Town of West Boylston, MA - February 12, 2008: Massachusetts Cities & Towns Need New Revenues

The Massachusetts Municipal Association has recently developed a presentation on the importance of revenue sharing for cities and towns in Massachusetts. In fact, they also prepared a video of the importance of this issue that I will be forwarding to our public access cable channel to air throughout the next two months. I encourage all citizens who have an interest in our municipal budgets to watch this presentation. You may see many similarities between the Town of West Boylston and many other municipalities who are having difficult budget issues.

In Massachusetts, the state and its local governments provide very different types of quality services for state residents. At both levels of government, these services are valued and supported by residents and taxpayers as essential to a high quality of life. Because the Legislature has sole authority to enact taxes as well as a disproportionate ability under current tax law to raise revenues in relation to the services it has a direct responsibility to provide, the state must recognize its obligation to share its tax collections with local government to help pay for municipal services and to avoid over-reliance on the local property tax. State revenue-sharing policy must acknowledge that the property tax is regressive compared to other taxes available for use by state and local government in Massachusetts. State tax revenue sharing also serves an important and necessary equalizing function that results in a level of revenue equity across all cities and towns.

Massachusetts citizens depend on government to provide a certain array and level of services so that they may pursue their lives and exercise their rights. The state and its cities and towns provide very different types of public services, although in both cases the services are vitally important to the citizens that benefit from them.

Cities and towns generally provide broadly used community services such as public education, police and fire protection, and local road maintenance and snow plowing, to name a few. The state pays for state services, such as public higher education, the courts and corrections system, state highway maintenance and other state and local capital programs. A significant part of the state budget also provides payments to and provides support for disadvantaged individuals and families, through various public health and public welfare programs.

State and municipal governments budget about the same amount for their direct service responsibilities – approximately $14 billion by local government for fiscal 1999, including spending from state revenue sharing, and about $16 billion by state government after deducting Cherry Sheet distributions. Including these distributions, state spending in fiscal 1999 is expected to total about $20 billion.

One key piece of this state-local puzzle is the $2.6 billion in state tax revenues distributed to local government to help pay for more than $6 billion in municipal responsibilities for the operation of schools assigned to local government by state law. A second component is the $1.1 billion in additional assistance and Lottery distributions made available to support municipal services and to reduce reliance on the property tax.

Local government provides the basic, general services that people need to live and prosper in Massachusetts and that businesses need to flourish. These services provide some of the foundation blocks of the state's economy. Demands for local services grow over time from the combined effect of normal growth in the cost of providing government services and the growth in local populations and school enrollments.

• Local public schools educate for the workforce and higher education more than 950,000 schoolchildren, including 40,000 children in mandated bilingual education programs and 160,000 children who receive special education services required by state and federal law.

• Local public works departments maintain almost 30,000 miles of roads under local jurisdiction, maintain safe drinking water supplies and wastewater treatment facilities, and collect and dispose of locally generated trash.

• Free public libraries in cities and towns across the state make available 30 million books and other resources, including Internet service, for the millions people that walk through library doors each year.

• Public health departments, code enforcement agencies and human and elder service offices ensure safe homes, workplaces and neighborhoods, and provide services to the homeless and other needy local citizens.

The array of services provided at the local level makes good sense, and there is not a sentiment to turn over to state government any significant services now provided by cities and towns. At the local level, there is direct accountability to local voters on the types and levels of services provided. There can also be greater flexibility to make changes in services as local needs change, except when local decisions are preempted or compromised by state and federal law.

Across the full range of services provided by local government are state and federal spending mandates that impose obligations at the local level to provide specific services, such as special education, and to undertake programs, such as landfill capping and water distribution and treatment. Unless fully funded, these mandates disrupt municipal budgets and services expected at the local level.

While there is a rough level of parity in the extent of state and local government services, measured in dollar terms, there is a significant inequality in the ability of the two levels of government to raise the revenues necessary to support these services. The Legislature retains full control over what taxes may be levied at both the state and local level.

The property tax is the only major tax available to local government. The state levies the personal income tax, the sales and use taxes, the corporate excise tax and several others. Local government administers the regressive local property tax while the state has available to it a range of less regressive and progressive tax options.

The tax revenues available to cities and towns this year are estimated at about $6.8 billion and are severely constrained by state law. State tax revenues are currently estimated at $13.8 billion, almost double what can raised at the municipal level. In addition to taxes, the state in fiscal 1999 is expected to have available $3.4 billion in federal reimbursements, $1.3 billion in departmental revenues, and $1 billion in other receipts to support a $19.5 billion state spending plan.

The array of taxes authorized for the state and for local government in Massachusetts makes sense given state obligations and the need to ensure that all cities and towns reach certain minimum levels of services commensurate with local needs. Given the disproportionate taxing authority of the state relative to its share of direct service responsibilities, the state must share its tax revenues with local government. State and local taxes are paid by businesses and residents of all cities and towns in expectation of adequately funded services at both the state and local level.

In the past, local government has relied too heavily on the property tax to support local services. According to analysis by the Massachusetts Taxpayers Foundation, property tax burden, measured on a per capita basis, dropped from third highest in the nation in 1981 to 10th in 1994. Measured as a portion of personal income, burden dropped from fourth highest in 1981 to 19th in 1994. By both measures, Massachusetts remains above the national average in property tax burden. A reasonable balance in local budgets between property tax revenues and state tax revenue sharing must be found that discourages over-burdening local taxpayers with a regressive tax.

In fiscal 1981, the year before Proposition 2 1/2, the property tax made up 57 percent of local revenues. While property tax reliance was reduced during the 1980s, it rose above the 50 percent level during the recession in the early 1990s for the first time since the first year after Proposition 2 1/2. With the return of economic health to Massachusetts and the nation and a new but temporary revenue sharing plan supported by the governor and Legislature, property tax reliance has leveled off at about the 50 percent level. To increase dependence on the property tax would be poor public policy and would return Massachusetts government to the pre-Proposition 2 1/2 days of heavy reliance on a regressive tax.

A revenue-sharing plan for the next century must include a renewed commitment to state tax revenue sharing that recognizes the high value that citizens attach to both locally provided services and to state services. A good plan must also acknowledge that local governments cannot support municipal services with only the property tax, and that the state has an obligation to share its tax revenues.

A state tax revenue-sharing plan must provide adequate amounts of revenues so that cities and towns can maintain local service levels and reform and improve others, such as the education of schoolchildren. Revenue sharing must also ensure a level of equity across all cities and towns in the ability to provide certain basic levels of municipal services.

Revenue sharing should be stable and predictable, grow with the economy, and provide protections during an economic downturn. A revenue-sharing plan must recognize that communities are best able to determine the types and levels of local services and that the state should not try to micro-manage local services through such devices as earmarking.