Strained Municipal Finances are not just a “City Problem”

Municipal fiscal health is a MEGO issue. I had not heard of MEGO issues prior to a class with Representative/Professor Bob Freeman (PA,136th). MEGO. My eyes glaze over. A MEGO issue is either so witheringly dull or seemingly irrelevant that most people simply doze off at its mention. I suspect that municipal fiscal health is just such an issue for a great many people.

In March 2007, the Pennsylvania Economy League (PEL) released Structuring Healthly Communities: Revenue Generation and Fiscal Health. PEL analyzed the fiscal health of municipalities across the state from 1970 to 2003 and reached conclusions that should seriously disturbing.

Perhaps most importantly, the results dispell the myth that somehow only older municipalities -our cities and boroughs – are the only municipalities that will face this challenge. Given PA’s current structure of local government and methods of generating municipal revenue, the question is not IF, but WHEN fiscal distress will hit a particular city, borough or township.

PEL’s examination of statewide data over a 33-year period revealed a path toward municipal fiscal distress that can be broken down roughly into 5 steps:

1. Prosperity with low taxes.
2. Increasing demand for [municipal] services and gradually rising tax rates and service fees.
3. Reduction in non-core services.
4. Reduction in core services.
5. Loss of tax base and distress.

The executive summary is a managable 16 pages and includes a map of results for the Lehigh Valley However, if you’re feeling particularly curious, the full 93-page report is also available online.

Think about municipalities in the Lehigh Valley. What is their current state of fiscal health? Where was it 10, 20, 30 years ago? Where will it be in 10, 20, 30 more?

The question about future fiscal health cannot be answered with complete precision, but a bit of common sense seems to get us quite far. For instance:

  • Development and growth result in property and income tax revenue for a city/borough/township. Fees for things like permits and water/sewer connections also provide municipal revenue.
  • Development and growth also bring with them demand for municipal services and infrastructure expansion.
  • Both the physical layout and the type of development impact the demand for municipal services and the cost of providing those services.
  • Once a municipality is built-out and no longer flush with revenue from new development, the only place to turn for revenue to cover the cost of municipal services and infrastructure is to current residents, the existing tax-base — here begins the descent described in the PEL report.

This report highlights both the need to change the way our cities/boroughs/townships generate revenue and pay for services as well as the need to ensure that our pattern of development serves to minimize the cost of municipal services and infrastructure. Doing so would improve the fiscal health of our cities/boroughs/townships. Providing municipal services (water/sewer, public health, police, planning, etc.) on a regional scale is an attractive solution because it saves money and frees up resources to address issues of interest to the community (farmland and open space preservation, school improvements, more police officers, property tax relief, etc.)

Posted on July 10, 2008, in Municipal Government, Public Infrastructure. Bookmark the permalink. Leave a comment.

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