Rural Budget Crunch
Small Towns In The Midwest Feel Effects
USDA Farmline
Newsservice
WASHINGTON, D.C. - Good
roads, a school system, and
adequate police and fire protection
are among the basic services
taxpayers have come to expect
from their local government. If a
pothole needs patching or a street
sign needs fixing, they depend on
city hall to take care of the
problem.
But in some parts of the country
-namely in the rural areas where
agriculture makes up a large
portion of the economic base-local
governments are having a much
tougher time funding these ser
vices.
Declining farmland values and
the ripple effects of a weak farm
economy have whittled down the
tax revenues of many western and
midwestern communities, ac
cording to Tom Stinson, until
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recently an economist with
USDA’s Economic Research
Service and now an economics
professor at the University of
Minnesota. At the same time,
Stinson adds, rising farm sector
unemployment has increased the
demand for public services in such'
areas as education, job retraining
and placement, and mental health
counseling.
The analyst suggests that many
governmental units, primarily
county governments and school
boards, are being caught in a
financial vise of rising costs and
falling revenues. The elimination
of the federal revenue sharing
program-until recently a key
source of money for some counties,
cities, and townships-and possible
cuts in state aid add to their con
cerns.
As a result, Stinson says, many
rural governments face the
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possibility of substantial belt
tightening for the rest of the 1980’s,
and possibly beyond.
Declining farmland values
account for much of the reduction
in tax revenues. The value of an
average acre of U.S. farmland has
fallen from a peak of $823 in 1982 to
$596 early this year.
In much of the United States,
property taxes account for about 27
percent of local tax revenues, but
this figure can average 50 to 70
percent in some parts of the West
and Midwest.
Stinson analyzed tax bases in
agriculture-dependent rural
counties of Arkansas, lowa,
Kansas, Minnesota, Missouri,
Montana, Nebraska, and North
Dakota. Some of his findings are
reported in a recent issue of
USDA’s FtrmUm magazine:
• Tax delinquency rates have
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NAME
ADDRESS
CITY/TOWN
Some Findings
STATE ZIP.
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Lancaster Farming, Saturday, Dacambar 6,1M6-Al7
Of Flagging Farm Economy
increased substantially. The dollar
value of overdue taxes more than
doubled in parts of lowa and
Minnesota between 1980 and 1985.
In some Nebraska counties,
delinquencies rose 70 percent in
the same period.
• Based on 1982 levels of local
government spending, declines in
agricultural property values over
the last few years could have
produced a combination of tax
increases and expenditure cuts in
some areas that range from $l3 to
$199 per person.
“The decline in farmland values
has been well documented for
several years, but it’s only now
that rural cities and counties are
realizing they have a problem,”
Stinson says. “That’s because
assessed land values in some areas
are only adjusted periodically.”
Alternative Sources
Strained
Falling property tax revenues
alone probably wouldn’t put many
rural communities on the edge of
financial hardship, Stinson says.
When reduced tax revenues
coincide with cuts in income from
other sources, however, local
governments may be forced to
trim budgets and raise tax rates-a
situation currently facing some
school boards, townships, and
county governments in Arkansas,
Minnesota, and Nebraska.
Although figures vary from state
to state, rural communities
presently count on state aid for an
average of about 38 percent of their
revenue basis. Federal aid,
miscellaneous taxes, and user fees
make up about 35 percent, and
property taxes the remaining 27
percent.
In the past, many fiscally
strapped local governments looked
to the state or federal government
for help. But many states are also
experiencing budget woes. Stinson
notes that in six of the eight states
he studied, budget officials an
nounced midyear serviced
reductions because of less-than
expected revenues.
On the national level, aid cut
backs have also been underway.
According to the economist,
federal aid to state and local
govemments-when measured in
1972 constant dollars-has declined
by about 17 percent, from $2lB
billion in 1980 to about $lBO billion
in 1985.
The major source of federal aid
was the revenue sharing program.
Since the program began in 1973,
about $B5 billion has been pumped
into state, county, and city
budgets. Many cities and counties
used the money as a “rainy day”
source of income for budget
balancing and unexpected ex
penses.
But federal budget concerns
resulted in the program’s
elimination. Stinson notes that as
federal lawmakers strive to meet
deficit reduction targets
established by the Gramm-
Rudman-Hollings Act, any in
crease in federal aid for existing
programs is unlikely.
Balancing Act
The economist predicts that
county governments and school
systems will be most directly
affected by aid cutbacks and tax
declines. In the areas Stinson
studied, about 67 percent of farm
generated property taxes went to
fund the local school system,
another 30 percent went to the
county government, and the
remaining 3 percent to townships
for services such as highway
repair and police and fire
(Turn to Page A 18)
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