The authors recommend that cities be granted more flexibility to adjust their tax policies in response to local conditions and to meet local needs. Importantly, this does not mean that the overall level of taxation should be higher (or lower). Rather, it is a question of decentralizing decision-making authority and adaptability so that, in times of hardship, cities do not become dependent “wards of the state,” as is so often the case, unable to make the decisions that would best serve their own citizens. (We’ve written about this problem and its consequences in Minnesota and Wyoming, among other places.)
The Pew report makes three recommendations for states to this effect. In their words:
Temporarily lift limitations to give local officials more options for responding to extraordinary fiscal challenges, including recessions and natural disasters. For example, states could allow localities to pass temporary tax changes or use revenue that is normally restricted to specific functions for other purposes.
Adjust limitations that may prevent local government revenue from fully recovering after a downturn. In other words, states can allow tax revenue to grow as the economy recovers.
Increase local budget flexibility in the long term. For example, states can provide financial aid to local governments to mitigate the impact of tax limitations or offer relief from state mandates that increase costs for localities.
You can read the full report here for more case studies and details.
Cover image via Unsplash.