In August 2014, the municipality of Ferguson, Missouri, erupted onto the national scene. In the wake of the killing of Michael Brown, we learned much about economic and political life in Ferguson and greater St. Louis County.
To many, it was no surprise to learn that, for years, African-American residents of municipalities throughout St. Louis County have been disproportionately and illegally stopped for minor offenses. Blacks are far more likely to be stopped, searched, ticketed, fined, and arrested. Many wind up jailed, leading to a cycle of lost jobs, drivers’ licenses, homes, or child custody. Some are beaten, terrorized, or—like Michael Brown—even killed.
It was more surprising to learn that in Ferguson, “Driving While Black” isn’t only about racial profiling: it’s also about municipal revenue. Fines and court fees have become the city’s second-largest revenue source, and the over-criminalization of black people has become a strategy for collecting taxes.
It is important to understand and address the revenue crisis facing US municipalities. As cities have become unable to pay their bills, they often turn to regressive strategies that disproportionately harm people of color and low-income residents.
Ithaca, New York, is like Ferguson. Up until January 2014, residents had to pay for installations and repairs of public sidewalks adjoining their properties—with one notable case in which 28 homeowners were forced to pay a combined $100,000 out of their personal pockets to the city for repairs. Detroit, Michigan, is like Ferguson. After the city filed the largest municipal bankruptcy in US history, the city’s water department responded to pressures to lower its $90 million portion of the overall $20 billion debt by shutting off crucial water services to mostly black low-income residents who owed over a mere $150 on their water bills. This April, Baltimore followed Detroit’s lead.
These cities are like Ferguson because of a common underlying problem: All across America, cities and towns are struggling to maintain enough revenue to provide crucial services to residents. The collateral damage of this revenue crisis—over-criminalization, utility shut-offs, the withdrawal of public services, and slashed budgets for schools—is dire.
Local Progress, a national network of progressive municipal elected officials, is working to address inequality from an often overlooked source: municipal budgets. In our new report, Progressive Policies for Raising Municipal Revenue, Local Progress lays out forward-thinking strategies and policy options that cities can pursue to restructure their revenue streams in a way that doesn’t fall disproportionately on the backs of their most vulnerable residents.
The roots of the municipal revenue crisis were decades in the making. Following the post-war desegregation of housing and education, and other civil rights victories of the ’50s and ’60s, racial animosity and the conservative backlash against taxation—referred to by historians as the tax revolt—helped to fuel the exodus of higher-income families from urban centers to suburban enclaves.
This “white flight” dramatically eroded the tax base of urban centers like Detroit, Cleveland, and St. Louis—and later of first-ring suburban municipalities like Ferguson.
The tax revolt also led directly to policies that dramatically reduced the ability of cities to collect enough revenue through property and other taxes. Most dramatic was the 1976 passage of Prop 13 in California, which contributed heavily to the erosion of California’s public education system and other public services.
In 2008, the Great Recession caused the municipal revenue crisis that had been brewing for decades to explode, spurring significant and rapid declines in general fund revenues for municipalities. In order to deal with the impacts of this dramatic shortfall, cities were forced to cut personnel, cancel capital projects (and their much-needed jobs), and slash funding for education, parks, libraries, sanitation, and more. These cuts hit low-income families the hardest. And they are especially harmful to black families because African-Americans are 30 percent more likely to be employed by the public sector than other workers.
The strategies that many municipalities adopted to address the crisis hit low-income people of color the hardest. When property tax revenue declined in St. Louis County, fines-and-fees revenue increased in order to maintain revenue. Tickets are issued for everything from failure to cut one’s lawn to sleeping over at someone’s house without being on the occupancy certificate. In nearby Edmundson, the city averages $600 per person per year in court fines, and forecasts increasing revenue from these fines in their future budget proposals—essentially creating a hidden tax on the most vulnerable residents. Black residents throughout the region report feeling “as if their governments see them as little more than sources of revenue.”
Many towns have resorted to privatizing formerly public responsibilities such as trash collection, sewage, roads and parks, and introducing new fees to force residents to foot the bill directly. These fees and taxes are often extremely regressive, because as everyone is forced to pay a flat rate, poor people end up paying a higher percentage of their income. A recent study conducted by the Institute on Taxation and Economic Policy found that the nationwide average effective state and local tax rates are 10.9 percent for the poorest fifth of taxpayers and 5.4 percent for the wealthiest 1 percent. In fact, in the ten states with the most regressive tax structures, the poorest fifth pay as much as seven times the percentage of their income in taxes and fees as the wealthiest residents do.
Addressing the municipal revenue crisis is, therefore, a central barrier to achieving racial and economic justice in our urban centers, and to rebuilding a more democratic, just, and livable America with genuinely shared prosperity.
Luckily, there are creative and progressive strategies that municipalities can adopt to generate more revenue in a progressive way, such as:
● Expanding the progressivity of existing local income taxes by creating more tax brackets with greater differences between brackets, and doing the same for property taxes in order to generate more revenue from commercial and high-end development.
● Eliminating corporate tax breaks at the city level, particularly Tax Increment Financing and business improvement districts that come with tax breaks
● Restructuring fines so that residents pay different rates based on income. A $200 traffic ticket has no deterrent effect for a millionaire, but can be devastating for a low wage worker; a more rational fine system, like the one adopted in Finland, would be more fair and generate more revenue.
● Mandating that major tax-exempt institutions like hospitals and universities make genuine and fair payments in lieu of taxes (PILOTs) to help cover the costs of crucial city services that they use.
● Converting city services into municipality-owned utilities when possible, charging utility fees to all users, and applying conservation pricing so lower-income households pay a lower rate while bulk users—such as commercial and industry—pay higher rates
● Forming statewide coalitions of municipal elected officials, grassroots organizations, school boards, and other affected parties to change preemption and revenue policies at the state level.
These policy innovations and many more are detailed in our report.
Cities are America’s bedrock and its future: both for our country and for the progressive movement. Cities are home to 67 percent of the population, account for 75 percent of our GDP, and house our best public institutions and infrastructure.
The policy recommendations laid out by Local Progress in our new report can help municipalities develop progressive revenue solutions—so they can pay for public education, health, and housing programs that help families thrive, invest in the infrastructure of public transportation, climate resilience, parks that sustainable cities need, and stimulate inclusive economic growth that creates good jobs.
Through progressive revenue strategies, cities can turn the Ferguson-like cycle of disinvestment and inequality into a cycle of reinvestment and opportunity—and help make sure that our cities can become the models for our vision of a more progressive and prosperous America.