Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
The Honorable Jay Kaufman, House Chair
The Honorable Benjamin Downing, Senate Chair
Joint Committee on Revenue
State House, Boston
Dear Representative Kaufman, Senator Downing, and Members of the Committee,
On behalf of the cities and towns of Massachusetts, we are strongly advocating for important new local-option revenue choices to allow communities to implement a modest local meals tax and increase the local lodging tax. In addition, the MMA strongly supports legislation to close the telecommunications property tax loopholes that benefit telecom companies at the expense of local taxpayers. Specifically, we strongly urge you to issue a favorable report on H. 2796 and H. 3486 and all measures before you today that would increase local revenue and management capacity. These local-option taxes and reforms are necessary to prevent layoffs, protect essential municipal services, and avoid increasing our over-reliance on regressive property taxes.
Cities and towns are facing a deep fiscal crisis, triggered by the worldwide recession. It is vitally important that the Committee on Revenue approve legislation to provide meaningful new revenue options for local government to protect essential municipal and school services, balance municipal budgets, and reduce reliance on the property tax. Without the tools and resources that this legislation would provide, the fiscal crisis will be longer and deeper in Massachusetts, and our economy will be much weaker and slower to recover.
The mid-year fiscal 2009 municipal aid cuts made in January and the additional cuts proposed in the Governor’s budget submission for next year, coupled with weakening municipal revenues, are leading directly to dramatic reductions in public safety, public education and other vital services. Cities and towns in Massachusetts have very few revenue options compared to local governments in other states and are highly reliant on the property tax and state assistance. New revenue options are necessary to prevent layoffs, protect services and avoid higher property taxes.
Local Option Taxes
The facts are clear. Cities and towns in Massachusetts are disadvantaged compared to local governments across the country, as most communities in other parts of the nation are afforded many more local revenue options, and those localities rely much less on the regressive property tax to fund local services. Because Massachusetts communities do not have local-option taxes as an important revenue tool, the property tax accounts for 42 percent of all local revenues here (7th highest in the nation), while the U.S. average is only 28 percent. The property tax accounts for 73 percent of all locally generated revenues here (6th highest in the nation), while the U.S. average is only 45 percent. Local governments in 38 states have the ability to levy a local sales tax, and beyond that, 28 states have a separate local meals or restaurant tax.
We strongly support H. 2796, filed by Rep. Peter Kocot, which would allow cities and towns to levy, at local option, a sales tax on meals of up to 3 percentage points. This option would provide an estimated $125 million per point for city and town general fund purposes, revenues that are desperately needed.
We strongly support H. 3486, filed by Rep. Stephen Kulik, which would allow the local-option sales tax on meals (as in H. 2796), expand the local-option room occupancy tax by up to 2 points, and expand the hotel-motel tax base to ensure fairness. The increase in the room occupancy rate is estimated to provide approximately $25 million per point. As noted, H. 3486 includes language to appropriately expand the base of the room occupancy tax to close loopholes and create a level playing field. We strongly endorse H. 2940, filed by Rep. Cleon Turner to accomplish this purpose as well.
These local-option revenue proposals are essential and integral components of a much-needed comprehensive set of state and local government reforms that are necessary in order to protect the services and programs that cities and towns deliver to the citizens of Massachusetts.
Closing the Telecommunications Property Tax Loopholes
In 2008, the Appellate Tax Board (ATB) ruled that telecommunications companies are subject to local taxation on poles and wires over public ways. Cities and towns are collecting these funds beginning in fiscal 2009, but have been directed by the Department of Revenue to place at least half of the amount collected in the municipal overlay account pending an expected appeal and delay tactics by the companies.
