How Cities Are Thinking About Equity and Revenues

The op-ed presented below was published by Route Fifty, and appears at this link on the Route Fifty website.

By: Aravind Boddupalli, Tracy Gordon, Lourdes Germán

State and local governments have received nearly $1 trillion in federal Covid-19 relief and enhanced grant funds. And more federal dollars are on the way from the recently enacted Infrastructure Investment and Jobs Act. This historic infusion of federal investments serves as a unique opportunity for state and city leaders to rethink past budget priorities and define new, more inclusive policy goals. Especially considering that the Covid-19 pandemic disproportionately affected low-paid, service-sector workers, and widened existing disparities.

So how are cities applying their funds to advance equity? We reviewed city equity plans for the 28 cities participating in the City Budgeting for Equity & Recovery program launched by Bloomberg Philanthropies, in addition to 50 other cities with populations above 100,000 to answer that question. We found that most cities have focused equity initiatives on spending and dedicated less time to incorporating equity into how they raise revenue. Rethinking revenue generation presents an important opportunity for cities committed to equity to broaden their perspectives and improve outcomes.

A recent tactic to improve equity in revenue generation is to reduce or eliminate fines and fees, due to mounting evidence that revenue-driven law enforcement disproportionately affects Black and Latino households. While this movement has grown in popularity among states and locals, there are many, other revenue sources that face equity challenges.

Property and sales taxes, for example, were often enacted in the Reconstruction era, when white lawmakers established certain provisions with the expressed intent of consolidating power over Black communities. Even today, administration issues—from out-of-date assessments to appeals of assessed valuations that are more likely to succeed in affluent communities—have further cemented inequities in the property tax.

Shifting revenue systems can be a daunting proposition for city leaders, particularly in places where those reforms are subject to lengthy referendum requirements or even preemption by state governments. But there are multiple entry points to get started, including policy or program statements, charter amendments, and ordinances or city council votes.

Although granular data on revenue burdens by race or ethnicity are rarely available, local leaders can use widely-available aggregate public finance and demographic data from the U.S. Census Bureau to track and measure revenue burdens by resident race, income and other criteria for themselves and similar jurisdictions.

Another barrier is state-level constraints that limit the tax options available to city leaders. But there are workarounds local policymakers can still use to achieve their equity goals. New equity-focused spending programs in housing and transportation, for example, could utilize value capture strategies such as infrastructure investments or other nonmonetary compensation tied to land use agreements.

As for evaluating existing or new revenue sources, local leaders can extend traditional principles of tax policy to address issues related to equity and inclusion. For example, policymakers considering horizontal equity (“Does the tax provide fair treatment of similarly situated individuals and businesses?”) may also wish to ask how the tax impacts place-based historical disparities, as in access to jobs and credit markets, for example.

Looking Ahead

Many answers may not be immediately evident and much of the work ahead may lie in resolving inevitable conflicts among key principles. But some jurisdictions have already implemented promising approaches to evaluating a specific revenue source, such as Seattle’s analyses of its excise tax on sugar-sweetened beverages. Others, such as the District of Columbia, are performing regular assessments on nearly all proposed legislation in the city council.

Overall, our research suggests that cities and their residents can gain from incorporating equity into reviews of revenue systems. This means routinizing quantitative and qualitative evaluations of revenue sources, administration and burdens–including examining revenue levers that may have been previously overlooked.

This early snapshot may not provide all the answers, but it can provide insights to city leaders, as well as state and federal leaders, who are seeking to encourage process changes and use data to advance equity.

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