To each according to its need: local taxes and revenue sharing
After mortgage payments, a homeowner’s second largest expense is real estate taxes, which under real estate taxes basic budget algebra, form the biggest slice of the local-government revenue pie, which pays for local services including public schools. Localities thus have a very direct link between the value of their homes and the quality of their schools. Yet states, a higher level of government, have an over-arching objective of delivering good schools — and police, and fire, and municipal services — throughout the state. How then do poor communities avoid falling ever further behind?
I’ve got the revenue base and I’m keeping it away from you.
One approach is to create a new local tax (which often backfires in ready, fire, aim fashion). As CommonWealth magazine reported:
If the Legislature does give communities the power to levy their own meals tax on top of the state’s 5% take, it could be a boon not only to
It could be a boon … but only if the business sits still, like a river flowing the same way despite a water mill being placed in its path. Restaurants can move to just over the border of the next town, and while hotels can’t move, their customers certainly can. Those same businesses are also taxpayers and employers in the town, and they can lobby every single one of their customers, and every one of their employees, to oppose an increased or differential local sales tax.
Further, the communities able to raise meals taxes are probably also those with high property values now anyhow, so the rich get richer.
As a selectman, I love those big assessments!
One objection to Gov. Deval Patrick’s plan to ease property taxes by letting cities and towns impose new taxes on meals and hotel rooms is that, as House Speaker Sal DiMasi said to the Boston Globe, “I don’t think all communities are going to benefit across the board.” But there are already wide differences on how heavily communities rely on the residential property tax as a source of revenue.
How is the residential property tax distributed throughout the state? Check out this fascinating data-rich graphic map from CommonWealth:
This map contains a wealth of detail, particularly if you know anything about
At one end of the continuum, more than three-quarters of municipal revenue comes from residential property taxes in the affluent western suburbs of Dover, Sherborn, Carlisle, and
Among communities with more than 30,000 people,
All three of those towns are nice suburbs.
Cities with strong business districts generate a lot of revenue from those businesses.
· Boston, for all Mayor Menino’s whining, generates very large revenues from the many businesses located within the city.
· Cambridge feasts on
· Worcester and Springfield similarly profit from their enterprises.
Business is thus already a driver of local revenue. That’s not to say business couldn’t or shouldn’t pay more — business’s share is a political question. Rather, it is simply to observe that business already pays taxes, and I believe in most cases business pays more in taxes than it receives in services. As CommonWealth puts it:
Others can keep residential property taxes low because of commercial cash cows:
· The Yankee Nuclear Power Plant, no longer operating but still paying bills to Rowe.
· The “Auto Mile” of car dealerships in Norwood.
· Taxable property owned by MIT [and Harvard — Ed.] in
No longer producing energy, but still producing local revenue
Similarly, although
When we look at communities without business — bedroom communities — the contrast is greater between rich and poor:
· Affluent towns like
· Poor towns like Alford have no alternatives, so they must squeeze their services into a very limited income budget.
How then do poor cities and towns cope? Through a lesser-known aspect of state government — revenue sharing.
We all drink from the same taxpayer well
For the most part, the communities that don’t squeeze a lot from homeowners make up the difference with help from
To a locality, and especially to a local politician besieged by irate taxpayers, revenue sharing sounds very much like free money. [And to a local official, it is free becomes it comes from the state’s factory. — Ed.]
Lawrence,
All three are older mill towns with wheezing economies. All three have struggled for decades to attract new jobs.
But cities with desolate downtowns would depend almost as much as ever on the kindness of local aid.
A similar pattern holds for the hotel room tax, which Patrick wants to cap at 5% rather than 4% and which, unlike the meals tax, already goes into local treasuries.
DOR data from past years suggest that Edgartown, Provincetown, and Sturbridge would gain the most from an increase, but Lowell and New Bedford would get almost nothing –
Boott Mill, Lowell, once an industrial revolution powerhouse, now largely vacant
— unless they can quickly build some hotels and just as quickly gin up some tourist business.
Even if you build it, they may not come.
Revenue sharing at the state level means simply that, via the redistribution of their state income taxes, homeowners in high value cities and towns pay to top up the operating budget of less affluent communities elsewhere in the state, whose homeowners pay lower taxes.
Revenue sharing: from each city or town according to its ability, to each according to its needs. For the state, which has a broad interest in seeing all its communities work, that makes policy sense.
“Hey, I wasn’t totally wrong, was I?”
