While state and federal mandates continue to place additional unfunded burdens on county governments, state governments are simultaneously placing increasing limits on counties’ abilities to raise revenues, reports the National Association of Counties (NACo). In its report, Doing More With Less: State Revenue Limitations & Mandates on County Finances, NACo highlights four findings:
- State Governments are Limiting Counties’ Revenue Authority to Fund Essential Services
- Counties are Coping with More State and Federal Mandates, Not Fully Covered by State and Federal Aid
- Counties are Adjusting to New Fiscal Challenges on the Horizon
- Counties are Pursuing Various Solutions to Ensure Quality Service Delivery Despite Fiscal Constraints
Keeping Counties’ Taxing Authority
Property taxes, in additional to sales taxes, serve as the main revenue source for most counties. However, the state places restrictions on property taxing authority in 42 of the 45 states where counties collect property taxes – and 45 percent of these caps have been enacted or modified since 1990.
AS OF NOVEMBER 2016
“Dark Stores” Threaten County Coffers
Further compromising the collections of property taxes, NACo’s report highlights the “dark store” phenomenon:
Counties in at least 12 states are confronting valuation and assessment issues, including valuation appeals, due to the “dark store” method of assessing big-box stores. This method values currently operating retail store locations for tax purposes as if they were vacant and closed; proponents argue that this real estate could not be sold near the cost of construction, since these stores were built out for particular purposes. Since the assessment of a closed location is far lower than that of an operational facility, property tax revenue generated from operating big box store is significantly diminished with this valuation method.
Commercial real estate owners have achieved successes getting their assessments lowered by litigating that traditional methods for valuating commercial property – by their value-in-use – conflict with statutory law. Since 2013, Michigan counties have refunded approximately $78 million in property taxes related to dark store valuations.
Unfunded Mandates, Oh My… And Steps Forward
While NACo reports that the above-mentioned factors are limiting counties’ taxing abilities, 73 percent of states have required counties to do more with what they have, decreased state funding to counties, or some combination of both over the last decade.
The report recommends that state and federal governments provide full funding for compliance costs associated with new mandates passed to local governments, and that counties be granted the autonomy to generate revenue to pay for the services they provide.