Overdedicated

Overdedicated

Two of every three dollars in local government are committed to a specific project or agency, and voters in April will be asked to lock down further funds for mass transportation. Is this the best and most cost-effective way to run a parish?


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Later this month, voters in much of East Baton Rouge Parish will decide on a plan that would generate as much as $18.4 million a year for the beleaguered Capital Area Transit System. In the short term, the plan would bail out the chronically underfunded—and, at times, poorly managed—agency and, literally, keep the buses running for the rest of the year. In the long term, it would pay for a long-promised and badly needed overhaul of the system.



But the plan won't come cheaply. It would tack 10.6 mills onto property tax bills in three pre-existing taxing districts that comprise incorporated Baton Rouge, Baker and Zachary. The plan needs only approval in demographic-friendly Baton Rouge to move forward. What's more, because it's a municipal tax, those mills would be calculated from the fully assessed value of a property, not the homestead-exempted value. That means if your house is assessed at $500,000, your property taxes would go up by $530 a year.



To be sure, a compelling case can be made that CATS needs more money—or, at least, that the city needs a better public transit system. But is creating yet another dedicated tax the best way to do it?



It's a relevant question, because while many people complain about an overabundence of dedicated taxes at the state level, resulting in regular budget cuts to health care and higher education during lean fiscal times, the people of East Baton Rouge Parish seemingly embrace the concept at the local level.



Most local governments in this country have some level of dedicated taxes, but East Baton Rouge has a greater percentage than most. We have dedicated taxes for public education, BREC, the library system, numerous fire districts, police service, a road improvement plan and dozens of other entities, such as ambulance service, the Downtown Development District, mosquito abatement and Neighborhood Watch programs.




Moreover, though not technically a tax, the parish also imposes mandatory fees dedicated to garbage collection and to overhauling its crumbling sewer system.



Yet, is this model—where 63 cents of every tax dollar are dedicated—the most efficient and cost-effective way to finance the operations of a parishwide government?



Power to the voters

The city-parish has a 2012 budget of nearly $750 million—three-quarters of a billion dollars—and more than two-thirds of that money is committed to specific agencies or projects. The mayor and Metro Council have little, if any, control over how those dollars are spent. Instead, it's voters, who approve taxes for specific projects or functions, and non-elected agency officials who largely determine how the money is spent.



The other one-third goes to the general fund, the pool of mostly discretionary dollars that the mayor and Metro Coucil—officials who face the voters every four years—can prioritize and spend when needs arise, like CATS' $2 million shortfall. But even that is somewhat misleading, because half of the general fund is allocated to cover constitutionally mandated programs and services such as the court system. Add it all together and what you're left with is some $140 million in discretionary spending, a figure that's less than 20% of the total city-parish budget.



Supporters of the dedicated-revenue model suggest it's the best way to fund public projects and services. That's because it more or less protects funding sources during economic downturns. Also, dedicated revenue streams enable agencies or departments to leverage their dollars at the federal level or within the private sector, giving them the ability to form strategic partnerships, where resources can be pooled or shared. Important, too, is the fact that the model gives wary voters some assurance that their tax dollars will go toward paying for things they decide and approve.




“Having a dedicated revenue source gives us the stability to do things,” says Davis Rhorer, director of the Downtown Development District, which gets dedicated revenue from a property tax on the district. “It has enabled a lot of things to happen.”



Critics, however, contend the model limits spending flexibility and prevents budget prioritization when general fund revenue declines. For example, money from BREC, which has its own dedicated revenue stream, can't be reallocated to CATS to cover its $2 million shortfall.



WHERE THE MONEY GOES

East Baton Rouge Parish collected nearly $374 million in 2011 in property taxes, most of which was dedicated for specific purposes. Click here for a partial look at where those tax dollars went. (PDF)

Moreover, they say, the practice gives agencies that are not directly accountable to the electorate too much control over public dollars. Perhaps most troubling, however, is that it addresses needs in a vacuum, creating a situation whereby individual entities compete for shares of an increasingly parsed-up pie. In the long run, that may actually end up costing citizens more tax dollars, while overlooking comprehensive solutions to complex problems.



“My biggest concern about dedicated taxes—and this is my personal opinion as both a businessman and someone who has served in government—is that if you don't go out and solve your problems holistically then you can get yourself in trouble,” says Walter Monsour, who served as chief administrative officer under Mayors Pat Screen and Kip Holden. “Because there is only so much money that is available for tax.”



