Lousy grades (and spankings) for local governments

Americans For Prosperity has finally released that big tax report it promised a while back, giving out grades that would've gotten me in a lot of trouble back in junior high school. But the City Beat isn't going to tell you those grades because I know what you really want to know is how high your taxes are. So I'll talk about that first.

Below, you'll find a chart showing the rate of increase, between 1997 and 2006, for property tax revenues, the number of people served by each government entity and the wages people earn in the area.

Revenue is the amount of property taxes each entity collected, adjusted for inflation. This is AFP data, which may or may not be disputed by each entity. It's hard to say how, but there are always little exceptions that drive a researcher mad.

"Clients" is the number of people served. For the Park District and the city, it's the city population, as estimated by the Metropolitan Planning Organization. For the county, it's the county population, as estimated by the State Data Center. For the School District, it's K-12 student enrollment based on reports by the district.

Wages is the estimated median family income, also adjusted for inflation. This data comes from the U.S. Department of Housing and Urban Development.

I'll explain "reasonable revenue" in a minute.

Here's a few things I thought were noteworthy:

• Obviously, revenues are way ahead of inflation. AFP argues that that's a really bad thing.
• I think that's an incomplete argument because if the area's population were growing at those rates, revenue increases would be necessary to provide services to all those extra people. This is an argument the city has made and I'm inclined to agree. However, you'll notice that the area's population isn't growing anywhere close to the revenue growth. As I've said before, I don't buy the city's argument that increases in property values is the same as increases in the need for city services. The city serves people, not property values.
• It's not unreasonable, I don't think, to argue that wages have accelerated ahead of inflation so, for local governments to be competitive and hire the best people, they have to raise wages ahead of inflation. Wages higher than inflation? "Is this dude high?" You may be asking yourself. High on caffein, maybe. Bear with me. Even AFP got it wrong on this one.
• So, given that I think that the client base and wages are somewhat reasonable, I can add increases (or decreases) in the two and come up with a "reasonable revenue" increase.

You'll have to ignore the fact that wages make up only a part of local governments' budgets. Revenue increases could go to paying off debt, for instance, instead of wage increases. Ignore also the fact that property taxes make up only a part of their revenue. Decreases in state funding, for instance, would require increases in property taxes to fill in the gap.

I'm only doing this to provide a comparison between actual property tax increases and increases that may be more justifiable. Notice that the city comes closest to my model and the school district is the furthest.

Bad grades

Based on the above, let's look at what grades AFP assigned to each entity:

I'm not entirely sure what customer service means. Duane explained it as something like the ease at which AFP got the data it wanted. I'm genuinely proud to see that all the local governments got decent grades. It's either North Dakota nice or bureaucrats around here really understand that they work for taxpayers.

Transparency is how easy it is for private citizens to understand and follow the operations of the government entity. The grades vary a great deal in this category. Duane singled out Grand Forks for being the best of the local governments, especially that awesome Web site. I'm a big fan of the site as well, even if it's a little hard to navigate. Not to keep repeating it but the Web site is great because the city has a well-staffed public information office. Every once in a while, I hear a rumor that this or that council member want to kill it ostensibly for fiscal reasons. This, to me, is a weasely way to reduce accountability.

"Nothing came easy with the county," Duane said, explaining the lousy grade. I'm not sure what he meant, because he didn't say. If his experience was like mine, he was probably bewildered by the cryptic budget, which assigned different values to different mill levies even though it appeared that they were all the same. It took a few calls to the finance director to straighten the matter out.

Fiscal responsibility is, well, all the stuff we talked about above. It's obviously the most important, which is why it's worth 70 percent of the grade. No surprise here given the discussion above.

One thing to note is that Duane said the city could've gotten a B in this category but its high debt ratio forced him to drop a letter grade. He acknowledged that a "meaningful" portion of the debt is due to the dikes, a burden borne only by the city.

City finance director John Schmisek and his deputy Saroj Jerath were the only local government entities at AFP's press conference so the city was the only entity that got a chance to rebut. I don't blame the other entities for not being there — it was a press conference — but I give the city gold stars for making the effort.

Anyway, John noted that Moody's Investors Service, which probably knows a little more about finance than the AFP guys, gives the city a Aa3 credit rating, that's fourth from the top and a pretty decent rating. Moody's has mentioned the debt load as an issue but said the city appears to be able to handle it.

Of the $234 million the city owes, $60 million is for the dikes (that's 25.6 percent), $64 million is for the Alerus Center (that's 27.4 percent) and $19 million is for various economic development projects — factory space for LM Glasfiber comes to mind — (that's 8.1 percent). The rest is streets and sewers, John said. 

No, really, wages are up

Now, for that argument about wages. Duane Sand, AFP's head honcho in North Dakota, said that the group did not include wages in the table because it would be just a flat line. That's something I used to believe but HUD data shows that we're both wrong. I realize that HUD data is imperfect, based not on surveys but formulas and estimates, but it's probably the only data out there that I have access to.

Below you'll find the median family income for the Grand Forks-East Grand Forks Metropolitan Statistical Area, in 2006 dollars.

CPI is the Midwest Consumer Price Index. "Unadjusted" is the raw wage data from HUD. Change is what the percentage increase for raw wage data to adjust for inflation. Notice that the raw wages were up 50 percent compared to inflation of 23.2 percent.

Here's the graph of the adjusted wages.

See how it goes up steadily until 2003, when it decided to slide downward? Maybe there's some changes in HUD methodology that I'm unaware of, but, barring that, what we have is an explanation for the perception that wages aren't increasing.

City residents have felt the sting of property taxes since before I began reporting on City Hall. But it wasn't until 2003 or 2004 that people were really upset. By 2005, they were boiling. Those were the years when property values began shooting up, which, due to the failure of local governments to cut tax rates significantly, meant property tax bills started shooting up.

To me, this looks like the perfect ingredients for a tax revolt, which AFP's activism might set off. I certainly hope that's not the case because revolts have a tendency to go to the other extreme, which then plants the seed for future revolts. I personally think California's Proposition 13 is just plain unfair in its treatment of new homeowners, who pay far more than established homeowners, and I wouldn't want to see it here.

Duane, the AFP guy, suggested citizens get involved, which could mean a tax revolt or actually running for office. To me, leading a tax revolt may appear heroic but is actually far less heroic than running for office. A revolter need only campaign for one issue — a tax freeze, say — get voters all riled up, get the thing passed and then never have to face the consequences. If the tax freeze screws up services and forced increases in other taxes, the ones that have to make the tough decisions are the elected officials, not the revolter.

Normally, I'd give you detailed numbers but I can't yet because AFP won't release the raw numbers until tomorrow. You can check them out for yourself, along with AFP's charts at its Web site.

I regret that I had so little room and so little time to write the story today. There was an election forum in East Grand Forks that I had to cover. So, the story you read in the paper and this blog post is incomplete. I'll be working on a more in-depth story for this weekend, including responses from various local government entities. The election takes precedence, though, so you may have to wait another weekend.

As for the election forum, I'll have to blog about that later. Trust me, it's nothing you haven't heard before, except for the 50 fiberglass cows Mayor Lynn Stauss wants to bring to town. This post alone took two and a half hours to write — WTF? That's more time than I spent on than the newspaper story! — it's 12:24 a.m. and I came in at 10 a.m. yesterday. The City Beat is beat.

Peace. Out.

(Haha. That was totally lame. I never say things like that.)

Posted by: Tu-Uyen on 10/29/2007 at 10:03 PM | Comments (18) | Permalink