Cities and Towns Mean Business!

1. Cities and Towns Mean Business! Presented by Carolyn Stager to: Legislative Task Force on Municipal Finance Representative Dan Sullivan, Chair Senator Patrick Anderson, Vice-Chair October 7, 2010 Municipal Finance Study Oklahoma Municipal League

2. TOWNS & CITIES: Where rural and urban unite! • Municipal government is where the rubber meets the road. • Pave our streets • Keep citizens safe • Fight wildfires and crime • Put water in the tap (& in the toilet) • Remove our trash • Prepare us for disaster (& recovery) • Economic development (economic engines)

3. Cities are the Economic Engines ! To Grow Oklahoma: Grow the Cities and Towns Across Oklahoma • 77%of Oklahomans live in municipalities • 91%STATE sales tax is generated from sales within municipalities • 80%Oklahoma citizens & businesses receive water from municipal sources • Virtually all commerce, government, education • & healthcare occurs inside a city

4. Municipalities by Population Oklahoma has 594 municipalities • 366under 1,000 • 145from 1,000 - 5,000 • 42from 5,000 - 10,000 • 33from 10,000 - 50,000 • 8 more than 50,000 (only 3 > 100,000) Source: US Census Bureau 2008 estimates

5. Municipal Revenue Sources for Oklahoma and U.S. Cities 2009 U.S. 2008 Oklahoma Source: National League of Cities

6. State Income Tax Sales Tax Gross Production Tax Motor Vehicle Tax Schools Ad Valorem Tax State Appropriations Federal Funds Sale Tax -thru cities Counties Ad Valorem Tax State Appropriations Sales Tax Municipalities Sales Tax Major Sources of Operating Revenue

7. State sales tax: limited impact Municipal sales tax: BIG IMPACT State Towns & Cities Oil & Gas Revenue Income Tax Sales Tax Sales Tax

8. Overdependence on Sales Tax • Erosion of sales tax base • Internet/Catalog “tax haven” • $106.5 million loss to Oklahoma governments by 2012 • Exemptions by State of Oklahoma • 3 in 1965, • 6 in 1980, • 149 in 2009 and climbing

9. State exemptions =no revenue for cities

10. Increases in sales tax exemptions Exemptions are like: • Death by a thousand duck BITES !

11. Overdependence on Sales Tax • Pressure for more deductions • Grocery sales tax - $190 million in 2010 • Expand Sales tax holiday - $2.4 million in 2007

12. Sales Tax Holiday Currently is “hold harmless” which means that the state reimburses towns for the revenue they lost, BUT – • State can eliminate the refund at anytime • Towns and cities are never sure that the reimbursement is equal to the revenues lost.

13. Overdependence on Sales Tax Diminished capacity • Now counties (74 of 77) have sales tax • Municipal sales tax earmarked for local schools, hospitals, econ. development, colleges In some areas combined local rates – state, county and town are at 10%! Source: Oklahoma Tax Commission

14. Problems with Over Dependenceon Sales Tax • Sales tax is a volatile source of revenue • Consumer switch to Internet sales • Loss to Oklahoma municipalities projected to be $55-60 mil. annually by 2012 • Combined state & counties crowd out the ability for cities to increase sales tax. (Some combined rates 10%)

15. Oklahoma is the only state that does not provide property tax for the general operating budget

16. One or more sources Property Tax Sales Tax Income Tax State Aid How Do Other States Fund Municipalities?

17. Overdependence on Sales Tax

18. Overdependence on Sales Tax

19. THE BASICS:Oklahoma Municipal Expenditures 2008 Source: Oklahoma Municipal League & 2008 SA&I U.S. Census Forms

20. Municipal Street Funding • Municipal Roads Vital to Economic Development • Municipalities maintain > 27,000 miles of road • Counties maintain only 3000 miles in small towns, usually with the town providing the materials • State Motor Vehicle Apportionments – • Municipalities $24 mil. statewide • Counties $235 mil. statewide

21. Vote higher sales taxes Transfer funds from utilities Raise fines and fees Reduce services Balancing the city budget?

22. Citizens will vote sales taxes for a good cause if- Combined rates aren’t too high!

23. Transfer Funds from Utilities • Robbing utility revenues means: • Neglected maintenance • 38% of Oklahoma’s water treatment facilities are Under a DEQ consent order. • EPA estimates $5.4 billion to bring municipal water and sewer up to standard in Oklahoma • Higher utility rates for customers

24. Actions to Help: Passed • HB3054 - Requires a Municipal Impact Statement on new legislation • HB2653 - Created interim study on municipal finance • HB3291 – Preserves REAP funding for small municipalities

25. Actions to Help: Passed • SB1998 - Allows counties to help with municipal roads in additional communities under 15,000 (more needs to be done) • SB1631- Allows municipal public trusts to participate in retail operations • HB2359 – Allows improved collection of municipal sales tax

26. Actions to Help: Future • Moratorium on Sales Tax Exemptions • Study the cost vs. benefit • Implementation Costs • Repeal sales tax exemptions with low benefit • Restructure the Municipal Tax Base • Reduce dependence of volatile sales tax • Provide more diversification and stability • Provide access to property tax for services

27. Actions to Help: Future • Increase state funding for municipal roads • Enable municipal fire and police public safety districts • Fully fund state payments for emergency disaster reimbursements • Remove population limitations on county’s ability to assist with street building and repair • Improve Tax Commission effectiveness in municipal sales tax collection.

28. Cities and Towns Mean Business! To Grow Oklahoma: Grow the Cities and Towns Across Oklahoma Municipal Finance Study Oklahoma Municipal League