Fiscal Focus: Local Government
Why the Public Should Invest Our local governments provide the most direct services to us. We drive on local roads, walk on local sidewalks, and throw our trash in local trashcans picked up by local refuse collectors. Our parks are local, our fire fighters are local, and our social workers are local. Local government services are visible to us everyday and are essential to our daily lives.
Ohio has established a Local Government Fund and other revenue sharing mechanisms to make sure that our local counties, cities, and townships are able to provide these basic services for us. Revenue sharing has been viewed as a promise by the state to guarantee that local government will be able to provide services.
The Current Reality When the Local Government Fund (LGF) was first established in 1934, it gave local governments 40% of all revenue generated by the newly enacted sales tax. Over the years, the LGF was scaled to be a percentage of overall revenues collected by the state. In July 2001, the state froze funding for the LGF at $821 million. This policy cost the LGF over $600 million in lost revenue. During the recession of 2008, Ohio revenues decreased and the LGF was cut another $177 million down to $641 million in fiscal year 2010 but increased spending slightly in FY2011 to $694 million. For 2012-13, the state cut the LGF by $504 million compared to the previous budget. This left the local government fund 50% of what it was in 2011 and well below where it needs to be to ensure basic services for the common good are provided for all Ohio’s local communities.
In addition to the Local Government Fund, the state has greatly modified other revenue sharing with local governments. The state passed two major tax changes that impacted how local communities could tax local property. First, in 2001, the state modified how property taxes would be assessed on utilities. Then in 2005, the state eliminated the tangible personal property (TPP) tax. The state knew that these changes would have a negative impact on the revenues that local government could collect through property taxes. To assist the local government entities, they created revenue sharing streams to help supplement the lost revenue. In the last budget tax reimbursements were reduced $582 million over the previous budget cycle.
The previous legislature passed legislation that eliminates the estate tax beginning in 2013. 80% of the estate tax went to the county of the decedent and distributed accordingly. For some counties, they relied upon millions of dollars a year from this funding source. While varying year to year, this revenue source brought in over $300 million in 2011 for local government.
In the most recent budget, Ohio communities have lost $504 million from the LGF, $582 million from reimbursements for over $1.08 billion worth of cuts. Now local communities will also deal with an additional cut of over $300 million a year from the loss of the estate tax.
The 2014-15 Budget As we prepare for the next budget, we need to remember that there is a better way than a budget filled with cuts. Through effective advocacy, we can help legislators know the value of state and local government working together to fund and provide great public services. Advocates across Ohio are hopeful that the LGF will not be cut any further, but we cannot allow the status quo to become the new normal. It is time to restore great public services that lead to stronger communities.
After the last budget, advocates expected the LGF to be completely phased-out in this budget. However, over the course of the past two years consistent advocacy from struggling communities gives us hope that the LGF will not be eliminated in the Governor’s budget proposal.
Another issue of concern to local governments is the taxation of property. First we have the changes to utility taxation and the elimination of the TPP that have cost local communities revenue. In addition to the cuts at the state level, local property values have not risen back to pre-recession levels. Local governments are heavily reliant on property taxes to fund basic services, and the state has the capacity to fill in the budget holes of many communities using other revenue streams, such as the income tax.
Speak Up! If you would like to get involved as the state budget nears and our advocacy increases, please follow us on Facebook, Twitter, or sign up for our emails. Please read our past Fiscal Focus articles on K-12 education, state parks, mental health, senior services, or privatization.
If you’re interested in additional information on funding of local government or have any other related question, please contact us.