Cities and towns in Massachusetts rely disproportionately on two main sources of revenue to fund their budgets: property tax revenue and state aid. In Boston, 77% of the city”s revenue comes from those twin sources. With the dramatic cuts in state aid due to the current recession, the city’s budget has taken a serious hit. Boston lost $94 million in state aid in Fiscal 2009 and $71 million in Fiscal 2010.
How to raise additional funds, where to make cuts, and how to insure fairness and transparency in this process is a big task. The stakes are high for children who attend the Boston public schools and our members who are challenged to educate them with shrinking resources.
Below are some of approaches that we support.
- Take the Bite Out of Tax-Exempt Property Laws
Property taxes are the other major source of revenue for the city besides state aid. Yearly fluctuation is fixed by law under Proposition 2-1/2 and increases are unlikely to happen anytime soon. But Boston faces a unique problem: the high percentage of property that is tax-exempt. More than half the property in the city is tax exempt. No other city or town in Massachusetts comes close.
Question: Who owns $13 billion worth of city property and pays no property tax?
Answer: The 27 educational and medical nonprofit institutions that are housed here.
Question: If the 27 institutions cited above were properly taxed at the going rate, what would their yearly tax assessment be?
Answer: $347.7 million.
Question: How much did they pay last year as voluntary payments in lieu of taxes (PILOTS)?
Answer: They volunteered a payment of 4.2% of the $347 million for a total of $14.5 million.
Question: Who is the worst offender?
Answer: Northeastern, which is paying $30,000 this year for all of the city services it enjoys.
Bonus Question: Regarding the law that allows non-profits to avoid paying taxes on their property, what year did the law pass?
If you got the above questions correct, you understand the fiscal and legislative dilemma that Boston is in.
Every year, tens of thousands attend our universities, receive treatment in our great hospitals, and visit our museums “ but those institutions pay virtually nothing toward the upkeep of those services which these visitors enjoy. (See The Nonprofit City.) For example, why should Boston taxpayers subsidize police service or park department service for NU students (or any students, for that matter)? Should not NU contribute a little more than $120,000 per year in lieu of property taxes for the ‘wear and tear’ their students might cause?
Another unique, glaring example of this problem is MassPort. MassPort alone owns more than 25% of the total property in the city. It provides a valuable regional transportation service to non-residents who commute to Boston to work or play, but Boston foots the bill in reduced property revenues. The simple remedy: the state ought to re-pay some of that lost revenue to the city. The problem: non-Boston legislators outnumber Boston legislators.
Until changes are made to the state law to allow for the taxing authority of at least some of this tax-exempt land, the city’s ability to raise revenue will be hamstrung. See a chart comparing the amount the city would receive in taxes from major educational and medical institutions and the amount they actually pay in voluntary payments. The 2010 report by the Lincoln Land Institute, “Payment In Lieu of Taxes: Balancing Municipal and Nonprofit Interests” drives home similar points.
- Change the Funding Formula for Charter Schools
The Education Reform Act passed by the Massachusetts Legislature in January 2010 lifts the spending cap on the number of charter schools in low performing districts from 9 percent to 18 percent. The legislation does not, however, address problems with the state”s existing funding formula for charter schools. Under this formula,dollars follow individual charter students out of the district. We believe that the state should pay for charter schools or cap the amount a school district can lose in per-pupil funding at a sharply lower level than the present formula allows.
Lifting the cap in our neediest districts means lost funding for thousands of students from local budgets, resulting in losses to school systems that are already increasing class sizes, laying off teachers and other educators, raising activity and busing fees, and cutting music, art, physical education and other vital programs. Because of the districts the legislation affects, the very children most in need would be the ones who lose crucial resources
- Increase Local Option Taxes
We support steps to increase local option tax revenues and thereby diversify the revenue stream upon which the city relies. Studies show that the percentage of total revenue raised; from local option, non-property tax sources in Boston is very low compared to cities like San Francisco, Atlanta, New York and Denver where the percentage ranged from 60%-80%.
In the summer of 2009, the Massachusetts legislature took a step in this direction when it voted to allow municipalities to raise restaurant and hotel taxes as of Oct. 1, as a way to help to cover local budget deficits. In August 2009, a majority of members of the Boston City Council approved a proposal made by Mayor Thomas M. Menino to levy local option meals meals tax will increase by 0.75% to 7.0% and the tax on hotel occupancy will increase by 2.0% to 14.45%. Still below many major cities, but a step in the right direction. The BTU testified at the City Council hearing in favor of both taxes.
But the fact remains that Massachusetts state law limits the ability of the city of Boston to levy its own taxes on those who use the city’s services and amenities. And that number is very high. The U.S. Census Bureau”s 2005-2007 American Community Survey (ACS) data indicate that while 38% of Boston’s workforce lives in Boston, 61% lives outside of the city. Every day, hundreds of thousands of non-Bostonians come into our city, use our roads, require our safety services — and pay no taxes.
- More Equitable State Aid Formulas
Boston Redevelopment Authority, Boston Continues to Give More than it Gets from the Rest of Massachusetts reports:
“The proportion of net state aid Boston receives amounts to less than its proportion of the state’s population; while Boston is home to 9.5% of state residents, it receives only 8.4% of net state aid. Between FY2009 and FY2010, Boston’s state aid decreased by $94.3 million. Boston’s total FY2010 budgeted net state aid (state aid revenues minus state assessments) remains below its FY2002 peak by $161.7 million or 37.7% (nominal dollars). Adjusted for inflation this is a 49% cut in Boston’s state aid.”
The figures speak for themselves.
- Adopt a Graduated Income Tax
Another solution is seeking to raise revenue by adopting a more progressive form of taxation with the passage of a graduated income tax. Massachusetts does have an income tax; it is one of 43 states that does have one. But of those 43, Massachusetts is one of only seven which does not have a higher income tax rate for those with a higher income.
Visit the Mass Budget and Policy Center website for more information about how current taxation policies work against working people.