Off-budget activities of local government: The bane of the tax revolt

This paper has demonstrated that the tax revolt of the 1970s has not been as successful in reducing the level of state and local government expenditure as preliminary empirical findings indicate, and that the rate of increase in state and local public spending is likely to be far greater than previously believed. The evidence presented here shows clearly that constitutional and statutory limitations on the taxing and spending powers of local governments have led to a massive amount of off-budget spending and borrowing. The debt issued by off-budget enterprises is larger and growing at a much faster rate than the voter-approved debt issued by state and local governments, and has been since 1975. Thus, even though statistics on property taxation and expenditure may indicate a slow-down in the growth of local taxation, the true cost of local government may continue to increase at previous rates, although this is an empirical question which we are not yet able to address. Off-budget enterprises are heavily subsidized by local, state, and federal governments. These subsidies represent a hidden tax liability to present and future generations of taxpayers. In addition, the debt and expenditures of OBEs contribute substantially to the crowding-out of private spending and investment. Copyright Martinus Nijhoff Publishers 1982