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Tackling Ashland’s structural deficit

Along with environmental, human and cultural sustainability, local governments must also be fiscally sustainable. Otherwise, infrastructure and public services, along with quality of life, deteriorate over time, or higher taxes are needed to maintain existing levels of services. This is the dilemma the city of Ashland faces today with its “structural deficit.” The city’s per capita costs of public services are not in line with its existing system of taxes and fees.

Fiscal sustainability means continuing the same level of public services and investments in infrastructure within the existing tax structure. Structural deficits occur when there are long-term gaps that require continuous budget cuts or raising taxes to keep the same levels of services. In other words, the value delivered per dollar of taxes has declined. The value per dollar of services is much more important for sustainability than the level of taxes or spending. Unfortunately, many focus on the latter and not the former. When taxes have to be raised or services cut to keep the status quo, this has a long-term negative impact on quality of life and living standards.

Several factors led to the structural deficit in Ashland. The first is the rising costs of labor. Roughly 80 percent of most city budgets are associated with labor costs. Cities are primarily in the business of providing services like education, sanitation, policing, and recreation. They don’t have the luxury of many manufacturing firms substituting labor for technology to keep costs down or trim their labor force during a slow time in the economy. Human services like education and policing are expensive, and they will continue to be so. Comparing public services to the private sector is like comparing apples and oranges. However, the level and scope of services can and should be evaluated to achieve fiscal sustainability.

The second factor is the high demand for quality public goods from those that live in Ashland. Citizens want better public schools, more public amenities like parks, trails, cultural facilities, and diversity and inclusion programs. All these amenities add to a better life but are also expensive.

The third is land-use policies. Given the physical environment of Ashland, with its scenic hillsides and the use of non-grid streets with cul-de-sacs, and desire for open space and access to the outdoors raises the cost of roads, flood and fire control, and maintenance per residence. In addition, it increases police and fire services costs because specific locations are hard to reach and are fire-prone. Finally, when there are pressures on the city’s infrastructure because of population growth and demand for affordable housing, this also adds to costs.

With these structural costs, either the tax structure or the causes of rising costs must be tackled to restore fiscal sustainability. The first step is for the people of Ashland to look long and hard at the size of public services they want and willing to pay for. There needs to be a dialogue of priorities. Those priorities most likely are going to conflict, and some might be unaffordable. Like Southern Oregon University with its declining enrollment, citizens of Ashland need to ask what’s our “right-size”? What is the right level of growth? What can we afford and sustain in the long run?

To address these issues, the city must come up with a new vision of sustainable efficiency. This does not mean just looking at waste and fraud within the city’s budget but creating a vision that makes its growth compatible with its existing environmental and social capital stocks (you do not want to deplete those stocks) and people’s willingness to pay. Understanding these constraints will help citizens decide what type of neighborhoods, commercial districts, transportation networks, schools, public buildings, and parks they want and can afford. The shape and size will define the character and attractiveness and the cost of living and doing business in Ashland. Land-use policies can be exclusionary or they can expand opportunities for all. The people of Ashland need to decide.

Lastly, being a responsible steward of the tax dollar is an essential part of sustainable efficiency. We need to look at whether tax incentives to businesses, developers, and citizens erode the tax base. A subsidy is a tax expenditure, and you need to ask if you can afford such subsidies. There are different types of development patterns a city can take. Ashland needs to decide which one works for them and willing to pay for. This is the only way they will achieve fiscal sustainability.

Richard Holt is professor of economics at Southern Oregon University.