You’ve got to admit, there’s a lot of lingo associated with local government that can be a bit befuddling. Fiscal capacity may be one of those terms that fall into this category.
At its core, fiscal capacity is the ability of government to generate revenue. It depends on a variety of factors, including a community’s industrial capacity, natural resource wealth, and personal income. Fiscal capacity is basically determined by taking inventory of all available financial resources, including fees charged for government services and intergovernmental funds: revenue received from another government jurisdiction, either in the form of grants or as reimbursement for costs incurred.
When governments develop their budgetary policy, determining fiscal capacity is an important step. Knowing how much money you can generate is necessarily important to a government in terms of providing and paying for services provided to residents.
As one might imagine, government jurisdictions vary widely in their revenue capacity and expenditure need.
Cook County is unique in a number of ways when it comes to the county’s ability to generate revenue.
Consider:
Property Tax Revenue
While the other 86 counties in the state are able to generate revenue from taxable properties, Cook County is painfully limited in this capacity, given 92 percent of our land is government-owned. And while we receive intergovernmental funds from state and federal jurisdictions in the form of payment in lieu of taxes (PILT), these monies are nowhere near the revenue that would be “banked” were these parcels taxed at the going rate.
Another major “cash cow” contributor, in most other counties, is commercial-industrial property tax revenues. Unfortunately, we no longer have any major industrial contributor. We’ve become predominantly a tourism-dependent enterprise.
John Phelan, economist at the Center of the American Experiment– addressing the issue of property taxes–suggests, “Property taxes are a form of ‘wealth tax,’ they are levied based on some assessment of the market value of an asset you hold. In this case, it is your house, but it could be bonds or equities.”
Phelan reminds us, “Wealth is not the same as income …you cannot pay your tax liability with these assets–the authorities will not accept $3,000 worth of bricks from your house in settlement of a $3,000 property tax bill. Your tax liability has to be settled in cash. And, while your assets may have increased in value, there is no guarantee that your cash holdings will have increased at a similar rate. Any year that your property tax increases at a greater percentage rate than your income, your property tax burden is increasing, irrespective of what happens to your house price.”
The Minnesota Department of Revenue administered “time adjustments” (a market condition adjustment that reflects price level changes over a period of time) that increased property values in Cook County 6 percent in 2019. And, according to Cook County Assessor Robert Thompson, we are expecting another 4-6 percent “time adjustment” in 2020.
Consecutive property value increases are likely to further compress Cook County taxpayer pocketbooks.
Phelan concludes, “Property taxes illustrate the problem with ‘wealth taxes’ more generally. They seek to raise cash based on an assessment of the notional value of assets, …but your access to cash is not always congruent with your access to assets.”
Per Capita Personal Income (PCPI)
Per capita personal income (PCPI) represents the total personal income of the county’s residents (e.g., wages and salaries, self employment, social security benefits, pensions and interest income divided by the county’s total population.)
David Senf, MN Department of Employment and Economic Development, identified Cook County as among seven counties who had per capita household income above the 2015 state’s average of $31,529. We came in at number seven. Mahnomen County, on the other end of the spectrum, was 87 with an annual per capita income of $19,142. (“Household Income Sources Across Minnesota Counties,” August 2017)
Cook County’s figure is misleading, however, in that it is skewed by the fact that much of Cook County’s household income is imported from residents who acquired their wealth elsewhere and brought it with them when they migrated up the shore.
It’s telling to note that Cook County’s 2015 household income was derived from two primary sources: 61.2 percent came from wages and salary income and 22.4 percent from Social Security and other retirement income.
Why is this noteworthy? The fact that nearly one-quarter of our population– and this number is on the rise–find themselves on a fixed income, leaves little “wiggle room” when it comes to personal budgets.
Cook County’s long-term fiscal capacity–and more important–fiscal health, is largely dependent on the decision-makers.
And decisions can only be as sound as the information upon which they are based. Therefore, a government’s fiscal capacity and financial condition must be continually monitored and regularly evaluated to help ensure that decisions are fully informed and financially responsible.
Former Cook County Commissioner Garry Gamble is writing this ongoing column about the various ways government works, as well as other topics. At times the column is editorial in nature.
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