Laserfiche WebLink
RS-8 Stability of State Revenues (g) <br />The reserve should be built up during years of economic prosperity and used <br />only to protect the state budget from unexpected economic downturns, not for tax <br />reductions or expenditure Increases. Such a budget reserve is necessary given <br />the relatively volatile tax bases on which the state currently relies <br />(particularly the income tax and sales tax) and the potential for error in <br />revenue and economic forecasting. <br />in recent years the uncertainty of the state -local fiscall relationship lies <br />made short- and long-term financial planning very difficult at the local level. <br />During the earlier part of this decade, local jurisdictions were left with <br />severe revenue shortfalls and cash flow problems because of the sharp and <br />unexpected decline in state revenue. State aids to local Wrisdictions were cut <br />substantially and aid payments were delayed, often in the middle of the budget <br />year when compensating action was nearly impossible. <br />In addition, cities :mve been unable to plan their budgets with any degree <br />of confidence given the major year-to-year changes that have occurred in the <br />overall funding level for local government aid, in the formula used to <br />distribute local government aid, in levy limit laws, and in state property tax �s» <br />relief programs. Cities need to be able to rely on predictable revenue sources <br />that will be adequate to maintain the level of services required by their <br />citizens. <br />Should problems with budget shortfalls persist even after establishment of <br />a budget reserve, the Legislature should consider additional policy options to <br />stabilize state revenues, including: <br />* broadening of the sales tax base to include purchases of some <br />necessities, such as clothing and personal services. Applying the sales tax to <br />some necessities could lead to more stable revenues since demand for such <br />necessities is Likely to continue even during times of economic adversity. <br />* temporary suspension of indexing of the state income tax structure or <br />temporary increases in other taxes (such as the sales tax) in the event of a <br />sizable budget shortfall. <br />* refraining, from further income or sales tax reductions unless it is <br />certain that budget shortfalls will not materialize. <br />-66- <br />