Richard F. Dye

The effect of property tax limitation measures on local government fiscal behavior

Abstract Previous evidence on the effects of tax and expenditure limitation measures has not been conclusive. Difficulties arise in characterizing differences in fiscal institutions across states, and estimating behavior in the absence of limitation measures. A recently enacted tax limitation measure limits the growth in local property taxes in some Illinois jurisdictions, but not in others. Such differential treatment of otherwise similar jurisdictions provides a natural experiment for estimating the impact of the tax cap on local government fiscal behavior. We find that the cap has been effective in that the fiscal behavior of capped jurisdictions differs from that of never-capped jurisdictions.

Sports Stadiums and Area Development: A Critical Review

Should local governments subsidize the construction and operation of sports stadiums? This is being debated in cities throughout North America, and several factors have conspired to elevate this issue to headline status. Local government officials, burdened by the deteriorating financial health of their cities, have sought ways to mollify critics. Since some political strategists have argued that the presence of professional sports imparts economic prosperity, some local political leaders have hitched their wagons to the sports star. But is professional sports a panacea for sagging urban economic fortunes? Many are skeptical that subsidizing sports stadiums is worth the costs. We examine published and unpublished literature as well as our own research to chronicle, analyze, and critique the use of publicly financed sports stadiums as a vehicle for economic progress. We provide information for both the academic and the practitioner on the types of questions that should be posed when making decisions about stadiums. In the first section we detail and analyze the recent history and future plans for city financial involvement in sports stadium projects. We discuss the costs and benefits of stadium-based development rationale in the second section, and the next section analyzes its validity. Factors that may prove decisive in determining the economic successfulness of an individual stadium project are observed in the fourth section, and the last section concludes the article.

An Analysis of the Economic Rationale for Public Subsidization of Sports Stadiums

Proposals to provide public subsidy to sports stadiums are being debated in many locales. This paper examines a number of types of benefits asserted by proponents of subsidies: direct municipal revenues from stadium events; multiplier benefits increasing income and sales in the area; the attraction of unrelated business activity; and, intangible benefits. The business attraction argument is subjected to empirical test with regression analysis. In only a small fraction of the cases examined does manufacturing activity in an SMSA correlate significantly with the presence of a new or renovated stadium. We conclude that measurable economic benefits to area residents are not large enough to justify stadium subsidies and that the debate must turn to immeasurable intangible benefits like fan identification and civic pride.

Property Tax Responses to State Aid Cuts in the Recent Fiscal Crisis

Many states experienced fiscal crises at the beginning of this decade. Some responded by cutting state aid to local governments. This paper explores the extent to which local governments responded to these aid cuts by raising property taxes. The authors hypothesize that changes in aid help explain the observed differences in per capita property tax revenue changes across states. They find that on average school districts increased property taxes by 23 cents for each dollar cut in state aid. These results highlight the important role that the property tax plays in maintaining the stability of the state and local sector.

A Model of Tax Increment Financing Adoption Incentives

With tax increment financing (TIF) a municipality pays for economic development expenditures out of future increases in tax collections. If the development expenditures are the sole cause of the increased tax collections, TIF is a fair and reasonable policy. If not, TIF can distort choices and redistribute resources. This paper develops an economic model of TIF as a choice by the sponsoring municipality with an impact on an overlying government. The analytic framework isolates the impact of key variables, permits analysis of the payoff from TIF to each government, and helps inform discussions about equity. The model clearly shows that while the special nature of TIF causes it to favor projects that generate significant tax revenue, that revenue need not be truly incremental with respect to the project alone, and projects therefore need not be efficient to be financially viable to municipalities. In fact, the projects that best fit the goals of TIF legislation may be impossible to finance through TIF. Alternative government programs may be required to help towns develop areas most in need.

The Effect of Earmarked Revenues On the Level and Composition of Expenditures

This article provides estimates of the impact of earmarked revenues on the level and composition of state expenditures. Examined are four types of state spending —total, elementary and secondary education, highways, and aid to nonschool local governments -and two measures of earmarking -earmarked revenues per capita and earmarked revenues as a share of the favored expenditure category. An extra dollar of earmarked revenues results in either no change in expenditures or in increases in expenditures that are much smaller than a dollar. A greater reliance on earmarking as a share of expenditures results in either no change in spending or lower expenditures.

The effect of tax increment financing on land use

Dick Netzer, a leading public finance economist specializing in state and local issues and urban government, brings together in this comprehensive volume essays by top scholars connecting the property tax with land use. They explore the idea that the property tax is used as a partial substitute for land use regulation and other policies designed to affect how land is utilized. Like many economists, the contributors see some type of property taxation as the more efficient means of helping to shape land use. Some of the essays analyze a conventional property tax, while others consider radically different systems of property taxation.

Aid sources for higher education: Taxes and other determinants

Abstract Using estimates of the tax-sensitivity of contributions by individuals, Auten and Rudney predict that the enactment of any of the major tax reform plans being discussed would cause very large declines in gifts to higher education. But their method cannot adjust for changes in donee need as a donor motive. By focusing on the donee educational institution, Coughlin and Erekson add to our knowledge of the non-tax determinants of individual donations. and by extending the inquiry to include corporate donations and state aid, they add to our knowledge of additional sources of revenue for higher education.