Say, Why Not Apply D.C.’s “Structural Deficit” Concept to Counties and Schools with National Forests?

Editor’s Note:  This post returns to the concept of “structural deficit” as it has been employed in assessing the District of Columbia’s financial situation and the federal government’s associated obligation.  Readers will recall that both D.C. and U.S. counties with national forests provide the settings for a lot of federally owned property.  In both cases, moreover, federal property or lands pay no property tax, thus imposing a considerable hardship on local governments.  D.C.’s fiscal situation was turned around by the federal Revitalization Act of 1997; on the other hand, the federal government appears ready to simply walk away from its responsibilities to forested counties after SRS sunsets in 2014.

The “structural deficit” or “structural imbalance” concept has emerged as an important player in the on-going discussion of assessing the appropriate and just level of federal support for D.C.  A structural deficit refers to a budgetary shortfall that is not merely a cyclical or temporary phenomenon — for instance, a product of the typical ups and downs of economic life.  Instead, structural deficits are constant, fixed, or inevitable characteristics of a budgetary situation.

Even after D.C.’s game-saving Revitalization Act of 1997, city leadership argued that D.C.’s budgetary circumstances still harbored a serious structural imbalance.  Despite “five consecutive balanced budgets, an upgraded bond rating, and unqualified, or ‘clean,’ opinions on its financial statements,” D.C.’s officials nevertheless expressed concern about the city’s future budgetary prospects.

Their appeal was referred to the GAO, which provided an initial analysis in a September 4, 2002 letter report to Rep. Joe Knollenberg (Chair, Subcommittee on the District of Columbia, House Committee on appropriations) (download pdf of report here).  “The key question,” GAO’s 2002 report suggested, “is whether city officials can provide an acceptable level of services to address the District’s needs with their current tax base” (p. 2).  The structural deficit concept poses the issue of whether a typical or average level of taxation in a jurisdiction can provide a typical or average level of government services.  If not, there is a structural deficit.  The long and the short of the GAO’s 35 page, 2002 report was that D.C.’s officials had not provided an adequate estimate of the city’s putative structural deficit.  The GAO, however, said it would take up the question itself and provide answers in a subsequent report.   

The second GAO report, now over 150 pages long, was published in May, 2003 (download pdf here).  The report’s length and complexity are notable and remarkable.  It turns out that coming up with a credible methodology for estimating D.C. structural deficit is no easy matter.  Daunting conceptual and empirical obstacles presented themselves at every juncture.  The GAO’s approach required estimating two broad domains:  revenues and expenditures.  These two domains, moreover, had to be estimated both for D.C. and for a “benchmark” or average level everywhere else in U.S. for comparable political units.  One problem was that D.C. — because of its unusual political circumstances, which combine some state-level responsibilities and some city-level responsibilities – did not lend itself well to direct comparisons with other jurisdictions.  GAO analysts had to make numerous methodological adjustments and approximations along the way, sometimes performing calculations in more than one way in order to check for the impacts of alternative assumptions.  Still, and in the end, the GAO suggested that D.C. did indeed still have an annual structural deficit and that its magnitude fell somewhere between $470 million and “up to more than $1.1 billion” (see p. 8, electronic page 15).

In short, with a typical or average level of taxation and offering a typical or average level of services to its public, D.C.’s revenue and expenditure situation, even after the Revitalization Act, would eventually come up short somewhere between roughly a half-billion and a billion dollars.  GAO’s estimates, in turn — with GAO’s not inconsiderable authority and credibility behind them — have since become a staple in D.C. community appeals for greater federal support.  They provided the rhetorical backbone, for instance, of a 2005 Brookings Institution report on D.C.’s financial situation and a key element in the arguments offered in a 2008 report by “DC Appleseed and Our Nation’s Capital.”

GAO, it may be noted, stopped short of actually recommending increased federal support for D.C. based on its analysis.  “Without changes in the underlying factors driving expenses and revenue capacity,” the report judiciously observed,

the structural imbalance will remain. If this imbalance is to be addressed, in the near term it may be necessary to change federal policies to expand the District’s tax base or to provide additional financial support. However, given the existence of structural imbalances in other jurisdictions and the District’s significant management problems, federal policymakers face difficult choices regarding what changes, if any, they should make in their financial relationship with the District.  (p. 15, electronic page 22) 

Still, the D.C. community has the GAO’s authoritative shortfall estimates in its rhetorical arsenal – and that is no small advantage.

All of which brings us back to the question posed in the title of this post:  Why not apply the GAO’s structural deficit concept and methodology to forested counties and their school systems?  At a historical moment when fresh approaches to the issue of the federal government’s obligation to forested counties are called for, the structural deficit concept may provide valuable new insights.  The process of applying the concept to forested counties, moreover, should be considerably less complicated than the D.C. calculations.  After all, counties and school districts are regular features of the nation’s political geography — and not exotic creations like D.C.  Some adjustments may have to be made for the huge expanses of territory – and associated road systems – in forested counties of course.  But these should pose little difficulty to GAO analysts who’ve already surmounted the D.C. calculation’s dizzying obstacles.

Indeed, why not take the structural deficit idea a step farther?  Why not hold congressional hearings specifically addressing the issue of structural deficits in forested counties and school districts with the decline of federal timber harvests and the sunsetting of SRS?  The structural deficit concept may offer a useful new tool for understanding the enduring hardship imposed on forest counties by the presence of the national forest system.