It’s time for revenues and reform

From The Beacon, May 2009, Vol. XXXV, #5

There’s a lot of frustration in city and town halls these days.

Communities have been in fiscal distress for several years, caused in great part by low levels of municipal aid, exacerbated by rigid state mandates and the preemption of basic management authority. Despite strong and urgent calls for long-term revenue sharing and management reforms, not much has occurred in the way of meaningful relief. Now the fiscal distress has bloomed into a full-fledged fiscal crisis, and cities and towns cannot wait any longer.

Even before the governor imposed his mid-year “9C” aid cuts, fiscal 2009 municipal aid was $566 million below 2002 levels, after adjusting for inflation. After the January reductions, local aid is now nearly $700 million below 2002 amounts.

Fortunately, in April, House members took a strong stand to vote in favor of increasing the state sales tax and using a substantial portion of the much-needed revenue to restore $205 million in municipal aid that the original House budget would have eliminated. A record local aid cut of that magnitude would have slashed municipal aid to pre-Proposition 2½ levels, a disaster for local services and local taxpayers. The MMA applauds the decisive vote to increase the sales tax, as it is impossible for the state to cut its way out of the fiscal crisis. New revenues are absolutely necessary.

The recession has clobbered local revenues as well. Cities and towns are struggling mightily because the loss of local aid has been accompanied by vanishing local dollars. The motor vehicle excise tax is down dramatically. Investment income has evaporated. New development and growth in the property tax base is virtually nonexistent. Cities and towns are losing hundreds of millions in local tax collections and revenues.

To mitigate, in part, the loss of municipal aid, the MMA has aggressively pushed a four-part municipal agenda to provide meaningful reforms to empower cities and towns to implement vital cost savings initiatives, which would allow communities to preserve services, prevent layoffs and reduce reliance on the property tax.

These measures include removing health insurance decisions from collective bargaining, allowing local-option taxes (a local meals tax and an increase in the local room occupancy tax), closing the telecommunications property tax loopholes that currently give the telephone company a $50 million tax break, and fixing the terribly flawed charter school funding scheme that drains millions from public schools.

The Legislature has enacted none of these essential reforms.

Frustration is growing at the local level because instead of relief, we have seen many actions that move in the opposite direction. Here are some examples:

• The budgets filed by the governor and the House Ways and Means Committee would cut municipal and library aid and actually require cities and towns to increase local spending on libraries to qualify for state grants. The state would keep in place the state law requiring a 2½ percent increase in local library budgets even though the state is cutting aid by double digits.

• Years ago, the state encouraged cities and towns to regionalize their school districts by promising to fully fund all transportation costs, but the reality is that the state has not kept the promise and has consistently underfunded the account.

• The state is contemplating eliminating or dramatically reducing funding for the police career incentive pay program, without relieving cities and towns of their obligations under the program. In the unlikely event that this happens, the state would actually impose a massive unfunded mandate on all those municipalities who are locked into collective bargaining contracts that would require them to maintain their local funding and pay the state’s share, too.

• And even though the governor’s budget and the House spending plan would level-fund Chapter 70 education aid, each proposal would increase the required local contribution that cities and towns make to the school budget. The reason? This would save the state $40 million by reducing its share of the foundation budget, and pass that obligation onto localities. While most cities and towns now spend well over the required spending amount, this spike in the required contribution reflects a double standard and in future years would impose millions in higher local appropriations.

All of these examples reflect a pattern that must end. Cities and towns cannot afford these mandates, which place burdens on local taxpayers and siphon resources away from essential services. State officials need to recognize that what is needed most is a real partnership, a state-local relationship that empowers local leaders to discharge their duties in the most effective and efficient manner possible, not a top-down arrangement that increases the imbalance.

Indeed, it is time to completely shift the state-local relationship to reflect a true partnership to serve the residents of Massachusetts. This means some decisive choices on the part of the Legislature and governor, such as taking health insurance plan design decisions outside of collective bargaining. Municipal unions may be upset, but real reform means change, and change means ending the status quo. In the long-term this will protect local jobs, services and taxpayers.

If the state fails to provide meaningful municipal relief, the crisis will continue, the frustration will grow, and the pattern will become starkly evident to the public.