Nooks and crannies

When you look closely at the East Baton Rouge Parish budget, and the fact that its size approaches three-quarters of a billion dollars, you might conclude there are lots of nooks and crannies under which surplus funds could be found to help bail out CATS—or any other department for that matter. But dedicated taxes make that prospect nearly impossible.



Of the officially dedicated portion—which, this year, is roughly $466 million—nearly half is in the so-called enterprise fund, which is spent on the airport, sewer system, River Center and garbage collection. Of the other half, the biggest chunk is divided among more than 30 special dedicated funds, including the DDD, libraries and EMS. The last chunk goes to the parish retirement system (an eye-catching $87.5 million), debt service and construction projects. (See sidebar here.)



That leaves just one-third of the budget, slightly more than $280 million in 2012, in the general fund. In theory, it's from this pot of money that the Metro Council has wiggle room to move things around and, if necessary, take from Peter to pay Paul.



WHO PAYS?

Some of the largest benefactors of the CATS tax will be retailers and other business entities outside the actual taxing district. Besides the City of Baton Rouge and its unorthodox boundaries, residents of Baker and Zachary will also vote on the measure.

Even much of the general fund is somewhat restricted, however. In fact, almost half of it is used to pay for services and agencies that are constitutionally mandated, like law enforcement and courts. Together those expenses total more than $147 million, which leaves just $140 million for the Metro Council to prioritize and spend.



“It's really a problem,” says Metro Council member Donna Collins-Lewis. “All of our money is dedicated, and we have a long line of people wanting the little bit of funds that aren't dedicated.”



Baton Rouge isn't the only place that dedicates a lot of its budget, though statistics suggest we dedicate a much bigger portion on average than most other cities. Nationwide, less than 45 cents of every municipal dollar is set aside for dedications, according to Michael Pagano, dean of the College of Urban Planning at the University of Illinois at Chicago. In East Baton Rouge Parish, it's more than 63 cents.



“There are lots of governments across the country—state and local—that have dedicated revenues,” says Pagano, who has researched the issue for the National League of Cities. “But [Baton Rouge] sounds awfully high. You're looking at two-thirds, versus a national average of less than half.”



A lack of trust

In East Baton Rouge, however, we've wanted it that way, and time and again we've made that clear at the polls. We voted to dedicate a portion of our sales tax to a Green Light Plan to fix the streets. We approved a special property tax to develop better parks. We've passed millages to fund a top-notch library system and a parish-run EMS, and we've created dozens of small, taxing districts so we could have beefed-up police patrols in our subdivisions or neighborhoods.



SLICING THE PIE

A city-parish budget of $746 million sounds like a lot but two-thirds of that money is dedicated, or reserved, for special purposes. Most cities don't set aside nearly that much: Nationwide, 55% of municipal spending comes from general funds, compared to just 37% in East Baton Rouge Parish. Click here for a look at the 2012 budget for the parish. (PDF)

Then, too, there are dedicated fees, which are essentially taxes imposed on the community by a vote of government and not the people. In East Baton Rouge Parish, the largest of these is the sewer user fee paid by residents to overhaul the parish's crumbling sewer system.



We want more from our government than it is able to provide, and in many instances we're willing to pay for it. We just don't trust our elected officials to make it happen, which is the rationale behind dedicated revenue.



“People think government wastes money, and they don't trust government,” says veteran political consultant Roy Fletcher. “They're not sure [dedicating a tax] will keep the politicians from wasting their money ... but they know at least it'll be spent on what they want it to be spent on.”



A recent survey supports that assertion. According to the poll, Louisiana voters are more likely to support tax increases if the taxes go to dedicated sources—and particularly if those dedications are related to infrastructure. While just 9% of those surveyed by the LSU Reilly Center for Media and Public Affairs support a gas tax, that number jumps to 54% when it's specified that the revenue is dedicated to infrastructure improvement.



Fletcher has firsthand experience in that arena. He worked on campaigns in East Baton Rouge in the mid-1990s promoting a 10-year dedicated tax to fund school improvements. It failed the first time, but passed a second time after the campaign honed its message and helped voters understand specifically where their property taxes were going.



“The first time around it was a $1 billion tax and it didn't pass,” says Fletcher. “I told them, ‘You gotta make it smaller, you gotta tell people how the money is going to be spent, and then you gotta tell them how you spent it.' And it passed.”



