Government Spending

Iowans Are Tightening Their Belts; Local Governments Should Too

By John Hendrickson, Policy Director for ITR Foundation, and
Patrick Tuohey, Director of Policy at the Better Cities Project

Obvious statement up front: Almost no one likes paying taxes.

But Iowans understand taxes provide for the vital services and infrastructure we all depend on. Property taxes, specifically, are a dependable way to collect revenue and they encourage less evasive behavior than income and sales taxes.

However, there is another side to local taxes: Taxing jurisdictions must be effective stewards of this income. Spendthrift leaders risk the wrath of taxpayers—especially in times of economic upheaval.

Today, most households face higher expenses. Whether it is astonishing prices at the pump, rising grocery bills, or skyrocketing costs for homes and vehicles, there’s uncertainty in most household checkbooks.

Because of that, and out of respect for taxpayers and an acknowledgment of rising prices everywhere, local governments should focus on priority-based budgeting. Many local governments may be already doing this, but when considering their budget, the Better Cities Project offers some helpful points that should guide policymakers:

  • Know what you have spent and what you will spend. This sounds straightforward, but many governments rely on cash basis accounting, meaning they look only at what comes in versus what goes out. As a result, a loan is a considered income because cash accounting does not include longer term debt.
  • Control what you spend. Certainly, there are programs that local government must maintain, but that does not mean that there are not opportunities to prioritize spending or look at what future obligations are being taken on. A pay increase for employees is not a one-time expenditure.
  • Budgets may be lean over the next few years. Make sure that governments cannot easily increase per resident spending above inflation-adjusted levels. Ideally taxing jurisdictions have been doing this in the past—but doing so now will certainly help.

This also includes being prudent when it comes to debt and making sure that debt is being paid off. Local governments across Iowa were also beneficiaries of American Rescue Plan (ARPA) dollars and it is imperative that this money should not be used for ongoing expenses. As mentioned above, make sure that governments are not using cash basis accounting to suggest that it is in the black because it is not counting long-term obligations.

Economic development policies also need reform. Local governments in Iowa use Tax Increment Financing (TIF), often presented to voters as a development and job creation tool. But researchers of all stripes have demonstrated repeatedly that it just does not produce the promised results. In fact, most often it benefits well-connected developers by passing the tax burden onto smaller existing businesses and school districts. For Fiscal Year 2022 the state had to spend $75 million to make up for tax revenue lost by jurisdictions affected by TIF subsidies given to such crony capitalists.

Defenders of economic development tools argue these incentives are needed to create or keep jobs. Local governments have so increased the cost of doing business that businesses can be forgiven for seeking some sort of rebate—even if it just shifts the tax burden elsewhere. Rather than increasing the cost of doing business and then spending taxpayer dollars to offset that cost, local governments should create a pro-growth economic climate that helps not just big business, but small shops and startups as well.

Property taxes are levied and collected locally mostly by cities, counties, and school districts. As Iowans tighten their belts and rein in spending amidst rising prices, it is only fair local tax collecting authorities do the same. Iowa’s local leaders must make sure any spending increases are necessary, justified, and focused on providing vital services rather than handouts to businesses with good lobbyists.

Not only will adhering to these principles help Iowans prosper—but they will increase confidence in the men and women we depend upon to run our local governments.

 

John Hendrickson is policy director for Iowans for Tax Relief Foundation and Patrick Tuohey is director of policy at the Better Cities Project