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Tax me for this, but not for that

January 21, 2013


Ron Wirtz Editor, fedgazette
Tax me for this, but not for that

Local governments have been facing tough budgets since the recession, or even longer in states like Minnesota and Wisconsin, where state budget deficits have been semiregular occurrences since the 2001 recession. One of the difficulties posed by tight budgets is deciding what services residents value most and which ones they’d prefer to scale back rather than see taxes go up.

The Michigan Public Policy Survey provides one perspective on that dilemma. A biannual (spring, fall) survey started a few years ago at the University of Michigan, it polls each of Michigan’s 1,856 units of general purpose local government, including several hundred in the Upper Peninsula (the only part of Michigan in the Ninth District, and the focus of this post).

Last year’s survey showed that 35 percent of U.P. respondents (who are local government officials) said their community was less able to meet its financial needs this year compared with last year. Almost 30 percent said there had been a decrease in federal aid (compared with just 7 percent that saw an increase), and more than half had their state aid cut (12 percent saw an increase). At the same time, almost half of U.P. respondents said infrastructure needs have increased, and 31 percent said similar for human services; virtually no local officials reported decreases in these public services.

So what to cut? Not fire services. Almost 60 percent of local U.P. officials believed residents would prefer higher taxes, while just 11 percent believed residents preferred a service cut over tax increases (see chart; the gap in responses for individual categories—why responses don’t add up to 100 percent—represents both “don’t know” and “doesn’t apply” answers).No other service had close to the same support. General government operations, economic development and public transit, as well as parks, recreation and libraries were conspicuous in the lack of support for higher taxes to avoid cutbacks for these services.

For more discussion on tight local government budgets, see the January issue of the fedgazette.

UP govt. taxes vs service cuts -- 1-21-13

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.