October 1, 2012 By Ryan Holeywell
Scott Smith is the mayor of Mesa, Ariz., and vice president of the U.S. Conference of Mayors.
A tax overhaul. There’s no doubt that the three primary sources of revenue for local governments -- sales tax, property tax and income tax -- are under strain. The wide swings in property valuations have created a complete mess. It’s going to force us to look at a different way. I think we realize that there is very little correlation between property value and services that are provided. If you have a house, whether it’s a $250,000 house or a $750,000 house, the number of fire units that show up if it catches on fire is the same, and that doesn’t change whether the valuation goes up or down.
Governments want to ensure a stable source of revenue. I think what you will see is an attempt to tie more services with the cost. Twenty-five years from now, it wouldn’t surprise me if some of our taxation of property was based on some sort of fee-basis related to services associated with property.
You’ll see a broadening of the tax base and a lowering of the rate, and perhaps more of an imposition of a consumption tax than a sales tax. Everyone recognizes the taxing system is out of sync with the economy we live in.
More and more P3s. Public-private partnerships have been perfected in other countries because they simply didn’t have the government money and had to rely on private money. What we’ll see is not that America has to rely on private money; what you’ll see increasingly is if we want these assets, we’ll have to expand our sources of revenue. As freeways don’t get built and congestion gets worse, we’ll say, “Hey, we don’t have the funds to add that lane.” Very reluctantly, the citizenry will say, “I get it now.” And they’ll accept public-private partnerships as another tool in the box.
Same services, different sources. The basic types of things people expect from their communities will stay the same. There are things that can only be provided by a community. I don’t think that will change, but I think who delivers those services may change. You’ll see a basic change in not just the relationship between cities and states in Washington, but also cities and each other. You’ll see city boundaries shrinking or even disappearing as we look at new and innovative ways of doing things. I think you’ll see an evolving model as we look for efficiencies, because less money is coming from Washington and we’ll have to do more on our own.
Joshua Schank is president and CEO of the Eno Center for Transportation. He advised then-Sen. Hillary Clinton on transportation policy, and worked in the inspector general’s office at the U.S. Department of Transportation and then the Metropolitan Transportation Authority in New York.
Funds from the feds. It seems unlikely we’ll be dealing with [uncertainty in federal transportation funding] in 25 years. I know that’s surprising, but in the long run, I’m optimistic about our ability to address these things. At some point, the chicken comes home to roost. People start to notice a substantial downgrade, to the point that they do make it into an issue. It takes time for it to happen. Will the anti-tax [fervor] of the U.S. government continue? No, I don’t think that’s possible. I don’t think that you can have a government that works that way.
Since the interstate system was created, the federal government has in some ways gotten a little over-involved in dealing with local transportation issues. It makes sense for them to scale back.
Forget VMT. In 25 years, I’d be surprised if we had a federal vehicle-miles-traveled (VMT) system. At the federal level, you’ll see a greater dedication of general funds to transportation. Once we realize that the gas tax isn’t sustainable -- and nobody is willing to agree to VMT fees -- we’ll dedicate X percentage of revenue or the income tax or whatever to transportation, and we’ll use that to fund transportation like any other domestic discretionary program. At some point you say, “Why are we bailing out the Highway Trust Fund every couple of years?” Let’s admit what we’re doing. It’s a general fund program, and it’s worth federal investment. The benefits accrue to everybody.
So I don’t think it will be addressed through VMT at the federal level. Much more likely is a combination of things: States and regions [will] rely on VMT fees to pay for transportation, basically like an extension of E-ZPass.
Regions step up. It’s a question of to what extent the states and localities will be able to raise their own revenues to compensate for the downturn of the federal contribution. I think it’s going to move in both directions: Some places will step up, like Los Angeles, and say we need to invest. They’ll start beating up on places that don’t. You’ll see places that get left behind saying, “Wait a minute, I guess we do need to spend money.” And they will. It’s a naturally correcting system.
I’m certainly hoping federal funding becomes more reliable. But I think the pot is likely to dwindle.
The end of gridlock? It’s shocking to me that we don’t already have perfect information about every traffic route at every moment. It’s only a matter of time until that happens. We have almost perfect information about traffic in real time. We have computers that can say, because of the traffic, you should take this route. But very few people have that in their cars. When that’s ubiquitous, the system will function much more efficiently.
Ron Sims is a member of the Washington State University Board of Regents. He’s previously served as executive of King County, Wash., and as deputy secretary for the U.S. Department of Housing and Urban Development (HUD).
Disappearing towns. I think in major metropolitan areas, you’re going to see fewer cities. We’re moving into the age of [consolidated] metropolitan government. Cities are failing. The cost of pensions will catch up. The cost of competing will catch up. And the demands for services will catch up. You’ll see jurisdictions disappearing.
When I’d go into jurisdictions [as deputy HUD secretary], I didn’t see how all these jurisdictions could stand. People expect a high quality of outcomes from the government, but you can’t pack [multiple cities] with enough people to generate revenues to sustain them. We’re beginning to see the fallout. Investors will basically see that these are long-term risks and say, “How does a city that small bail itself out of trouble?”
Wall Street will be the reason everything changes. They’ve gone through a period of being burned by investments that were not secure. After a while there’s a risk. I think every year will continue to be a bad news year for smaller cities, and you’ll basically see the emergence of metro areas.