Growth brings change

It wasn't always this way. If you look at the tax rolls in East Baton Rouge from the early 1970s, you'll see far fewer dedications. But back then, most of the parish's needs could be met by revenue from the general fund. Then, too, the parish was much smaller, so there wasn't a need for a St. George Fire Protection District or a Bluebonnet ?library branch. No one lived out there.



“In the 1970s, we didn't have parishwide EMS and we didn't have libraries everywhere,” says Marsha Hanlon, ?director of finance for East Baton Rouge. “As the city and parish have grown, people have demanded more services, and more services cost more money.”



Take the DDD. It has had a dedicated revenue stream since the late 1980s, when downtown residents voted a 10-mill tax on themselves. Since then, the tax has been renewed six times, by some 80% of voters no less, and this year will generate more than $430,000.



Those funds have gone a long way toward helping with the revitalization of downtown. They've been leveraged for federal grant applications and pooled with funds from other agencies. The proof, says Rhorer, is in recent successes like the North Boulevard Town Square, which is the first phase of a riverfront redevelopment.



“I'm very grateful for our dedicated tax because it gives you predictability so you can plan ahead,” he says. “It also helps with development because when you apply for grants or go to the private sector or the federal government, they know you are going to be around next year.”



That consistent and protected revenue stream for projects and services is especially important, given that many state budgets are over-dedicated and have limited dollars to pass down to municipal governments.



“To a large degree, states force municipalities into this situation,” says Jim Brandt, retired director of the Public Affairs Research Council. “Local governments don't have all the other revenue options that are available to the state, so they're really almost forced to turn to dedicated revenues.”



Not good government

While he can make a case for either side, Brandt isn't necessarily a fan of dedicated taxes. In fact, they violate what he calls the textbook-good-government point-of-view as to how public budgets should be structured. This is because they limit the flexibility of elected officials to respond to needs and react to changes.



“It presents a real dilemma for people who are trying to balance a budget,” he says. “Because it really hampers your ability to adapt to changing priorities and conditions.”



Members of the Metro Council live this reality every day, and are frustrated by what they perceive as their inability to meet public funding needs with a shrinking general fund budget.



“You're looking at a lot of money that is special revenue, and when you start cutting up the pie there's only so much to go around,” says Metro Council member Scott Wilson. “It's making it so there is less and less with which government can operate.”



Then there's the problem of accountability. Just because dedicated dollars are thrown at a specific cause doesn't mean they'll be spent as promised. And if, or when, they're not, whose neck is on the line? After all, you can't recall the chairman of the library board of control or the director of BREC.



“If you're going to have a dedicated revenue, it's got to be directly accountable to the people,” says Metro Council member Trae Welch. “When you have dedicated tax revenues, there is an insulation factor between the people and these appointed board members … [some of whom] don't seem to understand that it's not about them but about the public.”



Perhaps the most problematic aspect of dedicated tax revenue, however, is that it attacks complex and multi-faceted problems in a piecemeal and uncoordinated fashion. Each department, neighborhood or special taxing district is concerned only with its issue and the revenue it raises to deal with them.



This leaves little room for collaborating, communicating and, most importantly, prioritizing spending needs within the government.



“I think segmenting the budget process into earmarks avoids the conversation about what should be funded and what kind of priority it should get over something else,” says Pagano. “Without that conversation we can make some pretty short-sighted policy.”



But what's the alternative? With pervasive distrust of elected officials, a dislike of taxes and pressing needs on government, is there any other way to go besides dedicated tax revenue?



Priority-based or participatory budgeting is one suggestion. As its name suggests, it's a model in very limited use across the country—some wards in Chicago and boroughs in New York City are experimenting with it—that engages the public in the budgeting process. They're educated on the various needs and involved in the allocation process. It's a direct-democracy kind of approach to addressing some of the shortfalls inherent in dedicating too many public dollars.



“I think it's an excellent outgrowth of the economic times we're in,” Pagano says. “And you're starting to see it happen, but it's hardly widespread.”



Could something like that happen in Baton Rouge? Monsour, for one, hopes so.



“I'm not saying CATS doesn't need the tax or it isn't a good tax,” he says. “But I'd feel better if we could say, ‘Here are all our needs, and here's how we pare them down.' There almost needs to be a budget for tax propositions so you could identify what you go after and in what form and how you spend it.”



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