Question 5 (5 points)

The city of Lepanto Springs has experienced severe economic stress over the last five years. With that severe economic stress, businesses and residents have fled the city and helped to accelerate revenue losses that have contributed to constant budget deficits. For this year, the budget deficit is approximately $48,000 (from a total annual budget of $1.2 million). To help solve this problem, the city of Lepanto Springs elects a new Mayor, Jessica Smith. Upon taking office, Mayor Smith has her team develop at least three proposals to help generate new revenue in the city. After a series of meetings and a month of analysis, her team produces the following three proposals.

Proposal A

Implementing a 5% Sin Tax on fast food purchases within the city limits of Lepanto. Using economic development data from the city, the Team knows there are 15 fast food establishments within the city limits. Each year, those establishments produce approximately $1 million dollars in sales. Thus, the team estimates that a 5% tax on that $1 million dollars in sales will produce $50,000 in annual tax revenue (5% multiplied by $1 million).

Proposal B

Implementing a $5 user fees on all citizen communication interactions between citizens and the bureaucrats working for the city. This would include email responses from city staff to citizens, answering calls from citizens, and meeting citizens face-to-face at the city hall. The team estimates that each year, the city engages in approximately 15,000 citizen communication interactions each year. Thus, the team estimates that a $5 fee on each citizen communication interaction will generate $75,000 in annual fee revenue ($5 fee multiplied by 15,000 citizen communication interactions).

Proposal C

Implementing corporate sponsorship on the city hall building. After meeting with business owners in the area, only one corporate sponsorship opportunity presented itself. The business, Mandalls, is willing to pay the city of Lepanto $1 million dollars a year for a sign that would advertise their business. The sign that they would want to use is included on the next page. Mandalls will not negotiate on the use of another sign. This sign would have to be put on the city hall building as part of this proposal.

Analyze each proposal and determine which option is the best option for the city. Make sure to Include issues and concepts discussed in class in your analysis. Your answers should be 2-3 pages in length.