February 16, 1967
Page 3684
LOCAL GOVERNMENT FISCAL POLICY
Mr. MUSKIE. Mr. President, many groups are looking at the complex problems that surround State and local government financing. Last November the Municipal Finance Officers Association of the United States and Canada sponsored a National Conference on Local Government Fiscal Policy. Among the score of cosponsors and participating organizations was the Advisory Commission on Intergovernmental Relations, the Council of State Governments, and various groups representing local governments, business, labor, and private citizens. The invited participants, numbering about 100, were drawn from those organizations.
The report resulting from the 4-day conference supports many of the recommendations of the Advisory Commission in Intergovernmental Relations in the field of taxation and finance. As a member of the Advisory Commission, together with Senator ERVIN and Senator MUNDT, I am particularly pleased that such a diversified group finds so much in the commission's program with which it can agree.
Mr. President, I ask unanimous consent that the text of the report of the National Conference on Local Government Fiscal Policy be printed in the RECORD.
There being no objection, the report was ordered to be printed in the RECORD, as follows:
REPORT OF THE NATIONAL CONFERENCE ON LOCAL GOVERNMENT FISCAL POLICY, WASHINGTON, D.C., NOVEMBER 16-19, 1966
Sponsor: Municipal Finance Officers Association of the United States and Canada.
Cosponsors: Advisory Commission on Intergovernmental Relations, American Public Works Association, American Society of Planning Officials, Council of State Governments, Federation of Tax Administrators, International Association of Assessing Officers, International City Managers' Association, National Association of Counties, National Association of Housing and Redevelopment Officials, National Institute of Municipal Law Officers, National League of Cities, and the United States Conference of Mayors.
Participating organizations: American Association of School Administrators, the American Bankers Association, American Bar Association – Section of Local Government Law, American Federation of Labor-Congress of Industrial Organizations, American Society of Public Administration, Committee for Economic Development, Investment Bankers Association of America, National Association of Manufacturers, and the Chamber of Commerce of the United States.
PREFACE
A four day Conference on Local Government Fiscal Policy was held November 16-19, 1966, in Washington, D.C., sponsored by the Municipal Finance Officers Association of the United States and Canada and joined by twelve national public service groups as cosponsors and nine other nationally known participating organizations. One hundred eight public officials and others participated.
The purpose was to explore the status of local government finances with relation to the States and the Federal government and to discover, if possible, acceptable new approaches in four broad critical areas of fiscal policy: Taxation, Debt and Financial Management, Interlocal Relations (including State, Local Relations) and Federal-State-Local Relations. It is hoped the recommendations developed by the participants will offer useful guidelines for consideration by policy makers of local, state and the federal government and their agencies.
On the first day the participants met informally. During the next two days at four general Sessions nationally known speakers delivered papers on the four programmed subjects. Each general session was followed by four concurrent small group sessions to develop points or recommendations to be acted upon by the entire conference group on the fourth day at a Plenary Session. The five moderators at the concurrent and plenary sessions, the concurrent sessions reporters, and others, drafted the recommendations which are presented in this publication.
It was clearly understood that recommendations as developed by the conferees are not binding on the sponsor, the cosponsors and the participating organizations, and that those participating do not necessarily concur in all conclusions.
The four who presented formal papers and their subjects are: William G. Colman, Taxation; David M. Ellinwood, Debt and Financial Management; Allen D. Manvel, Interlocal Relations; and Norman Beckman, Federal-State-Local Relations. These individuals are further identified elsewhere in this report.
The five who were the Moderators are: Dr. John E. Bebout, Dr. James R. Brown, Bert W. Johnson, Dr. James L. Sundquist, and Dr. Mabel Walker. They also are further identified in this report. Fred L. Schneider, President of MFOA, was the Conference Chairman.
The eight persons who accepted the role of Reporters are listed herein.
The Municipal Finance Officers Association gratefully acknowledges the time and effort displayed by the Conference Chairman, the Speakers, Moderators and Reporters in making the conference a success.
The February 1966 edition of Municipal Finance will be devoted to the Conference Proceedings and will carry the formal papers delivered by the speakers named above.
The Canadian members of the Municipal Finance Officers Association did not participate in this conference and the recommendations do not apply to Canada.
The participants in the Conference on Local Government Fiscal Policy sponsored by the Municipal Finance Officers Association of the United States and Canada at a plenary Session held on November 19, 1966, reached general agreement on the recommendations contained in this report. It should not be assumed, however, that every participant subscribes to every recommendation because participants were not asked to sign the statement. Furthermore, the recommendations are not to be considered as necessarily reflecting the views of any of the organizations or governmental agencies with which the participants are affiliated.
