We need to allow municipalities to use ad valorem taxes for general fund revenue | Opinion

Oklahoma stands out as an anomaly among U.S. states, as it does not allocate ad valorem (property) tax revenues to municipalities for their general fund. This unique situation underscores the untapped potential of ad valorem taxes in ensuring local governments' financial stability and operational efficiency. By redirecting these revenues into municipal general funds, cities and towns could gain the financial flexibility necessary to support essential public services, including public works, safety, infrastructure maintenance, and recreational programs. A reliable revenue stream from ad valorem taxes would empower local governments to plan long-term projects and respond to community needs effectively, making it a critical tool for sustainable municipal governance.

Ad valorem taxes in Oklahoma

The Oklahoma Constitution, specifically Article 10, establishes the framework for property taxes, or ad valorem taxes, in the state. The term "ad valorem" means "according to value," indicating that the tax is based on a percentage of the property's assessed value, encompassing both real and personal property. These taxes are a vital revenue source for funding public services and projects undertaken by local governments. In Oklahoma, ad valorem taxes primarily support county governments and school districts, funding central operations and services such as road and bridge maintenance, otherwise financed by state-collected motor fuel taxes.

Current use of ad valorem taxes by municipalities

Currently, municipalities in Oklahoma can access ad valorem funds only through public indebtedness mechanisms like general obligation bonds. The issuance of these bonds requires voter approval with a supermajority of 60%, which can delay essential projects. Additionally, the reliance on these bonds can increase property taxes, burden property owners, and limit the municipality's future borrowing capacity. Moreover, municipalities need help using ad valorem funds for recurring operational expenses, as the current system restricts their use of capital projects.

Challenges with existing funding methods

Relying on general obligation bonds and other funding methods like sales taxes presents several challenges. Sales taxes are regressive, disproportionately affecting lower-income residents, and are subject to economic fluctuations, leading to unpredictable revenue streams. Tax increment financing (TIF), another option, can divert essential tax revenues from public services and lead to gentrification, displacing long-term residents and small businesses. With limited accountability and transparency, TIF can also benefit private developers more than the public.

Need for legislative change

Changing Oklahoma law to allow municipalities to use ad valorem taxes for general fund revenue could significantly enhance their financial stability. This reform would provide municipalities with a more predictable revenue stream, allowing for better financial planning and resource allocation. With the flexibility to use ad valorem taxes for general fund purposes, cities could maintain and improve public services, infrastructure, and community programs without relying heavily on volatile revenue sources or incurring substantial debt. State leaders, in collaboration with local officials, must understand their budget needs and address how current laws impede their ability to sustain critical operations. This joint effort is crucial for the success of the proposed reform.

Conclusion

Reforming ad valorem tax laws to include municipalities in Oklahoma’s general fund revenue structure would reduce the need for issuing bonds or increasing other taxes, thereby avoiding long-term debt and financial strain. While this may shift the revenue mix, it is important to note that a broader and more stable revenue base would enable cities to fund necessary projects and services directly from their general funds, enhancing fiscal responsibility and ensuring sustainable community investment. This proactive approach to municipal finance would better equip municipalities to navigate economic downturns, manage unexpected expenses, and support long-term growth and development, ultimately improving the quality of life for residents across Oklahoma.

Elizabeth Foreman is the current councilmember from Ward 6 in the city of Norman and the Democratic candidate for Senate District 15.