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Taxes, Services: Something Has To Give

At all levels of government, policy makers are bombarded with conflicting messages – lower taxes and preserve services.

We see it in Washington, D.C., with ongoing debates over entitlement spending. We have seen it in Albany with debates over education funding. We have seen it locally in discussions over things like the Chautauqua County Home, spending on police protection in Jamestown and how to balance the Jamestown Public Schools District budget while keeping the district’s top-notch programs intact.

The inability to please both masters is the result of a trend gap between governments’ long-term ability to provide services that the public wants and citizens’ ability to pay for those services. Bo Zhao and David Coyne wrote studied the trend gap in a paper for the Federal Reserve Bank of Boston published in December 2013 and found the state and local government trend gap has grown for more than three decades, with growth getting faster over the past 10 years. Zhao and Coyne formulated it would cost an additional $1,000 per person nationally to pay for existing services – with regional per capita gaps of $1,600 per capita in Pacific states, $1,250 in New England states and $750 per capita in East, South and Midwest.

It simply puts a number to what many already know. Society can no longer provide the services it once did, and failure to address the trend gap between services and revenue will have local consequences. Zhao and Coyne point out local budgets could shift the fiscal burden to future taxpayers, a situation that reminds us of the lunacy of the federal budget. Failure to act now will mean further public service cuts to balance budgets. And, Zhao and Coyne say, credit ratings could be harmed. In an extreme case, that could mean a lack of fiscal sustainability that causes investors to leave the municipal bond market – threatening the stability of the entire financial system.

Public officials spend much of their time getting through a yearly budget process. When they’re through, they exhale, manage their day-to-day tasks and then repeat the exercise the next year. That thinking must stop. Such short-term thinking doesn’t lead us to a discussion on what services must end.

We need to take steps now to better spend the finite amount of money we have to provide services. It’s worth thinking keeping in mind as we enter state and school budget talks, particularly as we see Gov. Andrew Cuomo playing political games with the budget by tying spending to ethics reform or teacher evaluations. The time for such short-sighted gimmickry is past. The time for strategic thinking about the services and taxation trend gap is now.

Something has to give.

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