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Cities, state bracing for possible cuts in federal funding

While much has been said about the state funding shortfalls and the federal deficits, how are cities and towns in Mississippi faring in the overall fiscal picture?

According to the National League of Cities (NLC) Fiscal Conditions in 2004 Report, times are tough all over the country. NLC reports that cities were less able to meet financial needs in 2004, and expectations for 2005 are “equally grim.”

“We all have more opportunities to provide services to citizens than we have money to pay for them,” said Ridgeland Mayor Gene F. McGee, president of the Mississippi Municipal League (MML). “Budgets are strained by aging infrastructure. All across the state I hear over and over again that the needs outweigh the available funds. Particularly when you have a fast-growing city like Ridgeland, the demand far exceeds the ability to pay. Even in a small community, their needs may be less. Perhaps they just need a new police car or to rehabilitate a sewer line. But they don’t have the money to pay for it.”

The MML has been advocating a Mississippi Optional Sales Tax (MOST), which is something that most surrounding states have. With MOST, each city could vote on establishing an extra 1% optional sales tax to help fund city services.

“It would allow a community like Ridgeland with tremendous transportation needs to allow residents to vote on putting on an optional sales tax to pay for a project or projects,” McGee said. “By doing so, you get the projects done quicker and it costs you much, much less in long-term financing charges. It could save the cities millions of dollars over the years. We think we should give our voters a choice, and let it be a local situation where each community has the ability to choose its future.”

McGee said he believes the tax would be relatively painless. A person spending $10,000 per year would pay an extra $100 tax.

Another argument is that the optional sales tax would help the state economy because it would create jobs.

“It would be a very logical way to help the state,” McGee said. “A lot of the economy in Mississippi is driven by sales tax. What you are doing is creating more money going into the economy, which creates more spendable income and more jobs. All we are asking the Legislature to do is give us the option. It is up to the cities to get the option passed.”

Biloxi Mayor A.J. Holloway favors MOST, but fears it doesn’t have much of a chance to become law.

“I expect legislators are against any new taxes,” Holloway said. “And I would look for some unfunded mandates to be handed down to the local government for things state and federal governments are doing now. If the state doesn’t fully fund education, cities are going to have to go up on taxes or fees to offset it. That is going to put a burden on a lot of cities.”

Holloway is concerned that unfunded mandates from the state could be compounded by unfunded mandates from the federal government, which is operating under a large deficit.

“The government is paying a tremendous amount of expenses right now for the war,” Holloway said. “I don’t see help from the federal government. We haven’t even had a budget approved in Washington in two years.”

Biloxi is likely better off than most of the cities in the state. The city’s tourism and gaming industries are holding steady, and sales tax collections have been up for 12 of the past 15 months. For the 15 months prior to that, sales tax collections were up only eight of the 15 months. That indicates the economy is improving.

“In the City of Biloxi, our future looks good,” Holloway said. “We are having growth with the addition of the Hard Rock Casino, which will be opening in 2005. The new addition to the Isle of Capri will be open in 2005, and we have several condo projects that are under construction. We have a lot of new businesses opening up particularly in the Cedar Lakes/Popps Ferry Road area, and new subdivisions are under construction.”

According to the MML, another problem with funding for both county and city governments is that the state has failed to reimburse fully for homestead exemptions on property taxes. In FY 2002, the Tax Commission requested $77.5 million and received an appropriation of $76.3 million — $1.2 million less than was requested to reimburse cities and counties for homestead exemption.

“In addition, the Governor’s Office ordered agency budget cuts and the Tax Commission cut the Homestead Reimbursement Fund, as well as other areas,” said Shari T. Veazey, public relations coordinator for the MML. “This second, mid-year cut was $3,608,229. In 2002, local governments submitted $77,873,545 in requests for reimbursement, yet only received $72,691,722, a shortfall of $5,181,823 (or 6.7%). This shortfall has never been made up.

“In FY 2003, municipalities, counties and municipal separate school districts were qualified to receive $78,641,262 in homestead reimbursement under state law. The State Tax Commission requested $79,500,000, was appropriated only $76,300,000, and was cut an additional $3,015,084, leaving only $73,284,916 — a shortage of $5,356,346 (or 6.8%). This shortfall has never been made up.”

Veazey said the lost income is particularly challenging because the losses came midway through the year, so local governments had no way to prepare for them and no way to recover from them. Additionally, she said that under state law, when school districts face a shortfall, local governments (cities and counties) are required to make up the difference, causing more revenue loss at the local level.

“Those are real dollars the cities don’t get back to put in their budget, so they have to make it up somewhere else cutting a program or an employee,” said George Lewis, acting executive director of the MML. “It impacts all sizes of cities and towns.”

Lewis said Gov. Haley Barbour is recommending full funding of the homestead exemption rebates in his proposed budget.
Many cities rely heavily on sale tax revenues to fund programs. In recent years, the slowdown in the economy has impacted sale tax revenues. McGee said currently sales tax revenues across the state are remaining fairly constant.

“Sales tax revenues are not growing quite as fast as we would like,” McGee said. “But I think we will see that turnaround in 2005. I think we will see it grow.”

Ocean Springs-based freelance journalist Becky Gillette writers regularly for the Mississippi Business Journal. Contact her via e-mail at bgillette@bellsouth.net.

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