Trends in Third-Class County Budgets: An Analysis from 1996 to 2009

1. James Rossi PhD Student Agricultural and Applied Economics Judith I. Stallmann, Professor Community Development Extension Agricultural and Applied Economics Rural Sociology Public Affairs stallmannj@missouri.edu Third Class County Budget Trends: 1996-2009 A gift from Dr. James Ahrenholz contributed to this project Legislative workshop Jefferson City April 15, 2013

2. 2009 County Classification Charter, assessed value of >$900M 1st Class assessed value of >$900M 2nd Class, assessed value $600-$900M million 3rd Class, assessed value of <$600M 4th Class, attained 2nd Class prior to August, 1988, assessed values declined to <$600M, follow 2nd Class rules Township counties T http://www.mocounties.com/countyinfo/ New Madrid became 2nd Class in 1999

3. Third Class Counties • Majority of counties in Missouri • 88 in 2009 • Several became 2nd class 1996-2009: Lincoln • Trends will apply to other local governments located in the third-class counties • School districts will have the same (or a part of the county) property tax base • City and village property and sales tax bases are a portion of the county’s bases • Data availability

4. Trends for individual counties • Excel spreadsheet for county budget trends • Budget items • Revenues • Expenditures • Tax bases • Trends • Total and per capita dollars (nominal dollars) • Annual and cumulative growth rates

5. County comparisons • County can benchmark itself against another county • Need to think about which county would be a meaningful comparison • Need to think about why benchmarking—the other county is known for something, is about the same size, etc. • Additional detailed data beyond what is graphed so a county can focus on more detailed.

6. When comparing counties, keep in mind: • Special districts versus county wide funding, such as health centers • Use of special-purpose sales taxes versus the general fund for the same activity • Law enforcement • Capital improvement fund that goes to roads • The auditor notes that counties classify expenditures differently • Some counties do not have data every year • Still reporting using paper

7. Using the spreadsheet • “Title Page” tab • “How to use” tab • “Notes” tab • “County Budget Trends” tab • Click on the box and select a county • Other “trend” tabs • County-County Comparison tabs • “Data sources” tab • Data tabs

8. Spreadsheet is being updated and will be posted

9. User’s Manual http://extension.missouri.edu/p/DM4010

10. Other uses of the data • Comparing groups of counties. • The same cautions apply as for comparing two counties • Data are nominal dollars, not real (inflation-adjusted) dollars, unless otherwise stated • Overall trends for Third-class Counties

11. Comparing counties by population trends: public finance theory • Smaller governmental jurisdictions are likely to have higher per capita costs because: • There are required activities or costs that are spread over fewer residents so per capita costs will be higher • As the population decreases the costs of the fixed infrastructure is spread over fewer residents so per capita costs will increase • Fast growing counties will exceed their infrastructure capacity and their per capita costs will rise to build new infrastructure • Short run versus long run fiscal impacts

12. Population loss is a long story for the majority of Third-Class Counties

13. County Population Trends: 1996-2009 *Pulaski, Webster and Warren not included in later slides due to lack of data

25. Implications • Counties losing population are facing long term fiscal stress • Counties with rapid population growth face short-run fiscal stress • Longer run their tax bases grow • Longer run population grows and per capita costs fall • Moderate growth counties have the most stable fiscal outlook

26. Other uses of the data • Overall trends for Third-class Counties • The same cautions apply as for comparing two counties • Data are nominal dollars, not real (inflation-adjusted) dollars, unless otherwise stated

27. Beginning of recession

30. The Economy • Implications for economies of Third-class counties • Loss of economic share • Population loss versus growth counties • Changing economic structure • Implications for Budgets • Impacts on tax bases • Impacts on budgets

32. Implications • Services are the growing economic sector • Changing consumption patterns due to income and demographics • Consuming services instead of goods, and many services are not taxed • Some of the service growth is due to restructuring of firms that now contract for services rather than having them in-house • Technological change, even manufacturing is more service-intensive than it was • Services in general are not as capital intensive as manufacturing • Implications for property tax revenues

33. http://www.missourieconomy.org/indicators/share/share.stm

35. Year-to-Year Percentage Change in Taxable Sales (Inflation and Seasonally Adjusted) 1st quarter 1998 4th quarter 2010 Source: DED http://www.ded.mo.gov/researchandplanning/indicators/taxable_sales/index.stm

36. Source: Bureau of the Census. “Table 7: http://www.census.gov/econ/estats/

37. Estimate of e-retail purchases by Missouri residents (2009) E-commerce data from US Census Bureau http://www.census.gov/econ/estats/ *Bruce, Fox and Luna, 2009. Calculated from Tables 3-5. http://bus.utk.edu/cber/ecomm.htm

38. Implications • Dependence on sales tax revenues • Volatile tax base • Retail is not growing as a % of the economy • Demographic changes • Retail gains or losses in a county due to store locations • Many of the Third-class Counties lose retail sales to neighboring counties • Inflation and its impact on family budgets • Internet sales

39. Data Sources • Bruce, Donald, William F. Fox and LeeAnn Luna. “ State and Local Government Sales Tax Revenue Losses from Electronic Commerce.” .”April 13, 2009. University of Tennessee, Center for Business and Economic Research. http://bus.utk.edu/cber/ecomm.htm • Bureau of the Census. “Quarterly retail e-commerce sales, 4th quarter, 2010.” US Census Bureau News, CB11-23. Feb. 17, 2011. US Department of Commerce. http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf. Accessed 4-29-2011 • Bureau of the Census. “Table 7: Summary of U.S. Shipments, Sales, Revenues, and E-commerce: 2000-2009.” US Department of Commerce. http://www.census.gov/econ/estats/ • Bureau of Economic Analysis. “ Regional Economic Information System.” for income and population data. US Department of Commerce. http://www.bea.gov/regional/reis/. Accessed April 12, 2011. • Missouri State Auditor • 1996-2004 data from “Missouri 3rd Class Counties,” reports. Where possible we used the audited data. http://www.auditor.mo.gov/auditreports/counties.htm Accessed June 18, 2011. • 2005-2009 data in spreadsheets from Missouri State Auditor, data are not audited • Missouri Department of Revenue. Taxable Sales. http://www.dorx.mo.gov/publicreports/ Accessed April 12, 2011. • Missouri State Tax Commission. Assessed values were obtained in spreadsheets. • Penton Media, Inc. “Municipal Cost Index.”American City and County. 2011. http://americancityandcounty.com/mciarchive/ Accessed June 11, 2011.