Local Taxes and the Hidden Agenda

“Self-flagellation is the disciplinary and devotional practice of flogging oneself with whips or other instruments that in inflict pain.”

Wikipedia

More generally the term is used to reflect the practice of people to do harm to themselves repeatedly – intentionally or unintentionally. Which brings us to the topic of today – local government bond issues. It’s election season and the streets and highways are littered with political signs boosting this candidate or that. Along with the candidate signs, and with proportionally greater regularity are signs supporting this bond issue or that. The bond issues are always for some local government function and are usually highlighted by the wondrous things the bond issue will accomplish. What they are never about is the tax increase that is integral to the issuance of the bonds. And therein lies the danger times two.

What brings this to mind is that I returned to our home in Arizona last week and utilized a shuttle service from the airport to our development. The service was provided by one of our residents and although we knew each other only slightly we had a number of mutual friends and it gave me and opportunity to catch up on what was happening in our development – the good, the bad and the ugly (or in this case local government). I’m not sure what brought us to the topic but it was probably how bad inflation has hit all of us. I remarked that inflation is much like a tax in that it is caused by the overspending by the federal government and it never goes away – just like a tax. Inflation can be the natural consequences of a growth economy and is held in check by the concurrent growth in income. But the reckless spending by President Joe Biden’s administration (including Vice-president Kalamata Harris) to reward their supporters – public employees unions, green energy purveyors, illegal aliens and Wall Street elites – flooded the market with more dollars vying for less goods. For those of you forced to endure a teachers union led education in the Portland public school system, that is the basics of inflation – too many dollars chasing to few goods.

But my driver was not only suffering the indignity of higher costs for basic necessities but she was getting hit with significant increase in local property taxes and sales taxes. And that is what this is about.

And, while Mr. Biden and Ms. Harris were spending like drunken sailors, their

local government counter parts were preparing for another round of tax increases to fund elements of local government. They do this through bond issues which are basically the means by which they raise money in excess of what the local income, sales and property taxes provide. In most instances the bonds are financed by an increase in sales tax or property tax. In Arizona the roadways are awash in signs demanding that voters support the bond issues for elementary schools, for secondary schools and community colleges, for fire departments and police departments, for libraries and water and sewer departments. Seemingly every government agency has a reason to demand an additional mil levy on property taxes and/or and additional fractional cent on sales taxes. And here is the devil in the ask.

Money is fungible. For those of you who were forced to endure of teachers union led education in the Portland public school system, fungible according to Merriam Webster Dictionary means:

“ . . . being something (such as money or a commodity) of such a nature that one part or quantity may be replaced by another equal part or quantity in paying a debt or settling an account.”

In other words money can be used to pay for any debt regardless of its source. So when your local government tells you that the new tax increase is going to fund a particular item, most generally their lying – and if not lying they are withholding a part of the truth. So here is an example:

A city fire department has an annual budget from the city general fund of $100 Million. The budget is designed to pay for salaries, benefits, building and vehicle maintenance and a reserve for capital expenditures (fire trucks, ambulances, etc.). It is in need of a new fire truck at a cost of $150 million. It only has $50 million in its reserve funds. So rather than seek a bond issue for $100 Million, it seeks a bond for the whole $150 Million. The result is that while they use the entire $150 Million for the fire truck, the $50 Million in the reserve fund is freed up for another use – increased salaries, increased benefits, EID (equity, inclusion and diversity training), a new car for the chief, etc. It also allows the city council to reduce the funding for the fire department and redirect it to the same kind of nonsense for other departments.

It gets worse if the redirected funds are used to cover recurring costs (salaries, benefits, travel, etc.) because most local governments use some form of current service level (CSL) budgeting. (That means the local government begins building its agency budgets by taking the amount expended in the previous year and adjusting it upward by inflation, growth, demographic changes and a hundred other changes that pad the ensuing year budget.) What that means is the using redirected funds to pay recurring costs means that the recurring costs are enlarged based on a one-time sources (the bond issue) but is baked into subsequent budgets by the CSL process. So for the example above, the budget for the ensuing years doesn’t begin at $150 Million but rather at the $200 Million level.

A prime example of this ruse is what the local school districts did with COVID funds they received for purposes such as sanitation, HVAC upgrades, classroom modernization, etc, went instead for hiring new teachers, assistants, and administrators and increasing salaries and benefits.* Now the COVID funds have dried up but the expenditures continue to be included under CSL.

The process is a shell game. Every dollar is fungible and can be used for any reason by units of local government. It is made even worse by the fact that the actual fiscal impact on individual taxpayers is hidden. The easiest remedy is to simply vote NO on bond issue requests until the local governments come clean about what the funds might actually be used when substituting bond revenue for general revenue. Unless you demand fiscal responsibility and accountability you will continue to pay more and more in local taxes for this shell game. Just like my driver noted above.

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*It was not surprising that those increased salaries and benefits resulted in increased union dues collected by the school districts and forwarded to the public employee unions who in turn use the overwhelming majority of dues for political activities primarily benefiting Democrats and progressive causes.