Reference no: EM131878268

In late 2009 the city officials of Colorado Springs realized they faced a $28 million budget shortfall. To avoid substantial service impacts the officials sought to pass a property tax increase during the November elections. The following information describes the area, the proposed tax measure, and the subsequent choices made by the City Manager, Mayor, and City Council. As economic downturns reduce household incomes and lower investors' and consumers' confidence in the economy, local governments face especially troubling times. High unemployment and a drop in retail sales result in lower corporate, sales, and income tax revenues. Colorado Spring had taken standard measures to cope with lower tax collections, cutting hundreds of vacant positions, encouraging early retirements, stopping collecting trash in its parks, canceling city buses on weekends and at night, and reducing parks maintenance. Citizens sent the emails to the town council with following suggestions: (1) close community centers; (2) reduction of the police department; (3) sell the city-owned utility; (4) sell the municipal hospital; and (5) decrease the salaries and benefits of city employees. Colorado Spring is trying to get volunteers and the private sector to provide services the city can no longer afford. First, taxi drivers have been recruited to serve as a second set of eyes for stretched police patrols. Second, residents can pay $100 a year to adopt a street light. Third, the volunteers are organizing to empty the garbage cans in 128 neighborhood parks. Fourth, the city is asking private swimming programs to operate its pools. Finally, one of the city's four community centers was run by a church. Some results were positive. For example, the Pioneers Museum has raised enough money to keep its doors open this year and to hire consultants to develop a plan for it to go private. Other results of this grand experience were negative. Poor neighborhoods reduced municipal programs because they had trouble raising enough money to cover the costs of popular municipal programs like after-school child care. Also closing big community centers wouldn't help to keep kids out of trouble.

Applying fundamental principles of public finance [ public goods, market failure, government role, etc.], explain the question[s] of budget interest reflected in this case study.