Local governments are the foundation of our federal system. These governments stand in closest proximity to the hopes and aspirations of all Americans. It is primarily at the local level that public needs are translated into effective public action. Because of their direct involvement in the daily lives of individuals, local governments must be able to respond to these needs.
The response is inevitably conditioned upon local government's fiscal vitality.
Preservation of local fiscal vitality, however, is not solely a matter of local action. States hold the legal reins over local government authority. The national government possesses the most effective and responsive sources of revenue. Thus, local governments must not only exert their own effort to sustain and expand their traditional and necessary role, but also must look to the State capitals and to Washington for assistance and forbearance in fulfilling their heavy responsibilities.
Local governments are currently responsible for a $60 billion package of public services, half of the total expenditures for civilian domestic purposes in the United States. These governments now raise from their own revenue sources $42 billion, about two-thirds of the revenue required to finance local expenditures. One feature of the America of tomorrow is crystal-clear: larger expenditures by local governments, if already identified problems are to be solved and new demands from the public met. This is therefore a decisive moment for shaping local government fiscal policies for the years ahead.
Local governments are nowhere exactly alike. Their social and economic settings differ, as do their political systems. Significant disparities prevail among them because of variations in relative needs and resources. These disparities frequently represent the free choices we make in a system of decentralized political decision making. In the interest of preserving such freedom of choice by local governments, within the context of national societal goals, we offer the following recommendations as policy guides to assure their continued fiscal integrity and vitality.
TAXATION
1. Although many local governments urgently need supplementary revenue sources, and in the case of the larger jurisdictions local sales and income taxes hold substantial potential, most local governments, of necessity, will continue to depend very heavily on the property tax; This prospect lends major importance to reforming property assessment administration to rid it of its glaring weaknesses.
2. The assessment function should be performed by professionally trained assessors meeting clearly specified professional qualifications.
3. Assessment areas should be large enough to permit efficient and economical operation. In many cases, administration on a county basis meets this requirement; where counties are not large enough, joint assessment administration by two or more is indicated. Overlapping assessment districts should be abolished to eliminate wasteful duplication of work.
4. Taxpayers should be provided with full information on assessment ground rules within their jurisdictions so that they are fairly treated. And where they believe themselves to be aggrieved, they should have prompt and economical access to appeal for relief.
5. Local governments should not be shackled by State-imposed constitutional and/or statutory tax rate limitations.
6. There is need for State involvement in the assessment process. This should be achieved by providing training and technical assistance to local units, special assistance in assessing properties of a complex nature, and general oversight to insure compliance with prescribed rules of fair and equitable assessment.
7. The level of assessment for real property should be market value unless a lower level is specified by State law. Whatever level of assessment is specified by law it should be uniformly enforced by the State in all jurisdictions.
8. Exemptions from the property tax should not be used as an instrument of social policy. Where the State mandates exemptions from the real property tax for such purposes (veterans, homesteads, indigent aged), the resulting revenue cost to local governments should be borne by the State.
9. Each State should take a hard, critical look at its property tax law and rid it of all features that are impossible to administer as written, whose effective administration would be economically intolerable, which force administrators to condone evasion and which encourage taxpayer dishonesty. To protect the integrity of its tax system, no State should retain in its property tax base any component that it is unwilling or unable to administer with competence.
10. States should encourage local governments to supplement property tax revenues with other revenue sources. In the case of some large municipalities and in some metropolitan areas, sales and income taxes hold most promise, particularly where they can be piggy-backed on State-imposed taxes with attendant economies of collection. To minimize taxpayer inconvenience, the rules governing the structure and administration of such taxes should be uniform for all jurisdictions and State assistance should be made available in their administration.
11. Revenues derived from user charges can play a role, but for the most part new demands on those local governments that have made full use of their local taxing powers will have to be financed by the State and national governments.
DEBT AND FINANCIAL MANAGEMENT
1. Local government should be granted maximum latitude in the issuance of bonds subject to procedural rules of uniform application. To this end, constitutional and statutory provisions limiting local governwent debt in terms of assessed valuation of property should be eliminated. Debt limitations, if imposed, should be in terms either of equalized full market value or another measure of the local government's relevant economic capacity to incur indebtedness.
2. There is need to update the array of conditions frequently prescribed by State legislation with respect to detailed provisions of bond offerings to bring them into better accord with current bond market conditions.
3. States should make financial advisory assistance available to local governments in bond issuance and debt management.
4. The use of tax-exempt municipal industrial add bonds for financing the development of commercial and industrial plants for private use should be discontinued.
5. Local governments should be free and encouraged to invest or deposit, at interest, funds in excess of immediate expenditure needs.
6. State governments should make available to their local units technical assistance with respect to the investment of idle funds.
