Free Essay Sample «Financing Government Operations»

«Financing Government Operations»

Tallahassee city commissioners recently adopted a public safety policy with an objective of improving security amid increased rates of crime. The city recently suffered several gun shootings and in response to these incidents, city commissioners voted for a public safety policy. The public policy pushed for an expansion of the city’s police forces with an addition of 16 law enforcement officers and two police investigators. Even so, Tallahassee city needs adequate funds to execute the public safety policy. Earlier on, the Tallahassee city government campaigned heavily for the prioritization of the public safety funding. This paper will analyze local government’s revenues, including alternative funding options, which might assist in the implementation or execution of the public safety policy. In addition, the paper will analyze and describe some of the restrictions that could undermine the disbursement of the funds for the implementation of the public policy. It will also investigate the way that the public policy decisions might impact the receipts of these revenues, as well as the economic conditions that influence the revenue projections. Finally, this paper will provide a recommendation on a revenue policy that corresponds with the values of the Tallahassee community.

The government obtains revenue from different sources, which in turn assist in supporting operations. The local governments in the greater Florida have access to various sources of revenue. More importantly, the Tallahassee local government utilizes various revenue sources, which assist in funding several projects and programs within the area. Lee & Johnson & Joyce (2008) identify taxes as the primary source of revenue. Even so, the government sources revenue using different approaches whether tax revenue or other types of revenue. Firstly, the local government receives money from constitutionally authorized sources. The local government is constitutionally authorized to levy ad valorem tax as a means of raising the resources required to run its operations (EDR, 2014). The constitution authorizes the levying of the ad valorem taxes in line with the general law. The ad valorem taxes follow the set limits as per the assessment conducted to determine the real estate, as well as the tangible personal property value (EDR, 2014). The ad valorem tax revenues serve general purposes of the local governments, which imply that the funds can assist in financing the public safety policies.

Secondly, the local government sources revenue for funding its operations with the help of the home rule authority. The fact that local governments enjoy the home rule authority allows them to enforce the payment of regulatory and propriety fees. Further, the local government can impose special assessments, which assist in upsetting the cost of maintaining or providing particular services (EDR, 2014). The local government imposes proprietary fees as part of its legal right when dealing with government-provided services. The local government raises money via various proprietary fees, comprising utility fees, admission fees, user fees, as well as franchise fees (EDR, 2014). The local government also practices police powers and utilizes its authority to impose certain regulatory fees. The regulatory fees assist in regulating certain activities and comprise the inspection fees, the building permit fees, stormwater fees, and impact fees among others (EDR, 2014). Further, the imposition of special assessments assists in generating revenues for the local government. However, special assessments cannot generate enough funds for facilitating the implementation of the public safety policies because they find use in the construction and maintenance of the relevant capital facilities.

Finally, the local government receives money from sources that the legislature considers legal. The revenue sources comprise the taxes that the state shares with local government and other local government revenue sources (EDR, 2014). The state-imposed fees, as well as, the state-shared taxes contribute significantly to the local government’s revenue basket. The state manages these revenues using the relevant revenue programs, which determine the amount of fees or tax allocated to the local governments (EDR, 2014). The revenue programs either allocate the entire share or a proportion of the fees or tax depending on the revenue source in place. In some cases, the revenue programs employ specific formulas, which assist in the allocation of revenue to the relevant local government (EDR, 2014).

The shared revenue is used to address the revenue needs of the local government. Some of the state-shared revenue sources comprise the fuel tax, the alcoholic beverage license tax, the mobile home license tax the insurance license tax, vessel registration fee, the cardroom revenues, and Indian gaming revenues among others (EDR, 2014). Some state-shared revenue sources inject significant revenue amounts into the operations of the local governments. For instance, the revenue estimates from the half-cent sales tax program for Tallahassee are around $9,929,038 (EDR, 2014). It demonstrates the potential of the program to provide money that could support the implementation of the public safety policy. Similarly, the municipal revenue sharing program is estimated to inject $ 5,418,601 on a yearly basis in the year 2015 (EDR, 2014). The legislature also authorizes a couple of additional local sources of revenue. The local government often has a particular ordinance allowing the levying, as well as the collection of particular fees, surcharges, or taxes (EDR, 2014). These local revenue sources require a referendum approval and their expenditure is restricted. The local revenue sources comprise the communication service tax, the green utility fee, the public service tax, the local business tax, insurance premium tax, as well as food and beverage tax among others (EDR, 2014). More importantly, the local government utilizes the local business tax for generating resources that finance various services such as public safety. The local government levies the local business taxes depending on various categories of businesses. Florida local governments rely heavily on the local business tax for raising funds for addressing public safety issues and servicing debt. There have been several legislative initiatives targeting a restriction and in some cases repealing of the local government’s capacity to impose the local business tax (FGFOA, 2014). The success of such legislative initiatives would significantly impact the capacity of the local government to support its operations, given the vital role of the local business tax.

