Cities, Counties Hurt By Budget Cuts

Starved for cash due to slumping sales tax revenues and rising Medicaid costs, North Carolina’s Mecklenburg County needs another revenue hit like a fish needs a bicycle.

But that’s exactly what it got in February, when Gov. Mike Easley decided to withhold from the county over $25 million in tax reimbursements. Easley says the state needs this money to pay for state expenses. The county says the money is not the state’s to use.

A similar scene is playing out in nearly every city and county in the state. In all, Easley has sequestered more than $200 million in reimbursements, utility franchise fees and taxes from North Carolina cities and counties.

“If you want to be straight up, a promise was broken,” says Ron Acock, executive director of the North Carolina Association of County Commissioners. “We adopted budgets based upon expected revenue, based upon statutory expectations, and it was taken away mid-budget year.”

The governor says the money will be returned if the state’s fiscal situation improves. But if it doesn’t and analysts say it is unlikely to turn around anytime soon local governments across North Carolina will be short hundreds of millions of dollars.

City and county governments in many other states are struggling under similar circumstances the economy is squeezing them, and so is the state.

Through April of this year, 10 states Iowa, Michigan, Minnesota, Mississippi, New Jersey, North Carolina, Rhode Island, Utah, Vermont and Washington have cut local revenue sharing dollars to balance fiscal year 2002 budgets. Another seven states Arizona, Iowa, Mississippi, Rhode Island, Tennessee, Utah and Vermont have proposed to do so next year, according to the National Conference of State Legislatures.

“In a year in which revenue is tight and states are looking for savings, it is tempting to make cuts to spending that would flow to local governments,” says Arturo Perez, senior fiscal analyst at the NCSL.

One result of these cuts will be tax increases at the local level, analysts say. Most likely are property tax increases, since property taxes account for anywhere from 30 to 55 percent of county revenue, depending on the county.

“A lot of local governments are going to have to raise taxes. So the question is who is going to get the blame? I think the local people are going to get hit right away,” says Thad Beyle, political science professor at the University of North Carolina and longtime watcher of state and local politics.

This passing of the political buck is not lost on local officials, who realize that they will be forced to make politically unpopular choices, such as tax increases or program cuts, as a result of state budget cuts to revenue sharing.

“The states see local governments as an easy target. It’s always easier for state lawmakers to push their burdens onto local lawmakers than cut services or raise taxes on their residents,” says Javier Gonzalez, County Commissioner for Santa Fe, NM, and president of the National Association of Counties.

“This is really what it comes down to: Do you, as a state lawmaker, want to raise taxes or do you want to take money from local governments and force them to raise taxes?”

And county officials, like governors standing before the federal government, have little leverage to sway lawmakers to their side.

As Gonzalez puts it: “There’s not a darn thing local lawmakers can do to get the state to change its mind.”