7. Local governments should be afforded maximum latitude to permit the pooling of separate funds for cash management and investment purposes, to the extent consistent with the requirements of sound financial management.
INTERLOCAL RELATIONS
1. States should examine critically their present constitutional and statutory provisions governing annexation of territory to municipalities, and should act promptly to eliminate or amend – at least with regard to metropolitan areas – provisions that now hamper the orderly and equitable extension of municipal boundaries so as to embrace unincorporated territory in which urban development is underway or in prospect. A State or regional agency should be charged with local boundary adjustments and with the application of State standards to such adjustments.
2. The States should enact legislation authorizing two or more units of local government to exercise jointly or cooperatively any power possessed by one or more of the units concerned and to contract with one another for the rendering of governmental services. To this end the States should provide some financial incentives. Arrangements across State lines should be possible.
3. States should enact legislation authorizing local units of government within metropolitan areas to establish multi-purpose service corporations for the performance of governmental services requiring area-wide handling, such corporations to have appropriate revenue bonding power with the initial establishment and any subsequent broadening of functions and responsibilities being subject to voter approval.
4. The States should enact legislation authorizing the legislative bodies of municipalities and counties to take mutual and coordinate action to transfer responsibility for specified governmental services from one unit of government to the other.
5. States should enact legislation authorizing the establishment of metropolitan areas commissions on local government structure and services, for the purpose of developing proposals for revising and improving local government Structure and services in the metropolitan areas concerned. The enabling legislation should contain provisions designed to assure that the membership of such commissions is balanced in such a way as to provide general equity of representation to the population groups and governmental constituencies making up the metropolitan area as a whole.
6. States should enact legislation authorizing the establishment of metropolitan area bodies for comprehensive planning. They should include representatives from the political subdivisions of the metropolitan area.
7. Where effective county planning, zoning and subdivision regulation do not exist in the fringe area, States should enact legislation making extraterritorial planning, zoning, and subdivision regulation of unincorporated fringe areas available to their municipalities, with provision for the residents of the unincorporated areas to have a voice in the imposition of the regulations.
8. The States should facilitate the formation of voluntary councils of elected officials by enacting legislation authorizing the making of interlocal agreements, supplemented by whatever special provisions may be required in the particular instance in according legal entity status to voluntary councils desirous of such status.
9. Each State should examine its present system of grants, shared taxes, and authorization for local taxes, and remove all features that aggravate differences in local fiscal capacity to deal with service requirements in local areas, and that encourage or support the proliferation of local governments within such areas. States should also make judicious use of fiscal incentives to encourage local governmental reorganization.
STATE-LOCAL RELATIONS
l. The States should enact legislation to establish (or adapt) an agency of the state government for continuing attention, review, and assistance to local governments with respect to their problems of planning, structure, organization, and finance, and to assist in the coordination of Federal, State, and local programs.
2. The States should provide by legislation or administrative action financial and technical assistance to local governments in such fields as urban planning, urban renewal, building code modernization, local government organization, water pollution, mass transportation, and finance.
3. The State is responsible for insuring that each local government is financially able to provide essential government services and where necessary should make grants to local governments to achieve this end. Such grants should be based on formulas designed to measure as accurately as possible local tax effort and diverse community requirements (by taking into account relatively higher needs in economically disadvantaged areas), and to reflect such measurements in the allocation of grant funds.
4. Counties, if properly organized, may be used with advantage in many areas to perform and support functions that have outgrown the capacities of smaller local governments.
FEDERAL-STATE-LOCAL RELATIONS
1. The Congress should give thorough consideration to Federal general purpose grants and to Federal tax credits for State and local income tax payments as potential vehicles for channeling additional financial aid to State and local governments.
2. The executive and legislative branches of the national government should take steps to bring into better coordination and interrelationship the various Federal programs that have impact upon orderly planning and development within local communities.
3. The Congress and the appropriate executive agencies should take legislative and administrative action to remove from Federal aid programs for community development all organizational limitations which require or promote special purpose units of local government. Other factors being equal, general purpose units of government (i.e., municipalities, towns, and counties) should be favored as Federal aid recipients. Special purpose recipients should be required to co-ordinate their aided activities with general purpose governments.
4. Where the State provides appropriate administrative machinery to carry out relevant responsibilities and makes a significant financial contribution to the program, Federal grants to local governments for community development should be administered by the State.
5. The States and Federal government should develop meaningful research and data processing systems for determining the relative program needs of the several jurisdictions and for apportioning tax resources and appropriated funds among eligible jurisdictions.
6. In some circumstances, the effectiveness of local governments is restricted by the lack of trained personnel. Federal and State governments should help local governments to improve their competitive position in the manpower market.
National conference on local government fiscal policy participants.
[LIST OF PARTICIPANTS OMITTED]