Friday, September 21, 2007

A Telling Tale of Tax Policy

Finally, Fayetteville Mayor Dan Coody and his staff are coming to realize the practical realities of always relying on sales tax increases to fund city government. They still seem unconcerned that the sales tax is a regressive instrument that puts a greater burden on the low-income and middle-class, but they now understand that it is an unreliable source of revenue that fluctuates with the economic fortunes of the average citizen.

Faced with a continuing budget deficit, Coody and Co. will recommend an increase in
property taxes, predicting an additional $2.4 million in revenue by raising the property tax rate by 70% from 1.3 to 2.2 mills. While this is better than another sales tax increase, the City should also look at trimming the fat from the budget, and we’ll have some suggestions for that whenever the Mayor finally allows the public to peek at his proposed city budget for 2008.

Mayor Coody also knows that he’d have a tough time convincing voters to increase the sales tax for general operations, but the city can levy up to 5 mills of property tax for its general fund by ordinance without an election, just as they can adopt
impact fees by ordinance without an election. While the Mayor opposes adopting road impact fees by ordinance (as the Rogers City Council unanimously adopted water and sewer impact fees by ordinance in June), he will likely try to get the Council to raise property taxes without referring it for a public vote of the people. If he’s being honest, he should trust the City Council to adopt impact fees by ordinance just as he will ask them to raise property taxes by ordinance.

This exercise in reevaluating the source of city revenues could also be an opportunity to make local tax policy more fair. Our city leaders should consider
exempting basic groceries from the city sales tax and replacing the revenue from increased property taxes. Of course, they won't do that.

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