Problem
I. To help cover the center's deficit, the city is considering two revenue proposals: a) (6 points) Adopting a sliding scale fee based on annual family income. Assume that city employees can be grouped into three income classes: Low income (below $45,000): average $37,000/year Middle income ($45,000-65,000): average $58,000/year High income (above $65,000): average $72,000/year and that city workers are evenly divided between these income classes. The new fee structure requires that low-income families pay $600 per month per child, middle-income $650, and high-income $700.
i. Is this fee progressive, regressive, or proportional? Why? Discuss the pros and cons of this fee in the memo (hint: refer to the principles of sound taxation discussed in class).
ii. Since the state start-up grant is gone in 2023, the city is considering subsidizing the daycare center through property taxes, possibly $8,000 per month. Is this a good idea? Explain in the memo (hint: refer to the principles of sound taxation discussed in class).
II. Rather than using the old school, the Union proposes to build a new daycare facility. What factors or elements should be considered when preparing a budget for this expenditure? What funding sources would you recommend for financing the new daycare center? Why? Justify your choices in the memo (hint: refer to capital budget).
III. What recommendations would you offer to the city for a fiscally sustainable daycare center?