Comment by burfog | Hacker News Reader

Comment by burfog | Hacker News Reader

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You touch upon a fundamental problem with the tax calculation. There is no reason for the city budget to increase by x% just because the supposed home values (could be a bubble) happen to increase by x%. It's not as if the other costs of running a government increased by x%. (in the long term there is a smaller increase due to salaries, but the city budget isn't normally spent buying up land)

So a real estate bubble hits, home owners are hurt, and the government gets used to what they think is the new normal. The government takes on wasteful obligations, hiring lots of people and failing to push back on pension demands. Once the bubble pops, the city budget is in deep trouble. Something must be cut. It isn't easy to lay off employees and cut back the pensions, so the city increases the tax rate.

Repeat that again with a new bubble, again and again, and the rates only go up. It's a ratchet effect, with rates going up but never down.

Voters chose a simplistic way to put a stop to this problem. Something was needed, but the chosen solution is pretty bad. The fact that people can't trade houses without seeing rate increases means that people commute too far, clogging up the roads. Newcomers also get hit, with cities imposing huge impact fees and generally discouraging housing because the housing doesn't pay for itself due to Prop 13.

What was really needed was a restriction on the total city budget. Instead of setting a tax rate and then calculating the budget, we could set the budget and then calculate the tax rate. Applying the restriction to the total city budget serves the necessary purpose of putting a stop to out-of-control spending.

I'm unconvinced that most cities are all that generous, with one glaring exception: pensions.

Even when they are generous, for current spending (money raised and spent in the same year) it doesn't seem like a long-term problem, because they can cut back later. There's even a sense in which spare capacity in good times makes it easier to find low-priority items to cut back on. If everything is already high-priority, what do you do?

But where the cost is locked in, far in the future, and variable, city governments are clearly not good at planning ahead. I'm in favor of generous retirement benefits, but using a 401k-like plan where all costs to the city are up front. Most newer businesses moved to that long ago.

Defined benefit plans like pensions aren't generous, its merely the workers negotiating with the employer to put money aside pre-tax from their pay and invest it.

This all goes sideways when these funds are mismanaged & underfunded, which organizations have an incentive to do as it can be a nice way to juice profits immediately.

Wage theft is shameful in any color, and what has happened to American Pensions is stealing earned wages from workers retirement.

I don't under how government pensions are stolen. If the funds are mismanaged, the taxpayer is responsible for making up the difference.

Colorado limits the total increase in tax revenue to the sum of the population increase and inflation increase. This typically 4% a year.

Property taxes are the assessed value scaled to this total. Its possible for the tax to decrease even if the assessed value increases, if the increase is less than the average increase.

This model of taxation doesnt take into account that government gradually provides more new services, like more healthcare etc.

> It's not as if the other costs of running a government increased by x%.

Isn't it? If those workers want to buy houses, or rent, as most do, then it has gone up. And since that is the majority of what people pay. So these workers costs have gone up significantly, with a raise in house prices.

There is an increase, but it is delayed and diminished.

The city budget is not 100% salary. The city may buy water, textbooks, fire engines, fencing, sod, bleachers, asphalt, diesel, and so many other things.

Rent and mortgage payments don't immediately change for all existing workers. The bubble may turn in to a crash, meaning that these workers never face higher housing costs. Workers will normally be spending about 15% to 45% of their income on housing, meaning that most of their costs are unaffected by a housing bubble. Workers buy so many other things: food, computers, gasoline, cars, etc.

So if housing goes up by 50% now, next year the workers might need an extra 20% to maintain lifestyle, and that might mean the city budget needs to go up by 10% next year or the year after. If housing crashes, it could be less.

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