The MMA asks the Legislature to act immediately to codify the ATB ruling, so that cities and towns can immediately access and use the full $26 million that rightfully belongs in local treasuries. Further, it is imperative that the Legislature act to eliminate the remaining obsolete and unwarranted exemption of telecommunications equipment from the personal property tax, which would provide an additional $25 million to $50 million in local revenues that the telecommunications companies are avoiding under the current scheme. Failure to close these telecommunications tax loopholes would harm cities and towns and local taxpayers, and provide unwarranted benefits to the telephone industry. These two reforms are included in H. 3486, filed by Rep. Kulik, and are in other measures before your committee, including H. 101.
Municipal Health Insurance Reform
The current rules and laws governing health insurance for municipal and school district employees have resulted in uncontrollable and unsustainable cost growth. The law desperately needs to be reformed and modernized to avoid the widespread loss of municipal and school jobs.
We ask the Legislature to support the related provisions of H. 3486, filed by Rep. Kulik, which would address this matter in a strong and meaningful way. The bill would allow cities and towns to set plan design features for the health insurance plans provided to municipal employees outside of collective bargaining. This would simply give cities and towns the same authority the state has to determine co-payments, deductibles and other plan features for state employees.
The language in current law does not offer a solution or reform. For many cities and towns, it does not make financial sense to join the state’s Group Insurance Commission system, which would even increase costs for some. The most effective reform is to simply give local officials the same power the state has to update health plans, which would save more money, more quickly and more efficiently than any other option.
We ask you to support H. 3486, which would extend to cities and towns plan design authority as long as the plans are no less generous than what is offered to state employees through the GIC. The MMA bill does not change the requirement that the employee-employer split be collectively bargained.
This key health insurance reform would save money and jobs and continue to ensure high quality insurance coverage for all municipal and school employees. Please see our separate testimony on this matter for more details.
Revenues to Lessen the Impact of Local Aid Reductions
The fiscal 2010 budget recommendation filed by the Governor in January would consolidate the two main municipal aid accounts (Additional Assistance and Lottery distributions) into a new account, “Unrestricted General Government Aid” (item 1233-2350). The total amount distributed to cities and towns on the Cherry Sheet would be $945 million.
This is $369 million (or 28 percent) less than the original fiscal 2009 Cherry Sheet amount and $241 million (or 20 percent) less than fiscal 2009 amount after the Governor’s 9C cuts.
To offset a portion of the cuts, the Governor has proposed that the Commonwealth’s sales tax on meals and the state’s room occupancy excise rate be increased by one point to provide a revenue source of $149 million that would reduce the $369 million loss. After the offset, municipal aid distributions in fiscal 2010 would be $1.094 billion, or $220 million less than the original fiscal 2009 Cherry Sheet amount and $92 million less than the post-9C amount.
Even with the Governor’s proposed offset, the two-year loss of municipal aid would have a severe impact on police, fire, schools, and other vital local services. Municipal aid levels would be roughly at the same dollar level – with no adjustment for inflation – as in fiscal year 1998. Without the offset, municipal aid would plummet to the level received in fiscal year 1989.
As you examine the issue of increasing state tax revenues, please know that the MMA and local officials will support revenue proposals that the Legislature sees as necessary to protect vital state and local services. We ask that municipal aid be funded at least at the $1.094 billion level proposed by the Governor using state revenues, and that a portion of the state stabilization block grant in the federal economic stimulus law be used to further reduce the level of damaging cuts that cities and towns will receive in fiscal 2010. Any increase in the state meals and lodging tax should not lower the scope of the local option taxes that municipal officials are seeking in H. 2796 and H. 3486.
Summary
It is critically important that laws and rules be modernized to give cities and towns new revenue options and management authority to avoid debilitating cuts to education, public safety and other vital services, and to avoid placing an even greater reliance on the property tax.
We request that you issue a favorable report on these bills, and all legislation that would provide cities and towns with enhanced revenue options.
If you have any questions about our position on any of these important legislative initiatives or need additional information, please contact us at any time.
Thank you.
Sincerely,
Geoffrey C. Beckwith
MMA Executive Director