Small City Perspective: Is State Shared Revenue a Necessity or Burden?

In finalizing the budget for the City of Waitsburg for 2016, and reviewing revenues to see where we could squeeze out a few extra dollars to balance our general fund budget, it became clear to me that without financial support from the state in the form of shared revenues, my city would be hard pressed to provide several key services that our citizens have come to rely on. Most of our citizens actually have little knowledge about, or concern for, where the funding for those services comes from. Nor are they aware that the large majority of those state shared revenues have restricted uses and purposes (e.g., criminal justice funding), that are established and fixed by state legislation.

For the City of Waitsburg’s general operating fund, after property taxes and solid waste fee collections, state shared revenues are the third largest revenue source for the city, accounting for almost 15% of our general fund operating budget and nearly half of our street fund budget. Because of the historical distribution of these state shared revenues, local agencies have come to rely on them to balance their budgets, run programs, and complete various projects.

The budgetary worries come from our having relatively limited revenue options as we budget for the ensuing year, which creates an ever-present (but hopefully, unrealized) concern, that this source of income could be lost. Any unanticipated loss of these revenue sources would bring mid-year changes that could have serious consequences for projects and programs that rely on them. Should a sudden loss of funding occur (think I-695, streamlined sales tax, liquor revenues or Public Works Trust Fund sweeping), minus a large budget contingency to make up the difference, a local agency would have to cancel projects and/or immediately scale back its operations for the remainder of the current year while considering elimination of the services for the next budget year. Of course, a loss of this nature could potentially lead to higher long-term costs in the form of higher taxes and/or user fees to pay program costs if funding is not restored.

Unfortunately for local agencies, the majority of state shared revenue is not under local control and therefore will always be at the discretion of the state. In addition, a lot of the challenge of using state shared revenue to balance our budgets comes from the fact that the state fiscal calendar (which begins on July 1) and cities’ fiscal calendars (which begin on January 1) do not align, leaving the potential for six months of budgeted revenue that could ultimately go unrealized. This is especially true when legislative sessions, as they have done lately, last up to the end of the state fiscal period, making it extra tough for local agencies to plan for a loss of revenue. If the legislative sessions ended on time, there would be more time to make budget adjustments to account for the loss of revenue.

The good news is that recent lobbying efforts by both cities and counties have seen some gains in the form of renewed (and in some cases new) state shared revenues allowing some additional help to struggling local agencies. However, with what the state has to deal with in the near future in terms of various court cases and voter initiatives, there is always the possibility that the legislature may want to take another hard look at all of their revenue streams, including local shared revenues, to balance their budget.