A month ago, I wrote the first installment of a two-part series on how we pay for government services and what services should government provide.
The first piece concentrated on which services to provide and the difference between what the government should do and what private industry can do. This installment will concentrate on how society pays for those governmental services.
In examining what services should be provided, it became obviously clear that government does certain things quite well and is the best entity for doing those things. I used the example of law enforcement. Consistent and fair policing is a much more probable outcome when government provides it than if the private sector does. Further, the profit motive would preclude the services being provided as economically and as professionally as the public sector.
Unlike the private sector, when government produces a product, it needs to have taxpayers approve of the product — whether they use the service or not. So, while companies can tailor their products to the individual consumers that will buy those products, government does not have that ability. It is a one-size-fits all approach.
Forty-one states have income taxes. Florida has a prohibition against having one in its constitution. This has been a boon to the state’s economy since this is a reason people, especially retirees, re-locate here. Overall, businesses have lower taxes than the national average. Property taxes are higher than average for the nation.
Through their legislature, Florida voters have decided that social services are not where their tax dollars should go. Per capita spending is approximately $1500 per year, including education. Of course, because we spend so little on social services including education, many Fortune 500 corporations have chosen not to locate here. Our educational spending is less than $8800 per student, including administration and security, and this shows in our lower overall national rankings.
So how do we fund our government? On the state level, it is through the sales tax. Roughly 93% of the 6% that is collected on most sales remains in Tallahassee. Local government, such as counties and municipalities, rely on property taxes.
The Florida Legislature has been quite cynical in how they have achieved “tax cuts.” Tallahassee has primarily done so on the backs of local government.
Real estate taxes are one of the few sources of revenue that the Florida constitution permits local governments to levy without legislative approval. However, through pre-emption, edict and constitutional amendments, that ability has been extremely curtailed over the past decade. In other words, “tax cuts” given by Tallahassee have been done through limiting local government’s ability to levy taxes. If Tallahassee wanted to give a tax cut, it could lower the sales tax rate, but then their own pot of money would have shrunk. Instead, they shrunk local governments’ pots.
As counties, school boards and cities have seen their revenue streams constrained, Tallahassee has continued to pass along unfunded mandates. The largest one this year was school security by mandating a law enforcement officer in every school. The state has also cut funding for various programs that will result in programs disappearing or localities dipping into shrinking funds to pay for them.
Martin County already has higher than average real estate property taxes, as compared to other Florida counties. This is due to a lack of commercial and economic development, along with a dearth of residential growth. This was proven most recently with our discussions to keep FPL. The company has an option to relocate to Collier County, which has a lower tax rate.
The level of government that Martin County and its municipalities can afford to buy shrinks with each new property exemption or pre-emption. Many of our local elected officials believe and act as if there is an endless supply of tax dollars to buy services, as was witnessed by the recent golf course Shangri-La discussion. There is a disconnect between wants and needs and the ability to pay for government.
We are fast approaching a point where government departments, such as Parks, will have less and less in order to fund public safety functions. The Commission needs to begin curbing the growth in those budgets. It is easier to do so in Fire/Rescue since that is a department under their direct control. The Sheriff’s Office is constitutionally mandated and, while the funds are allocated from the County, the BOCC has little to say about the budget’s makeup.
I believe the County made a terrible error by not instituting a “Fire Fee” this year. The methodology was flawed, but the principle involved was not. That Fee would have accomplished three things. First, the overall Fire/Rescue MSTU (Municipal Service Taxing Unit) would have been lowered. Second, the nearly 20% of homeowners that pay no real estate taxes would have contributed something to their protection. The third, and perhaps most important, reason is that the public would have a better understanding of how much the Fire portion of the budget is. This would have been an eye-opener for many. They would also understand how much it costs to provide that service. The Legislature should also give localities the option of having a “Law Enforcement Fee.” This would bring more scrutiny to Sheriff’s budgets.
The State of Florida and Martin County are in denial, as is much of the rest of the nation, as to the costs of government. Our nation is facing trillion-dollar deficits during a booming economy. Those deficits will surely increase once a slowdown occurs. Unlike Washington, state and local governments can’t run deficits. Martin County is already experiencing a $200 million or higher infrastructure maintenance backlog.
The boomer generation I am part of has done a poor job in taking care of government finance. We have buried our heads in the sand. We have lived on a credit card that, in many cases, has already reached its limit. Unless we have a serious national, state and local conversation on what government is expected to do and how it is to do it, we will continue to erode our fortunes. No amount of sloganeering and pandering to the crowd will place us on a solid financial footing.