Guest Opinion: Achieving fiscal sustainability in Ashland

Shaun Moran’s guest opinion in The Daily Tidings on Jan. 9 brings up some important issues for anyone concerned with sustainability in our community. Along with sustaining natural, human and physical resources, local governments must also be fiscally sustainable. Otherwise, quality of life declines over time as infrastructures and service levels deteriorate, or higher tax rates are required just to maintain the status quo. As Moran’s article shows, Ashland is on a fiscal path that appears not to be sustainable.

What does fiscal sustainability mean? The accepted view among economists is the ability to continue the same level of public services and investments in infrastructure within the existing tax structure as the economy or population grows. Long-term gaps that require continual budget cuts or tax increases to provide the same level of services indicate a mismatch. To address this, communities need to look carefully at the value delivered per dollar of taxes spent over time. The value per dollar is much more important for measuring sustainable development than the level of taxes or spending. Taxes that provide a higher value per dollar spent show that the city is using sustainable development policies. However, if taxes need to be increased just to get back to the same level of services, then the value per dollar spent has fallen, which has a negative impact for sustainable development and quality of life.

There are usually two causes of this. The first is when revenues decline because a downturn in the economy or population shrinks the tax base. I don’t think that is the case with Ashland. The second is when the local economy creates its own mismatch between spending and revenue. One  factor that can cause this is, ironically, affluence. More affluent communities want better schools, more amenities such as parks, community centers, affordable housing, open spaces, cultural facilities and local events. These amenities can lead to fiscally sustainability if people are willing to pay more taxes for quality of life services and land-use regulations and incentives from the tax structure are used to lower costs and increase efficiencies at the same time. This requires having the costs associated with public amenities transparent and making sure adequate revenues are there to prevent surprise requests for new taxes or higher rates to fill spending backlogs. Unless a community knows up front what different patterns of growth or projects will cost, they cannot make informed decisions about the future.

A primary way to address this is to evaluate whether new projects and land-use policies are fiscally sustainable. This requires a system where the average tax paid per new resident equals the average costs per new resident. Calls for higher taxes to maintain existing quality of life amenities indicates that growth is probably not fiscally sustainable. For example, if we carry out land-use policies to increase affordable housing, which I support, then we need to evaluate whether such a policy is fiscally sustainable. Residential property taxes can usually cover costs in very affluent communities where properties are large and expensive. However, large numbers of exemptions to businesses, developers, nonprofits or seniors can erode revenues from property taxes. Costs may also rise because more families with children move into an area, or because there are more low-income residents who use certain government services more intensively (the homeless population, both transient and permanent, I put into this category). Any of these factors can create a gap between the existing tax structure and maintaining service levels.

In these cases, localities cannot “grow their way out” of the gap. To help us in these decisions we need to put into place comprehensive indicators that map out our future priorities that go beyond “special-interest pleadings” and the frustration politicians face with voters’ demand to “cut my taxes” but at the same time “increase spending on community services.” For there to be a brighter future for Ashland, we must follow a path of fiscal sustainability that clearly states what our priorities are and stick to them. Choices will have to be made.

— Richard P.F. Holt is professor of economics at Southern Oregon University. His new book on the history of postwar American liberalism and conservatism and the making of civilized politics will be published by Yale University Press.

 

 

 

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