Contraction

Contraction

I spent a part of my day consulting a community in southwestern Ohio. They are struggling to keep up with their ongoing operating expenses, as well as, how to provide the same services to their residents next year that they have in past.

What they learned is something that many communities won’t find out until it’s too late. Their community is entering the contraction phase of their life cycle. This is the first stage of decline. It’s when the most affluent people in your community start to leave, leaving behind those who earn less, and are less able to afford higher taxes.

As a result, the community starts to lose revenue productivity. That is, each form of taxation, income tax and property tax generate less revenue as the overall income levels and property value levels start to slow in growth. Contraction even exists in communities whose populations are still growing.

Contraction can be identified through population declines, property tax delinquencies, slowing income growth, and age patterns. It also starts to show in election results for new taxes. In order to properly understand the true long term viability of your community and your ability to serve it, you must identify where you are in your life cycle.

Posted by Rockmill Financial

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