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The proposed funding option for the public safety policy is based on the increase in the property tax by a whopping 27 percent (Gros, 2015). The proposed property tax increase follows the fact that millage rates in Tallahassee have remained constant in a course of five years. The millage rates will climb from 3.7 to 4.7 to cater for the cost of implementing the public safety policy (Gros, 2015). The increment in the property tax rate is expected to increase the city’s operating budget by approximately $9.5 million. Therefore, the property tax increase promises to generate an adequate amount of funds to cover the nearly $8 million required to assist in purchase of new police equipment, effecting new hiring of law enforcement officers and investigators, as well as revising police salaries (Tallahassee Democrat, 2015). However, this funding option is set to worsen the situation, given that most homeowners remain incapable of paying even the current property tax rates. In this regard, more homeowners are expected to lose their residence when the new property tax rate takes effect. Even though most taxpayers consider the property tax to be unfair, it makes a significant contribution to the revenue basket of the local government (Lee, Johnson, & Joyce, 2008). The Tallahassee city relies little on the property taxes given that the millage rates have remained constant for approximately five years. However, in the current state, the city lacks source of income unless the city administrators impose budget cuts. The fact that the property tax is barely stretched to the limit is enough evidence that the tax could provide the best avenue for raising the additional resources required for financing the public safety policy in Tallahassee. In any case, the economic value of the property in Tallahassee has skyrocketed over the last five years, which means the local government can reap a substantial amount of money using property tax. User charges would provide the fastest means of raising revenue for offsetting the expenses associated with the public safety policy (Lee, Johnson, & Joyce, 2008). However, Tallahassee city lacks adequate resources that would otherwise have assisted in raising the required amount of financial resources to oversee the implementation of the public safety policy.

The Community Human Service Partnership (CHSP) is another funding option for the public safety policy in Tallahassee. It operates as a social service grant program in Tallahassee City, which funds public services within the city (McKay, Holliday, Morrell, Hermes, & Harris, 2015). The funds from the grant program are dedicated towards areas of primary concern and, in this case, public safety is a priority for the City of Tallahassee. Furthermore, CHSP is a viable funding option for the public safety policy because it can supplement the budget with an objective of improving the provision of various services. Further, the grant program dedicates funds to the improvement human services, which demonstrates its appropriateness in the financing of the public safety policy (McKay, Holliday, Morrell, Hermes, & Harris, 2015).

The General Fund is another viable funding option for the public safety policy. It operates as the main operating fund of the local government (Martin, 2014). It funds various activities, such as general government administration, public works, community development, and public safety as the function of the police and fire department. The General Fund receives money from licenses, permits, property tax, franchise tax, utility services and normal service charges (Martin, 2014). However, the General Fund also receives a certain amount of money from the business funding sources. The money from the business funding sources is directed towards offsetting a shortfall in the income from the property taxes associated with property tax-exempt status of various government properties. The cash balances maintained in the General Fund also generate interests, which can assist in funding the public safety policy (Martin, 2014). Even though the General Fund supports public safety from a financial perspective, there are external or legal constraints that limit the spending of the fund balance. The committed fund balance is set for specific purposes, which restricts the use of the General Fund balance. However, the local government can utilize the assigned and unassigned fund balances for various lawful government operations (Martin, 2014). The unrestricted fund balance can fund the public safety policy in case there are revenue shortfalls in the budget.

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The revenue sources of the local government have certain restrictions and these often determine the amount that local governments could generate from these sources. The constitution restricts the levying of ad valorem taxes above the assessed tangible personal property and real estate value (EDR, 2014). Each local government level is assigned the maximum reachable millage depending on various governmental purposes. However, the millage rates differ depending on the existing political, statutory or constitutional restrictions. The revenue from the ad valorem taxes is disbursed to cater for general purposes within the local government. In the case of regulatory fees, the restriction that applies is that the fee should stand below the cost of the regulated activity (EDR, 2014). The revenue sources authorized through the legislature also have restrictions. The state-shared revenue programs determine the amount administered to the local government. The revenue programs utilize formulas which restrict the revenue allocation depending on the parameters employed in determining an appropriate share for the state and the local government. In some cases, the general law places restrictions on use of various shared revenues (EDR, 2014). In other cases, the shared revenues go to the local governments and cater for general needs. For local governments to qualify for the revenue sharing programs, they should have collected ad valorem taxes whose revenue equals to three mills (EDR, 2014). Consequently, the restriction limits the amount of state-shared revenues allocated to the local government. The general law also places restrictions on the expenditure of the funds that the local government generates as part of the additional local revenues sources (EDR, 2014). The revenues from the county sharing revenue programs are not subjected to restrictions with the exception of statutory limitations that govern the funds set for pledging indebtedness. However, the revenues for the revenue sharing programs at the municipal level are subject to various statutory restrictions (EDR, 2014).

