Municipal Partnership Act would empower cities, towns
In his first major policy proposal, Gov. Deval Patrick filed an ambitious plan to give cities and towns new opportunities to become more self-sufficient and ease the property tax burden.
The governor’s Municipal Partnership Act, announced on Feb. 15, would authorize new and expanded local taxing authority and close property tax loopholes.
The proposals for a limited local sales tax on meals and an additional percentage point on the room occupancy excise rate could eventually provide $250 million or more for local governments if the options are adopted as widely as the current local room occupancy excise is today. Under the governor’s proposal, Massachusetts rates would still be lower than in neighboring states.
The governor’s plan would require local pension systems with investment performance that significantly trails state system returns to transfer their assets to the state’s pension fund for investment. It is expected that this provision would affect about one-third of local pension systems.
In an attempt to give local governments a new tool to address skyrocketing health insurance costs, the governor proposed a new negotiating process for moving municipal employees to the state’s Group Insurance Commission for health insurance purposes. The governor used language from GIC legislation filed for the current session by Rep. Rachel Kaprielian of Watertown and Sen. Richard Moore of Uxbridge.
• MMA statement supporting Municipal Partnership Act
• Summary of Municipal Partnership Act
• Text of Municipal Partnership Act
The governor’s legislation (H. 3749) was divided by the Legislature into subject matter parts that were referred to various committees for public hearings later this year.
The MMA is seeking early hearings and approval of a consolidated Municipal Partnership Act before the Legislature’s summer break. While most of the provisions will have the greatest impact over the long term, timely action by the Legislature could provide cities and towns with a modest measure of budget-balancing assistance in fiscal 2008.
The governor’s partnership plan also includes an MMA-supported provision that would close loopholes in obsolete property tax law governing telecommunications companies. In a separate initiative to ease residential property tax burdens, the governor recommended that the maximum business share of the local tax levy under state tax classification law be frozen at the fiscal 2007 level of 1.83 for two more years rather than being reduced to 1.7, as it is now scheduled by law.
The municipal partnership bill also includes a variety of important but low-profile provisions that would modernize rules governing local borrowing and tax abatements, reduce the cost of procurement advertising, protect local fee-setting authority for trash collection from legal challenges, and empower local government to be more efficient through a number of other initiatives.
The governor also proposed to create a special commission to study the possibility of giving cities and towns more local autonomy and authority in areas that now require special or “home rule” laws enacted by the Legislature.
Local Option Taxes
The governor’s plan would authorize cities and towns to adopt a local sales tax on meals in addition to the current 5 percent state sales tax. Local acceptance of the tax and the rate, up to 2 percent, would be voted by the municipal legislative body, generally town meeting or the city council with the approval of the mayor. The MMA also has filed legislation to allow a local meals tax. For fiscal 2006, the state’s 5 percent sales tax on meals raised almost $600 million for state coffers.
• Preliminary estimate by Department of Revenue of taxable meals sales for each city and town (244K PDF)
The partnership plan would allow municipalities to increase from 4 percent to 5 percent the maximum local room occupancy excise in addition to the current 5.7 percent state excise. With almost all eligible cities and towns imposing the 4 percent maximum rate last year, the local room tax raised almost $82 million. The state also requires an additional 2.75 percent levy in six cities for convention center financing.
The Department of Revenue would collect both the state and local portions of the new municipal tax, as it does now. Twenty-five percent of the local portion of any of the new local taxes imposed after July 1, 2007, would be transferred to a special state fund to be used to reimburse cities and towns for property tax abatements under clauses 41, 41B and 41C of Section 5 of Chapter 59. The balance would be distributed as general local revenue to cities and towns that accepted the tax in proportion to the dollar amount of sales of taxable meals and room occupancy in the municipality.
The local tax would take effect quarterly for cities and towns that accepted the tax at least 30 days prior to the first day of the quarter or for such other quarter that the municipality might designate.
Pension Funds
The governor’s plan would require retirement systems that have a funding ratio of less than 80 percent and have underperformed the Pension Reserves Investment Trust Fund by at least 2.25 percent over a five-year period, as determined by the Public Employee Retirement Administration Commission, to transfer their assets to the PRIT for investment. Systems with extenuating circumstances could appeal to PERAC for an exemption from this requirement.
Group Insurance Commission
The plan would allow cities and towns, at local option, to use a streamlined coalition bargaining process to negotiate whether to participate in the Group Insurance Commission. Decisions to participate would depend on the outcome of negotiations, and reaching an agreement between the municipality and a public employee committee, which would include representatives from each collective bargaining unit and retirees.
Procurement Advertising
The plan would allow cities and towns to advertise the notice of invitation for bids for a procurement contract on the Internet instead of in a local newspaper of general circulation, as is currently required under the Uniform Procurement Act. Municipalities could post the notices on either their own or the state’s Web site. The state’s Operational Services Division estimates that this change would save cities and towns thousands of dollars each year.
Municipal Borrowing
Several sections in the governor’s plan would increase flexibility in municipal borrowing by allowing borrowing for terms consistent with the maximum useful life of the asset, but not more than 30 years, as determined by the mayor, town council or board of selectmen. The bill would also increase flexibility for emergency borrowing, expedite the process for achieving savings through refinancing, and remove restrictive requirements for amortization of debt.
Trash Fees
The governor’s plan would confirm the existing authority of cities and towns to impose a trash collection fee that is mandatory unless the city or town grants a waiver. The collected fees or charges would not need to be maintained in a separate fund. The section is intended to validate the type of trash collection program that was recently invalidated in Springfield, and is in place in other cities and towns.
Abatement Granting Authority
The plan would streamline the process by which local assessors can grant abatements without receiving prior approval from the Department of Revenue. The commissioner would issue guidelines granting authority to abate for reasons determined by the commissioner to be in the public interest.
Property Tax Loopholes
The governor’s plan would eliminate utility corporation tax exemptions for telecommunications companies and make them subject to the same exemptions as other business corporations. They would face taxation on machinery used in the conduct of business, and city and town assessors would be responsible for valuing that machinery.
Property Tax Classification
Provisions in the bill would allow communities to continue to shift the percentage of the total tax levy imposed on any class of property in an amount not to exceed 183 percent of the value of that property divided by the value of all taxable property in the city or town for the next two fiscal years.
Special Study Commissions
The partnership bill would create a special commission to study the use of state technology for municipal purposes and a separate special commission to consider ways to grant increased local authority in areas currently requiring home rule petitions. The commission would also investigate methods for providing incentives for best municipal fiscal practices and regionalization of municipal services.
Written by MMA Deputy Legislative Director John Robertson
