Local Governments Scramble to Assess Impacts of Tax Proposals

City Hall in New Bern, N.C.

City Hall in New Bern, N.C. Shutterstock


Connecting state and local government leaders

Whether representing a booming urban center, a ritzy suburb, a steel town struggling for growth, or an overtaxed collar county of Chicago, local officials are concerned about the GOP tax plan.

District of Columbia Mayor Muriel Bowser and Alexandria, Virginia Mayor Allison Silberberg stood in front of a gaggle of reporters with the U.S. Capitol looming behind them on Monday, urging Congress to reject a suite of provisions in the House and Senate tax plans that could hurt state and local governments. Bowser ticked off billions of dollars of investment made in the city utilizing bonds that would no longer exist under the House tax proposal, including “historic investments in affordable housing” that has supported veterans and low-income families. The list included everything from public schools, to major revitalization projects, to parks and small businesses.

The briefing mirrored the conversations that local officials across the country are having as they attempt to figure out what the implications of the tax bill for the future of their local governments and residents.

While the District of Columbia itself stands to lose from the bill Congress is writing down the street, beyond the Beltway—both near and far—local governments are scrambling to assess the impact to their communities and impact their ability to govern.

Forty miles west of D.C. sits Loudoun County, Virginia. Loudoun’s citizens have the highest home mortgage interest deductions of any county the country according to the Tax Foundation. Already in the fifth hour of an evening Board of Supervisors meeting on Nov. 8, the county spent 40 minutes discussing the pending House tax proposal and what it may mean for the county.

“Just to understand how that impacts Loudoun County and the 10th [congressional] district, 49 percent of all taxpayers … in the 10th district utilize that tax deduction. It is the highest number of users of any GOP district in the country,” Jennifer Emo of the Ferguson Group, who serves as Washington representation to the county, explained to the board. “But because this isn’t on your federal agenda or your federal program, we haven’t been able to communicate to Congresswoman Comstock’s office any concerns you may have with that particular issue.”

Coupled with the potential elimination of the state and local tax deduction, the Board was concerned that the tax burden that once was deductible would quickly add up under both the House and Senate plans.

“I’ve spend a heck of a lot of time with this tax plan and I’m telling you, for a lot of people in a typical Loudoun situation … you’re probably going to be net negative on this, even with the lower brackets,” Supervisor Matthew Letourneau said during the marathon session, citing other unique costs the county residents face that add to the tax burden, such as the Virginia property tax on automobiles. “The average price of a single family detached house in this county is like $640,000. There’s not very many places where that’s the case but it is here.”

Expensive housing stock and cost of living are not prerequisites for a major impact, though. In a conversation with McHenry County, Illinois, Chairman Jack Franks he described his county seat of Woodstock, Illinois as “quintessential Americana.” The moniker seems to fit: the town of was used as a stand-in for Punxsutawney, Pennsylvania in the 1993 film Groundhog Day. Locally, though, it is also well known for being strapped with high state and local taxes.

Franks, a chairman of a bank and self-described “conservative Democrat,” is the only member of his party on the 25-person county board. He was elected last year on a platform of cutting property taxes by over 10 percent locally, which he blames for stagnating home prices and a shrinking population.

“We are in the top of one tenth of one percentile—to put it another way, we pay more than 99.99 percent of all Americans for our property taxes,” Franks told Route Fifty in an interview last week. Homes in McHenry, however, are a fraction of the cost of those in Loudoun, Virginia. According to Franks, a family with a $250,000 house in Woodstock would pay approximately $10,000 per year in property taxes.

“Having a sky high property tax bill does not mean you’re rich, and this proposal will really hurt middle class families,” he told me, describing a local firefighter with two kids who had four part-time jobs to deal with a $10,000-plus property tax bill. “If you’re really trying to be progressive in this, it would be more based on the value of a home I would think than based on a property tax.”

Franks, has communicated that sentiment to the county’s two Republican Congressmen, Peter Roskam and Randy Hultgren, urging them not to rush the bill through. “We saw the language Thursday. They’re not giving a hell of a lot of time. This is a major rewrite of a tax code that needs to be vetted,” Franks said. “I think there is a lot in here to like, a lot. But there are some unintended consequences in here that are going to hurt people who can’t afford to be hurt.”

“So we’re basically getting taxed twice and adding insult to injury. And politically, the ironic thing, McHenry is the only county in the collars around Chicago that voted for Donald Trump.”

Gary, Indiana Mayor Karen Freeman-Wilson speaks during a gathering of U.S. mayors in Washington, D.C. in April 2017. (AP File Photo / Manuel Balce Ceneta)

One hundred miles southeast, on the other side of Chicago, Mayor Karen Freeman-Wilson of Gary, Indiana leads a decisively different locality. The city, a manufacturing base for U.S. Steel, has decreased in population by more than half since its peak in the 1960s. Freeman-Wilson refers to Gary as a legacy city, working to reposition itself for the new economy.  

Freeman-Wilson is concerned the bond provisions will make bringing the city forward that much more difficult.  

“A lot of the new things we have done in terms of building have been done with New Market Tax Credits,” Freeman-Wilson told Route Fifty, referencing a tax credit program the House bill would end that is designed to spur investment in economically distressed communities. “To not have that as a tool would hamper development in a place where you’re already challenged because of the historic losses around legacy cities.”

Freeman-Wilson also sees the bill as limiting their options to utilize bonds for public good moving forward, as well.

“There is a conversation going on in Gary right now around the utilization of private activity bonds to deal with some of our vacant and abandoned buildings,” she said. “It’s an innovative idea … but the reality is that if that is taken out of the tax code, then we won’t have that option.”

A city does not need to be struggling to attract capital, though, to be concerned about the loss of these financial tools. Charlotte Mayor Jennifer Roberts believes the bond eliminations will negatively impact her city’s ability to provide affordable housing.

Considered one of the fastest growing large cities in America, Charlotte is leveraging bonds to entice developers to include affordable housing in a city where the GDP grew by over  25 percent in a decade and has the highest workforce growth in the nation.  

“When you have rents rising faster than wages, your gap could be widening and you have to use every tax tool, tax credit, creative, innovative thing that you can,” Roberts told Route Fifty. “We’re pre-empted by state government; we can’t have inclusionary zoning—we can’t require developers to put 10 percent or 20 percent aside for affordable, so you have to be creative.”

“Developers are not going to provide housing for free—they’re just not.”

Mitch Herckis is Senior Director of Programs at Government Executive’s Route Fifty.

NEXT STORY: Latest Senate Tax Plan Would Tweak Low-Income Housing Credit Program