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A Conversation With…

The Government Finance Research Center works with researchers from a variety of backgrounds to analyze the role that public finance plays in our lives. In the interviews below, we talk with experts to dig deeper into pertinent topics and get their perspective on the past, present, and future of government finance.

Tracy Gordon, Acting Director of the Urban-Brookings Tax Policy Center, and Vice President for Tax Policy at the Urban Institute, and External Advisory Panel Member, GFRC Heading link

Tracy Gordon

Q. Before we dive in, please tell us a little about the impressive project that you’ve been working on about cities and taxes.

Bloomberg Philanthropies and Results for America started a program called City Budgeting for Equity and Recovery. They had a cohort of twenty-eight cities that got access to a virtual learning program and peer network and customized technical assistance. That meant Aravind Boddupalli a research analyst in the Urban-Brookings Tax Policy Center, Lourdes Germán who leads the curriculum development for City Budgeting For Equity and Recovery effort and I had access to the equity frameworks and other materials that this group of cities have put together. It was a snapshot and a chance to see what they were up to. In addition, we canvassed fifty other cities that were roughly the same size.

Q. Did you find anything unexpected in your research?

Yes. It was surprising to us that cities are not as far along in thinking about how to apply equity to their revenue strategies as they are on the spending side. But we also found some promising new approaches. And we thought it was important to elevate the experiences of cities as the federal government delves deeper into advancing racial equity as part of President Biden’s Executive Order. Budget flexibility provided under the American Rescue Plan Act and Infrastructure Investment and Jobs Act also provide an opportunity for city leaders to think about revenues and equity.

Q. Let’s talk about the specific some of the specific lines of revenue that are troublesome from the perspective of equity.

Well, fines and fees immediately come to mind as disproportionately impacting low-income and Black and Latino people. And criminal justice debts can really stack up. There can be interest costs and late fees as well as penalties that are not monetary but have monetary consequences like driver’s license suspensions and vehicle impoundment. This can prevent people from getting to work and possibly cause them to lose their job, go further into debt, and further harm their life prospects and their families.

Q. Aren’t they typically a pretty small portion of cities’ revenue streams?

Yes, on average. But there’s a lot of variation. And the percentages can be quite large, especially in smaller jurisdictions that don’t have access to a wide range of revenue sources.

Q, Aren’t there some advantages to fees and fines?

Yes, but the concern is that places overuse them to make up budget shortfalls or in response to political pressure. This is what the US Department of Justice found in its 2015 investigation of Ferguson, Missouri and what other scholars have found in their research.

Q. So fines and fees are an issue. How about property taxes?

There are certainly a lot of well publicized cases of property taxes being inequitably administered. Some neighborhoods, for example are not reassessed frequently, and people in other neighborhoods, with wealthier populations are more likely to successfully appeal assessed values that that think are too high. The issues with property taxes that concern me are as much with the administrative side as with the design side.

Q. What are the challenges to cities that want to create more equitable systems for bringing in revenues?

One of them is lack of data at the state and local as well as the federal levels. A lot of people are very interested in knowing how different tax policies affect different kinds of taxpayers by race and ethnicity. And those data just don’t exist.

In our own work, we had to do some back-of-the envelope calculations to get a population weighted average for different kinds of tax burdens, just to get a rough sense about who was paying what taxes, which might also reflect where people choose to live or migration patterns.

So, the absence of data is a real issue

Q. Other challenges?

States limit revenue options that are available to local governments, so even if a city wants to move away from one revenue source, its choices might be limited.

Q. More?

One of the barriers is having a way to think about the kinds of tradeoffs and the equity implications of different revenues. But basic principles of tax policy provide a starting point. For example, policymakers are used to thinking about questions of horizontal equity or treating similarly situated taxpayers similarly. An equity informed framework might also take into account place-based or long-standing neighborhood level inequities.

Q. Can you suggest an example of a place that’s been particularly thoughtful about these kinds of things?

We looked at the example of sugar-sweetened beverage taxes in Seattle. They had a very involved process to get community input about who would be paying the tax, and who would be helped by the revenues that would be generated. And arguably that process made the revenue source more equitable. The overall impact of the tax in terms of consumption of sugar-sweetened beverages and the public health effects of that as well as how revenues from the tax are being spent may yet be unclear. But continuous evaluation and discussion of impacts by race and ethnicity make it a promising approach.

Interview conducted by Richard Greene, senior advisor, Government Finance Research Center

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