Mr. Juris:
I’d be interested to hear what you think about this idea, perhaps the most complex and controversial one in the Visionary Alignment. It does join a number of your tax concerns with quality of life public servant compensation and residency, concepts batted around the LO Deck for some time.
The radical idea is one Thomas Greco (
http://www.reinventingmoney.com) has outlined - a complementary Currency in the form of Municipal Tax Credits.
As the competitive dollars generated by productive industry go away, often to places with more real property and green fields to offer up to the corporations, a complementary Currency in the form of Municipal Tax Credits is one radical tool for Lakewood to consider, one through which Lakewood could out Berkeley Berkeley. (If you feel like Bill O' Reilley, then I can role play a variation of Hugo Chavez coming on strong to the International Monetary Fund).
Pay a portion of public employee salaries in the form of Complementary Currency Municipal Tax Credits. This will also create an incentive for the public employee to live in town because the Municipal Tax Credit currency can be used to pay property tax.
Say each public employee receives $3000 in this form of compensation, roughly what someone is paying on a $120 K house. The amount of complementary Currency in the form off Municipal Tax Credits issued for public employee compensation might well create the reduced competitive dollar property tax you are hoping to generate.
There might even be a secondary market/exchange set up wherein an employee living outside the city and therefore unable exchange his credits to pay the property tax will sell his at a discount. A dealer in these credits might sell them at a discount to someone living on the Lake, who is paying maybe $15 K in taxes.
Of course, Moody’s and Standard and Poors might well try to handcuff such action with a poor credit rating for the city. When I ran a similar idea for Cleveland and its water system by Ned Hill two years ago, he told me the idea was too left-wing, too communitarian and that it sends the wrong signal to the global economy.
I’ll float it here, nevertheless, just to see what you think.
Here’s some material from Greco’s presentation:
" Municipal Government as Sole Issuer
Tax anticipation warrants or municipal bonds can be made to circulate as currency, interest-free, within a community.
Municipal Finance Usually Involves Some Amount of Borrowed Money
That may take the form of:
• Bank Loans
• Notes Payable
• Municipal Bonds
All of which require the payment of Interest
Part of That Debt Can Be Replaced With Tax Credits That the Municipality Spends Into Circulation
Tax credits
• Can be issued interest-free at low cost to finance municipal government operations.
• Can supplement scarce official money to
• Promote buy-local, and
• Enable greater amounts of local business
leading to greater amounts of tax revenue.
How Are Tax Credits Spent?
Municipal Government as Issuer of Tax Credits Uses Them to Pay for
Purchases Made Locally.
• Wages to employees
• Payments to service providers
• Payments for supplies and equipment
How Are Tax Credits Redeemed?
Municipal Government as Issuer of Tax Credits Must Accept Them Back at Par in Payment of Taxes and Fees.
• Local property taxes
• License and permit fees
• Business licenses, building permits, inspection fees, dog licenses, etc.
• Services or utilities
• Water, sewer, refuse, transit fares, fines, etc.
Won’t Accepting Tax Credit Currency Adversely Affect Municipal Cash Revenues?
No. The effect on cash revenues will be, at least, neutral because
for every unit of tax credit currency accepted in payment, a dollar expenditure has been avoided.
In fact, cash revenues will likely increase because the currency will stimulate more cash business in the community leading to higher sales tax revenues.
Official Money Spent Quickly Flows Out of the Local Community
$
Tax Credits Re-circulate Within the Local Community
An Example
Suppose $100,000 worth of tax credits are spent into circulation by the city.
That means that the city’s cash expenditures have been reduced by $100,000.
At the redemption end of the circuit, there will be $100,000 less in cash revenues.
Those two items offset one another.
An Example - 2
But those tax credits will circulate as currency enabling local businesses to make additional sales. If the turnover is 10 times a year, that means $1 million in additional sales.
If the municipal sales tax rate is 3%, the city will collect additional cash from sales tax of $30,000 during the year.
An Example - 3
Further, the issuance of tax credits will have enabled some interest-bearing debt to be retired.
If the interest rate on municipal debt is 4%, the city will save cash interest costs of $40,000 each year.
There will be a net improvement in cash position of $70,000, just from these two effects.
Every dollar’s worth of tax credit currency issued means one less dollar that needs to be borrowed, and one less dollar that needs to be spent.
Typical Balance Sheet
Possible Balance Sheet
In What Form Do Tax Credits Circulate?
Tax Credits Can Have Various Manifestations
Paper notes or tokens
• Circulate hand-to-hand
Account balances can be transferred via:
• Checks
• Swipe cards -- Debit cards
• Smart cards or electronic wallets
• Online transfers
How Much Tax Credit Currency Can Be Issued?
That depends upon
• The opportunities that exist for spending credits into circulation (how can they be spent?), and
• The opportunities that exist for receiving credits for redemption (how can they be collected?).
Why Hasn’t It Been Done Before?
It has been, in one form or another.
• Worgl
• Schwanenkirken
• Argentina – provincial “bondsâ€Â
Now it remains for us to optimize it.
Complementary Currencies
Improve and Empower Communities
Interest costs saved on financing
The currency tends to remain in the community, stimulating more local business activity and providing
• Greater local self-determination
• A healthier community
• A better business environment
• Stronger local economy
• Increased tax revenues
A Community Currency Spent Into Circulation By the Municipal Government
• Provides an alternative means of financing that is:
• Interest-free
• Locally created and controlled
• Available in sufficient supply
• Does not depend on the banks, the Federal Reserve or higher levels of government.
• Enables the municipality to thrive on a smaller supply of scarce official money.
• Enables local businesses to sell some of their excess productive capacity, thus employing more of the locally available labor, skills, and resources.
Acceptance By Local Merchants Is Key
The circulation of tax credit currency depends upon its acceptance in payment by local businesses.
The more the currency circulates before being redeemed, the greater the benefit to the local economy.
Direct Benefits to Merchants
Those merchants that accept tax credit currency will make more sales because they become preferred sources for customers who have the currency to spend.
Local tax credit currency can come back to them again and again, whereas dollars are likely to quickly leave the community.
Questions and Answers for Businesses
What assurance do I have that I’ll be able to spend as much currency as I take in?
Every unit of credit is backed by the commitment of the city government to accept it at par with the dollar.
You can use the currency to pay your own dues to the municipality.
Besides that, there will be:
• Continuing recruitment of additional users of the currency, and
• Brokering services to help you find ways to spend the currency on goods and services you need.
Finally, you can set your own terms and conditions on acceptance so as to maximize the benefit to you.
Questions and Answers for Businesses
How will we handle accounting in two currencies?
There are many places around the world, particularly border towns, where multiple currencies are routinely handled without difficulty.
This system will use modern swipe card technology and existing POS hardware."
Source: from Thomas Greco, "How to Build Healthy Community Economies"
I spoke to Greco several years ago, back when Councilman Dunn first floated the community currency idea. He told me when the city is ready to implement to give him a call.
I don't think the city is ready yet. Do you?
Kenneth Warren