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Public policy decisions have a significant influence on the amount of received revenue of the local government. The budget and budget cycle drive public policies (Guess & Farnham, 2000). The priority placed on a particular public policy affects the amount of revenue dedicated towards such public policy. The local government administrators might make public policy decisions that place particular areas in focus when presenting the budgets. Consequently, the public policy receives more funding because the local government might even deny particular areas the proposed funding. In some cases, public policy decisions might lead to a reduction of the revenues dedicated towards particular budget areas.

Local governments conduct revenue projections, which in turn aid in determining the financial resources that various revenue sources can bring at a particular point in time. Otherwise, local governments would face significant deficits or surpluses in their budgets due to inadequate projections of revenues. When assessing the revenue projections, economic conditions come into play because they affect the flow of revenue from different sources of the local government. Prior to a revenue forecast, unemployment, inflation, income, interest rates, and the GDP are subjected to forecast to inform the calculation of revenue projections (Cordes, 2005). In most cases, local governments use models, which assist them in deriving revenue projections to inform their budget process. The models adopted in this exercise employ variables that demonstrate a high degree of sensitivity to variations in economic conditions (Lee & Johnson & Joyce, 2008). For instance, revenue received from sales and income taxes vary according to variations in economic conditions. Hence, revenue projections demonstrate some degree of vulnerability to the assumptions used in the models often regarding the future economic trends.

Several economic conditions impact the projections of revenue. First of all, the current and projected real GDP is a significant economic condition that influences the projections of revenue. The revenue from taxes depends significantly on the spending levels. When real GDP growth is relatively slow, it impacts on the amount of taxable income and negatively affects the revenue projections (Congressional Budget Office, 2011). Furthermore, when the taxable income is lower, the spending rates remain low, and revenue projections drop significantly, which has devastating impacts on the budget. Inflation often, expressed in terms of the Consumer Price Index, also impacts the revenue projections (Estrada, 2015). The inflation associated with energy and food prices often affects the available taxable income. Consequently, this cuts the revenues from taxes associated with these commodities. Therefore, a local government must take inflation into account when projecting revenues from various taxes. More specifically, inflation affects the revenue projections from the property tax, as well as the sales tax. The unemployment rate also affects revenue projections given that this parameter influences spending patterns of consumers (Estrada, 2015). When unemployment rate is low, it indicates a positive economic growth and entails more money circulating in the economy. Consequently, as taxable income increases the revenue projections rise as well. Further, revenue projections increase due to increased spending as a result of the availability of financial resources. The interest rate is another factor also influences revenue projections in the local governments.

Tallahassee city requires a revenue policy that aligns with the society’s values regarding the need for improved public safety. The revenue policy should prioritize funding for public safety and establish new sources of revenue to finance the public safety policy. The revenue policy should manage tax revenue and at the same time generate adequate revenues for financing various operations of the local government more importantly public safety. Further, the revenue policy ought to promote revenue diversification (Gianakis & MacCue, 1999). The revenue policy should also establish fair and sustainable revenue systems. The revenue policy should adopt systems of revenue collection and management, which would work effectively to ensure that the tax revenue is available for the set public and governmental use. The revenue policy should also establish tax bases, which align with the community needs. However, this requires a revision of the existing tax policies. The Tallahassee city government ought to establish estimating models required for forecasting tax revenues to assist in the approximation of tax revenues and receipts.

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The Tallahassee revenue policy should oversee an effective documentation of all tax and non-tax revenues in order to prevent misappropriations, which often siphon resources that are meant to improve some public services. The city should also establish a central authority that would manage all the resources, regardless of the revenue sources in play, in order to minimize the possible misappropriations. The central authority can manage and reconcile the revenues whether from state-sharing programs or local taxes with an objective of understanding the items of expenditures. Therefore, such authority would promote accountability and transparency of the money collection and spending processes. The revenue policy should include all the relevant sources, as well as their use and restrictions in order to provide a platform for identifying areas from which the local government might source additional income if unexpected expenditures would arise. For instance, the local government should consider adopting some regulations that would compel internet-based businesses to pay sales tax. Internet-based businesses can generate more revenue for supporting operations given that the approach undermines the growth of businesses with physical locations despite them paying the sales tax (FGFOA, 2014). Tax exemption on internet-based businesses results in millions of lost tax money and amounts to unfair treatment of the businesses with physical addresses. The revenue policy should promote the application of the home rule power of the local government and eliminate tax exemptions for certain businesses because this cuts down the amount of the generated income from business tax.

 

 

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