Revenues from and costs serving local households: DC version

Greater Greater Washington has a post, "Being outside a state has its advantages," about the advantages of DC being not part of a state. For what it's worth, I've made this same point for about 9 years.

There are two issues.

Income Tax Revenue

It's all about the income tax revenue stream that is made available to the locality. I don't know how it works in Virginia, but in Maryland, about 1/2 of the state income tax revenue is returned to the local jurisdictions. However, this money is subject to recission if the state has financial issues, as it does in the current economic situation.

Similarly, localities in Maryland that are incorporated work out a tax reimbursement from the County, for services that citizens pay for in the County property tax, but end up being provided by the City/Town. Again, localities can lose out on this reimbursement during tough economic times, as Takoma Park has learned (see "Takoma Park council considers sharing pain of budget shortfalls‎" from the Gazette).

DC doesn't have to worry about that. It keeps all that it earns. Of course, when tax revenues fall, or when demands on public coffers keep rising, it has the same budget issues faced by other jurisdictions.

Cost to a municipality of serving households

Typically, it is said that a single family house costs $1.20/dollar of tax revenue and that a multiunit residence costs 80 cents/dollar of tax revenue to serve, and commercial property something like 55 cents/dollar of tax revenue to serve.

A house worth about $400,000, after the homestead exemption, has a property tax liability to the homeowner of between $3,000 and $3,500. That is the revenue from property tax. Now the city generates about 18% of total property tax revenues from the downtown central business district, and a goodly portion of the residential property tax comes from Ward 3, which has the highest property values of any section of the city.

The issue is what is the cost and revenue number to serve different types of households when you factor in income tax collections? I haven't seen this calculation done for DC and we need to do it.

What bugs me in terms of the redistributive justice advocates is that they rail against resident attraction programs and focusing on attracting childless families to the city, without acknowledging that (1) the city needs revenue to pay for all the programs they want, and (2) each household with children generates far more financial demand on the system than they ever pay in taxes, especially if more than one child needs to be educated.

The cost to educate one non-disabled children per year is upwards of $15,000. (The cost to educate one disabled child for one year can be as much as $80,000.) Given that the number of households with children is about 20% of the total, you can see that we need many tax paying childless households in order to pay for the cost of educating each child.

Similarly, we need more revenues to help cover the social and human services costs of households that draw more services.

That's one of the reasons I support intensification of land use where it can be supported, not just because walkable, compact places have enough people for neighborhoods to flourish, with successful local commercial districts, safer streets, more people to participate in civic and community functions, to serve as "eyes on the street" contributing to safer neighborhoods, and density and demand so that public transit can run more frequently.

We need more tax paying residents (income, sales, property) so that all of the various demands and interests of a "progressive urban political and social agenda" can be accomplished in a manner that doesn't bankrupt the city.

Theoretical advantage of unitary government and efficiency

Another point about unitary local government is that in theory it should be more efficient, not less efficient, in that you don't have overlapping local, county, and state agencies performing part of the responsibilities.

For example, a resident of the City of Takoma Park is paying money to the state, county, and city, and the State Highway Administration takes care of some roads (like 401 - East-West Highway/Philadelphia Road), and the City takes care of the rest. But the City resident is paying Montgomery County also for this, and maybe the County isn't reimbursing all of the money back to the City of Takoma Park. Note that because of the city and the county tax, residential property taxes in incorporated communities in Montgomery and Prince George's County are significantly higher than they are in DC.

So part of the city's complaints about having to perform state responsibilities is a chimera, except that the city is not always performing more efficiently.

One thing too that I rue is the lack of high performance standards/mandates that can come down from a state government in the planning realm.

For example, most states mandate particular local planning requirements. So in Maryland, counties have to have environmental plans with strong recycling requirements, a master plan, a growth plan, a parks and recreation plan, etc. In DC, we don't do a lot of this. New York City has been doing composting for years, in response to a state mandate to reduce their waste stream. Etc.

Without having strong requirements, the city loses, in my opinion, as a result.