catch up.
Other types of taxes?
The upshot of all this is that if we expect a full range of services from local governments, we’ll have to adjust our ways of taxing ourselves and paying for it. It won’t be easy. Every suggested change will arouse strong opposition from those wedded to the current system.
As we move from a manufacturing economy to a service economy, should we tax services? Don’t expect any support from doctors, dentists, barbers and others who provide personal service to us.
Should we tax internet purchases more vigorously? The brick and mortar stores will like the idea but don’t count on Amazon to be on board.
Want to broaden the tax base and move to a regional or area-wide government? Don’t expect support from those in the out-county who “don’t want to take on Flint’s problems” as many put it. And don’t expect those who now have earned power in Flint to willingly give it up to a regional government.
Trust and taxes
Obviously the issue of taxes is a long and complex one. But behind all the debates about taxes is one issue that has been a critical one for Flint on many issues—-the issue of trust.
If we expect people to pay taxes, they expect to get what they pay for. The public needs to trust that their taxes will deliver good roads, bridges, clean water, consistent trash collection, reliable police and fire protection along with many other services. The government must deliver the goods competently and honestly.
While taxes will never be popular, when that trust is there at least the public can feel they are getting their money’s worth. When the trust is gone, then those who vote “no” on any taxes will carry the day and public services continue to suffer.
EVM political columnist Paul Rozycki can be reached at email@example.com.