Bracing for Change
In the coming months, many state and local government leaders will face the difficult task of finding new revenue sources to fund programs and services that were traditionally subsidized by the federal government. The most conventional solution, raising taxes, is also the least satisfying, both politically and economically. At every level of government, the question isn’t “if” we’ll need to raise taxes, but “when”, and ultimately, “who” will bear the burden? This is a topic we’ve been discussing at Fractional Source for months.
However, revenue doesn’t always have to come from taxing our businesses and communities. When startups seek venture capital or partner with private equity, they’re looking to supplement traditional sales revenue with capital to accelerate growth, typically through better products and increased sales. Similarly, government leaders should consider the potential for funding from non-traditional sources within their own communities. Designing small but effective public-private partnerships to drive sustainable, impactful programs at the grassroots level is a worthy goal. Admittedly, it’s challenging, which is likely why most officials default to the traditional tax revenue model.
In today’s political climate, there are strong incentives to try non-traditional approaches, especially within smaller communities. These communities tend to thrive when they have ownership over outcomes. When you vote for a sidewalk in your neighborhood and use it every day, any negative experiences - be it a minor tax increase, bureaucratic hurdles, or construction disruptions - fade in comparison to the tangible improvement you now enjoy. Your neighbors benefit too, and at some point, you all agreed that a sidewalk would be good for your community. Not only is this an effective way to exercise local government, but it also feels rewarding.
Conversely, imagine if there were a Federal Sidewalk Program. We’d likely be a sidewalk-less nation, bogged down by studies from the Government Accountability Office and the Congressional Budget Office, followed by debates over grants, environmental impact studies, and inter-agency turf wars. Inevitably, the process would stall amid political controversy, with some media figure declaring sidewalks outdated or dangerous.
It sounds absurd, but there’s a reason the federal government isn’t involved in deciding where sidewalks go, and it’s not because states and counties demanded control. In reality, the federal government does play a role, but mainly in setting safety and accessibility standards. Local communities are best equipped to determine their own needs. The national stage has become too chaotic, with more obstacles than incentives for meaningful policy implementation. Ultimately, communities will drive the most significant changes for themselves, a trend likely to continue throughout this decade.
This shift away from federal programs and services requires creative local approaches, not just to shoulder the burden of previously subsidized programs, but to question their necessity in the first place. During COVID, communities received an unprecedented infusion of federal funds for a wide range of needs. Much of that money, tens of billions, will end up returning to the federal government simply because states and localities couldn’t spend it fast enough on the mandated uses. The federal government is an excellent source of financial resources, but often a poor judge of how those funds should be spent. Prolonged grant application processes attempt to bridge this gap, but when it comes to economic stimulus, like COVID relief, misalignments persist between federal priorities and those of local communities.
All of this is to say: we need to act differently. If this moment presents an opportunity, communities should be partnering with businesses, philanthropic organizations, nonprofits, and even high-profile individuals to set their own goals. When federal agencies stop funding projects like pedestrian bridges or local law enforcement training, it’s a chance for communities to decide what truly matters and how to prioritize investments, before considering tax increases. Not every project requires prolonged investment or higher taxes. Efficiency savings can create surplus funds, which could be used to establish working capital for specific categories like community improvement or health and education. These priorities can be set outside the regular budget process, giving communities space to discuss and distinguish between wants and needs. In many cases, funding becomes secondary to determining actual needs.
At Fractional Source, we know how to design successful public-private partnerships. We’ve seen communities rally around ideas and projects that the federal government would never fund, and we’ve made it our mission to help those communities succeed. We understand the frustration of having a growing list of priorities with no clear path to execution, and we know what it’s like when federal funding changes or disappears overnight, leaving decision-makers with the unwelcome task of saying “no” more often than they’d like. We’d love to talk with you about the changes facing our communities and how we can help you not just brace for them but find opportunities to invest in and improve the services you provide your citizens.