Cities and Towns Mean Business! Cities and Towns Mean Business! Presented by Carolyn Stager to: Legislative Task Force on Municipal Finance Representative Dan Sullivan, Chair Senator Patrick Anderson, Vice-Chair October 7, 2010 Municipal Finance Study Oklahoma Municipal League

TOWNS & CITIES: Where rural and urban unite! Municipal government is where the rubber meets the road. Municipal government is where the rubber meets the road. Pave our streets Pave our streets Keep citizens safe Keep citizens safe Fight wildfires and crime Fight wildfires and crime Put water in the tap (& in the toilet) Put water in the tap (& in the toilet) Remove our trash Remove our trash Prepare us for disaster (& recovery) Prepare us for disaster (& recovery) Economic development (economic engines) Economic development (economic engines)

77% of Oklahomans live in municipalities 91% STATE sales tax is generated from sales within municipalities 80% Oklahoma citizens & businesses receive water from municipal sources Virtually all commerce, government, education & healthcare occurs inside a city Cities are the Economic Engines ! To Grow Oklahoma: Grow the Cities and Towns Across Oklahoma

Municipalities by Population Oklahoma has 594 municipalities 366 under 1, under 1, from 1, , from 1, , from 5, , from 5, , from 10, , from 10, ,000 8 more than 50,000 (only 3 > 100,000) 8 more than 50,000 (only 3 > 100,000) Source: US Census Bureau 2008 estimates

Municipal Revenue Sources for Oklahoma and U.S. Cities Source: National League of Cities 2009 U.S Oklahoma

Major Sources of Operating Revenue State State Income Tax Income Tax Sales Tax Sales Tax Gross Production Tax Gross Production Tax Motor Vehicle Tax Motor Vehicle Tax Schools Schools Ad Valorem Tax Ad Valorem Tax State Appropriations State Appropriations Federal Funds Federal Funds Sale Tax -thru cities Sale Tax -thru cities Counties Counties Ad Valorem Tax State Appropriations Sales Tax Municipalities Municipalities Sales Tax Sales Tax

Income Tax Sales Tax Oil & Gas Revenue State sales tax: limited impact Municipal sales tax: BIG IMPACT Towns & Cities Sales Tax State

Overdependence on Sales Tax Erosion of sales tax base Erosion of sales tax base Internet/Catalog “tax haven” Internet/Catalog “tax haven” $106.5 million loss to Oklahoma governments $106.5 million loss to Oklahoma governments by 2012 by 2012 Exemptions by State of Oklahoma Exemptions by State of Oklahoma 3 in 1965, 3 in 1965, 6 in 1980, 6 in 1980, 149 in 2009 and climbing 149 in 2009 and climbing

State exemptions = no revenue for cities

Increases in sales tax exemptions Exemptions are like : Death by a thousand duck BITES ! Death by a thousand duck BITES !

Overdependence on Sales Tax Pressure for more deductions Pressure for more deductions Grocery sales tax - $190 million in 2010 Grocery sales tax - $190 million in 2010 Expand Sales tax holiday - $2.4 million in 2007 Expand Sales tax holiday - $2.4 million in 2007

Sales Tax Holiday Currently is “hold harmless” which means that the state reimburses towns for the revenue they lost, BUT – State can eliminate the refund at anytime State can eliminate the refund at anytime Towns and cities are never sure that the reimbursement is equal to the revenues lost. Towns and cities are never sure that the reimbursement is equal to the revenues lost.

