The public spoke, and the Mobile City Council apparently has listened. Now even Councilman Fred Richardson, a longtime, straightforward advocate of a permanent extension of Mobile’s “extra penny” sales tax (meaning a 10 percent total sales tax once state and county taxes are included), has agreed to repeal this week’s extension of the tax through 2018, and replace it with a mere two-and-a-half month extension, from July 2015 through September, 2015 (the end of the fiscal year). If the Council goes through with this as expected, it is great news for the city. As I argued in a column in today’s print edition of the Press-Register (online link now available here), the super-high sales tax is one of those rare levies that is, quite demonstrably, particularly harmful both for small businesses and for the working poor at the same time.

But this is only the first step toward a more sensible tax structure in the city of Mobile. I’ve studied Mobile’s budget off and on for the past 14 years — not in the depth a councilman should study it, but at the depth of a concerned layman — and it does appear as if Mayor Sandy Stimpson’s team will be able, with the Council’s help, to enact savings that will obviate part of the need for the $32 million or so the extra penny brings in annually. But — and this is important — the backlog of capital needs is such that it will be at least a decade before anybody could hope to find savings equal to the whole $32 million.

In short, at least some of the revenue from that extra penny absolutely must be found elsewhere, especially in the short term, meaning Fiscal Year 2016 (the first year scheduled to be without the penny) and perhaps FY 2017 as well. To repeat: some but not all.

What’s needed is comprehensive, long-term city tax reform that finds a better balance between public revenues and economic growth, and a better balance (not progressivity, but balance) between how heavily the tax burden falls on the rich and the working poor. Right now, against all common sense and common decency, taxes within the city fall more heavily, as a percentage of income, on the working poor than on the rich. That must change.

S0… how should it change? The obvious answer is that as the sales tax drops, city property taxes probably need to rise just a little (which will require approval from the state Legislature, too, by the way, along with a popular vote, which is an important safeguard against overdoing it). What should not be necessary is for the property tax to rise as much, in percentage terms, as the sales tax falls. Again, in the long run, economic growth spurred by a lower sales tax will make up for a reasonably large portion of the short-term revenue “loss” from cutting the tax.

(It’s also possible that the penny might need to be phased out, with one year of a half-cent extra tax rather than the full cent, followed the next year by complete elimination of the extra penny.)

The city also takes in revenue in a number of other ways, via fees and fines and (I think; I need to recheck this) various excise taxes and sundry other sources. Perhaps these can be jimmied a little at the edges.

What is needed is a comprehensive look at this whole tax structure, accomplished over the next six months or so, with a committee charged with making a sensible, understandable, economically constructive proposal at the end of this study — followed by months of public debate, and probably tweaking of any proposal in response to said debate.

This past Tuesday, Council President Gina Gregory made a vague reference to having appointed her colleague Bess Rich to head a committee/commission to conduct just such a look at tax reform. (Rich, with known anti-tax views, is a great choice, because she will not be likely to let this become a runaway, overly tax-happy group.) It is time to give that commission some real oomph — and, considering how much money is at stake, a small bit of funding as well. The commission should be asked to hire a professional macro-economist (Dr. Semoon Change, who recently retired from the University of South Alabama comes to mind,) at a decidedly non-exorbitant rate, to help guide its work. Aside from the professional economist, other members of Bess Rich’s group should be volunteers.

As a matter of fact, I called Dr. Chang yesterday to ask for his assessment of the Council’s tax hike. He studiously declined to comment on the budget or on what the Council did, saying he didn’t have all the facts in front of him and did not want to second-guess them. But he did agree to comment  generically on the effects of high sales taxes. Here’s what he said:

The 10 percent tax rate is not the highest sales tax rate in the country, but one of the highest. The problem with high sales tax rate is that it encourages non-compliance by businesses and search for alternative shopping opportunities by consumers, ultimately lowering total retail sales in the community below that they can be under lower sales tax rates.  

Exactly. This is why Mobile needs to come up with another answer. It also explains why the answer does not mean it’s necessary to have anything close to a strict dollar-for-dollar replacement, via “static” budget scoring, of one tax for another. The high sales tax is so counterproductive that lifting it will be like lifting a weight off the economy, and the resultant growth will make up for some of the difference.

As for me, I have some numbers already in mind, from what I know of the budget. Before publishing them, I need to double-check with city budgeteers. But readers should rest assured that any hikes in property taxes that I would have in mind would be small and easily digestible, costing the average property owner noticeably less than he would pay in the course of the year through the extra penny of sales tax.

What’s most important is that, once the penny sunsets at the end of September, 2015, the citizens should get to vote on any plan to replace all of part of it. The city does have capital needs, and a reasonable plan, one not too tax-heavy, is likely to secure the public’s support.

I’ve been pretty hard on the Council for the past three days, especially on Gina Gregory. It is incumbent on me therefore, if its members do go forward with their plan to repeal this week’s overly hasty vote, to give them credit for listening and responding appropriately to public outrage.

I also hope they reconsider some of their budget amendments, especially by re-applying the money they shifted away from capital equipment for police, firefighters, and public safety. If they do, they will merit even more fulsome public credit.

By passing a good budget this year, and by creating a tax-reform commission/advisory group with a serious mission, the Council will have bought itself a full year to construct a long-term solution for the city’s revenue and spending needs. Here’s hoping that by this time next year, the Council and mayor are ready to move forward with that long-term solution.


Tags: , , ,