Omaha Mayor Jim Suttle has suggested a ten cent tax on toilet paper to help pay for federally mandated sewer upgrades. At a cost of $1.7 billion, improving Omaha’s sanitation system is a major project.

Suttle remains on the hot seat after surviving a recall election. His poor handling of union contract negotiations amid the fiscal pinch led to voter outrage. The revelation that public union workers could loaf around, retiring at age 45 with a pension over $80k/year, especially irked taxpayers who have seen their earnings steadily eroded by taxes and inflation.

Unfunded, Unfounded

Unfunded federal mandates are a method used to circumvent the U.S. Constitution and they demonstrate the creeping expansion of the federal government. When it comes to managing city sewer systems, there is no authority granted to the Federal government (other than possibly over the District of Columbia).

However, by tying unfunded mandates to special federal funds, the federal government ultimately forces local governments to do its bidding. Cities and states are forced to participate in these programs or they will not receive federal money. Of course, the federal funds only partially cover the cost, thus forcing local governments to raise taxes to cover the rest.

Efficiency of Excises

Mayor Suttle’s suggestion of a federal tax on toilet paper would actually be a more efficient way of paying for sewer upgrades than the current setup. Consider the source of funding for the federal-mandate payola, the general fund. Money goes in, mixes with other money, and gets paid out to various federal bureaucracies. This accounting nightmare results in a fiscal tragedy of the commons, where money is wasted in typical government fashion.

A federal toilet paper tax, on the other hand, would be an excise. The Founders specifically listed excises as an approved method of taxation in Article I, Section 9 of the Constitution. Excises are used on alcohol, tobacco, and gasoline, for example.

One of the reasons excises are a better form of taxation is the ability to compartmentalize costs. Also known as cost accounting, this method can reduce costs by tracking expenses more accurately. In Suttle’s example, toilet paper excise funds would be collected and distributed separate from the general fund, thereby avoiding the disappearance of funding.

Excises also act as a negative feedback on consumption of the taxed items. As prices increase from the excise, consumers will tend to use less of the item to balance their expenses. Toilet paper contributes physical waste to city sewers, so a decrease in toilet paper volume with all other things being equal would reduce maintenance costs in the long run.

The toilet paper excise is better than the backward unfunded mandate system but the debate obfuscates the real argument: why is the federal government involved in city sewer systems at all?!

Omaha’s sewers need to be upgraded because their antiquated design releases too much pollution downstream. The unfunded mandates would separate rain water and waste water, making it much easier to cleanse Omaha’s waste. Yes, the project is reasonable, but the method of paying for it stinks to high hell.

The Options

Let us suppose we continue with the current method of paying for such projects. With local budgets under severe pressure cities will not be able to cover the costs, and completion dates will be delayed. The money coming from the feds is the same money being used to fund wars, entitlements, bureaucracies, and debt. Considering the skyrocketing federal deficit, it is very unlikely that future federal aid to states and cities will be a possibility.

The remaining options are a) a federal tax to pay for the upgrades (perhaps Suttle’s TP tax), b) assumption of payment in full by local governments, or c) cancellation of the upgrades.

The Suttle tax would solve half the problem. It would pay for the upgrade - good, but it still leaves the federal government in charge of local affairs. Part of the federal budget crisis can be traced to federal involvement in too many endeavors, many of which are beyond the realm of the federal government’s enumerated powers. Since infidelity to the Constitution results in laws that are unlawful, a federal excise on toilet paper should be rejected.

Think Federally, Act Locally?

The federal mandates are technically optional, so the real decision is whether cities should pay for federally suggested improvements. The prospect of losing “free money” from the feds will deter cities from making the decision to outright cancel infrastructure upgrades, at least as long as the federal credit card keeps paying out. Meanwhile, city governments will need to plan on how to pay for infrastructure upgrades.

Perhaps Suttle’s toilet paper tax, enacted at the city level, would begin to cover some of the costs of the new sewer system. It would solve the problem at the lowest level of government, eliminating the chance of federal mismanagement. Unfortunately it would mean yet another tax on the citizens of the 10^th highest taxed city in the country.