Overdependence on Sales Tax Diminished capacity Now counties (74 of 77) have sales tax Now counties (74 of 77) have sales tax Municipal sales tax earmarked for local schools, hospitals, econ. development, colleges Municipal sales tax earmarked for local schools, hospitals, econ. development, colleges In some areas combined local rates – state, county and town are at 10%! Source: Oklahoma Tax Commission

Problems with Over Dependence on Sales Tax Sales tax is a volatile source of revenue Sales tax is a volatile source of revenue Consumer switch to Internet sales Consumer switch to Internet sales Loss to Oklahoma municipalities projected to be $55-60 mil. annually by 2012 Loss to Oklahoma municipalities projected to be $55-60 mil. annually by 2012 Combined state & counties crowd out the ability for cities to increase sales tax. (Some combined rates 10%) Combined state & counties crowd out the ability for cities to increase sales tax. (Some combined rates 10%)

Oklahoma is the only state that does not provide property tax for the general operating budget Oklahoma is the only state that does not provide property tax for the general operating budget

One or more sources Property Tax Property Tax Sales Tax Sales Tax Income Tax Income Tax State Aid State Aid How Do Other States Fund Municipalities?

Overdependence on Sales Tax

THE BASICS: Oklahoma Municipal Expenditures 2008 Source: Oklahoma Municipal League & 2008 SA&I U.S. Census Forms

Municipal Street Funding Municipal Roads Vital to Economic Development Municipal Roads Vital to Economic Development Municipalities maintain > 27,000 miles of road Municipalities maintain > 27,000 miles of road Counties maintain only 3000 miles in small towns, usually with the town providing the materials Counties maintain only 3000 miles in small towns, usually with the town providing the materials State Motor Vehicle Apportionments – State Motor Vehicle Apportionments – Municipalities $24 mil. statewide Municipalities $24 mil. statewide Counties $235 mil. statewide Counties $235 mil. statewide

Vote higher sales taxes Vote higher sales taxes Transfer funds from utilities Raise fines and fees Reduce services Balancing the city budget?

Citizens will vote sales taxes for a good cause if- for a good cause if- Combined rates aren’t too high!

Transfer Funds from Utilities Robbing utility revenues means: Robbing utility revenues means: Neglected maintenance Neglected maintenance 38% of Oklahoma’s water treatment facilities are Under a DEQ consent order. 38% of Oklahoma’s water treatment facilities are Under a DEQ consent order. EPA estimates $5.4 billion to bring municipal water and sewer up to standard in Oklahoma EPA estimates $5.4 billion to bring municipal water and sewer up to standard in Oklahoma Higher utility rates for customers Higher utility rates for customers

HB Requires a Municipal Impact Statement on new legislation HB Requires a Municipal Impact Statement on new legislation HB Created interim study on municipal finance HB Created interim study on municipal finance HB3291 – Preserves REAP funding for small municipalities HB3291 – Preserves REAP funding for small municipalities Actions to Help: Passed

SB Allows counties to help with municipal roads in additional communities under 15,000 (more needs to be done) SB Allows counties to help with municipal roads in additional communities under 15,000 (more needs to be done) SB1631- Allows municipal public trusts to participate in retail operations SB1631- Allows municipal public trusts to participate in retail operations HB2359 – Allows improved collection of municipal sales tax HB2359 – Allows improved collection of municipal sales tax

Actions to Help: Future Moratorium on Sales Tax Exemptions Moratorium on Sales Tax Exemptions Study the cost vs. benefit Study the cost vs. benefit Implementation Costs Implementation Costs Repeal sales tax exemptions with low benefit Repeal sales tax exemptions with low benefit Restructure the Municipal Tax Base Restructure the Municipal Tax Base Reduce dependence of volatile sales tax Reduce dependence of volatile sales tax Provide more diversification and stability Provide more diversification and stability Provide access to property tax for services Provide access to property tax for services

Actions to Help: Future Increase state funding for municipal roads Increase state funding for municipal roads Enable municipal fire and police public safety districts Enable municipal fire and police public safety districts Fully fund state payments for emergency disaster reimbursements Fully fund state payments for emergency disaster reimbursements Remove population limitations on county’s ability to assist with street building and repair Remove population limitations on county’s ability to assist with street building and repair Improve Tax Commission effectiveness in municipal sales tax collection. Improve Tax Commission effectiveness in municipal sales tax collection.

Cities and Towns Mean Business! Cities and Towns Mean Business! To Grow Oklahoma: Grow the Cities and Towns Across Oklahoma Municipal Finance Study Oklahoma Municipal League