Priced out of the burbs. States will see the loss of federal income for large infrastructure needs. State governments will have to have far more toll roads than they do now. That will result in a loss of residents in smaller cities that are farther away from employment centers: “I’ve got my house payment, my car payment and now a toll payment to get to work? That gets factored into their cost of living, and they’ll begin to migrate to larger cities.
A K-11 education. I think the fourth year of most people’s high school is a waste of time. They’ve got their college acceptances. I think graduating with four years of high school will go away. You have to unburden K-12, [so we’ll say] by the end of junior year, you’re out. We’ve given you all you need to compete in technical schools or community colleges or four-year schools by then.
Toward more perfect unions. The union movement in governments will have to fundamentally be redesigned. I believe in unions. [But] unions have a choice. You can have the old guard that says this is the status quo, or you can have the new guard. We’re going to have to manage differently. The idea of people [staying] in government because they can hang on 30 or 40 years and not produce? That’s gone. You’re going to basically see unions having to allow [the public sector] to get rid of inefficiency and inefficient people.
Exciting times. If you think the government today is the government of 25 years in the future, you’re out of your mind. It’s too costly to sustain. All these problems excite me. There are going to be gigantic problems that will look overwhelming to us. I wish I was just starting my career.
Donald Boyd is a senior fellow at the Rockefeller Institute of Government and the executive director of the State Budget Crisis Task Force, created by former Federal Reserve Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch. The task force, which is examining long-term fiscal challenges facing states, released its first report earlier this year.
Not so rosy. I think there are serious, entrenched problems and risks that most states face. Medicaid is not going away as a problem. [Nor are] pensions. Some of the states face very deep problems, and the system itself is broken. As you look at the challenges, it’s hard to come away being sanguine.
More Medicaid, more problems. In 25 years, we’re still likely to be facing the problem of Medicaid. It’s a combination of two things, one of which is hard to change, and one that’s impossible to change. First, there are growing health-care costs. The other big thing is the aging problem. It’s so much more expensive to care for the post-65 and especially post-85 population. Those costs are going to rise pretty substantially. That’s not going to change. People are willing to care for the elderly and disabled, and it seems unlikely our country is going to abandon that.
Gambling on pensions. Pensions are something where the question is, “Do you feel lucky?” The actuarial systems assume they’ll earn 7.5 to 8 percent. We could get lucky and get out of this. If you had 20 years of 8 percent growth, [the underfunding problem] can go away. It could also get dramatically worse. They’re so heavily invested in equities that if they get unlucky -- I won’t say it’s the making of a catastrophe, but it’s something that requires truly dramatic change.
Deficit distress. Federal deficit reduction, we don’t know when, but we know it’s going to happen. And it’s hard to conceive of a scenario of federal deficit reduction that doesn’t hurt states. The feds don’t understand the impact of debt reduction. That’s why one of the recommendations of our report is to consider an entity like the [now-defunct] Advisory Commission on Intergovernmental Relations as a way of examining and making clear the potential impact of federal deficit reduction. This is probably the most important of the issues we’re addressing. Nobody ever went broke betting on the ability of political leaders to put off problems until the future.
Teri Takai is the chief information officer at the U.S. Department of Defense. She previously served as CIO of Michigan and of California.
Buying smarter. State and local governments are going to recognize they can no longer be fiefdoms and run their own technology. Most state and local governments run a mixture of homegrown technology and stuff they buy. Going forward, they’re going to have to learn how to purchase and manage services as opposed to purchasing and managing technology.
That’s a big leap. It means that they’ll need adequate technical expertise to be a good purchaser and a good manager -- without actually having grown that technical expertise from having developed, purchased and installed that technology.
States as tech vendors. In some cases, another state or another county may be providing the services for you as a state or local government. In some cases, it may mean the federal government is providing a standard service that you as a state purchased. On the other side, it could mean you as a state or local government may actually be a provider of service for other state or local governments.
Look at the electronic health insurance exchange website currently under way. It’s basically laid out so that each state can create its own website or utilize the federal government’s site. I could envision that going a step further, where, for instance, you might do it state-by-state. Michigan might buy services from California because they thought California’s site was better. Or the Western states would come together to form a consortium, with a single development by Washington, Oregon and California run by one of them and used by the others. A provider could be a private company. It could be the federal government. It could be another state. It could be a nonprofit.
E-Gov. (Finally.) One of the things state and local governments struggle with today is that they have to maintain their current [methods of delivering services] -- offices and phone calls and so on. Twenty-five years from now, as the demographics change, we will actually be able to do a reduction in the offices we have. I won’t say you’ll have no offices. [But] if you can drive the digital literacy of our children in line with the capabilities of our technology, then I can envision a time when we would not need those offices. The whole e-government revolution that was anticipated several years ago will actually come to fruition.
Techies in the House. Legislatures approve the money, and if the legislature doesn’t have an appreciation of how technology can be used to make services easier, faster, better and more cost-effective, then they will not appreciate how to allocate the funds and how to do effective oversight of the technology projects to ensure citizens’ money is spent well.
But legislators are not drawn from corporate America. They’re lawyers, public policy people or educators. They’re drawn from vocations where they don’t necessarily understand the implications of technology on a large organization, which is what state and local governments are. Over the course of the next 25 years, I think you’re going to -- I hope -- see many more technology-savvy individuals in our governors’ offices and in the legislatures and in the departments. We’re going to see the CIO be more of a business innovator. I hope the CIO becomes less the promoter of technology and more the role of promoting innovation and ensuring the multitude of technology platforms to make it effective.
This article was reprinted from: Governing
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