MMA meets with Sens. Warren, Cowan to address local concerns

March 12, 2013

MMA President Kate Fitzpatrick, MMA Executive Director Geoff Beckwith and a delegation of Massachusetts local officials met today with U.S. Sens. Elizabeth Warren and William “Mo” Cowan in Washington, D.C., to discuss municipal programs and priorities that are threatened by federal budget cuts and other legislation.

Fitzpatrick, the town manager in Needham, and Beckwith presented the MMA’s “Federal Issues Briefing Paper,” which highlights three major issues of importance to Massachusetts localities: the impact of federal budget cuts on cities and towns, the need to preserve the tax exemption for municipal bonds, and passage of the Marketplace Fairness Act to allow states to collect a sales tax on Internet commerce.

After the meetings on Capitol Hill, Beckwith said the senators “each displayed a mastery of the issues and complete support for cities and towns.”

“Our conversations were very productive and helpful,” he said, “and we appreciate their strong efforts to protect cities and towns.”

Fitzpatrick added, “We are so pleased that Sen. Warren and Sen. Cowan are in our corner. These are very complicated issues, but we know that we can count on our senators to work hard to mitigate the impact of budget cuts, preserve our absolutely essential ability to use tax-exempt financing to build and maintain our infrastructure, and end the outdated tax loophole that allows Internet merchants to avoid collecting sales taxes, a policy that puts our Main Street businesses at a disadvantage.”

The MMA’s policy paper calls for the state’s congressional delegation to support “a balanced approach that relies on a combination of revenues and reductions in order to avoid extraordinarily deep or indiscriminate cuts to vital programs.”

The briefing paper points out that the federal sequester makes mid-year cuts of at least $97.5 million in community programs in Massachusetts, along with reductions in other key community services administered by nonprofit organizations.

“This does not include the impact of cuts to research or the defense industry, or the sequester’s negative impact on the state’s economy and jobs,” the paper states.

The affected local programs include Community Development Block Grants, Title I grants to local educational agencies, special education grants to states, the Head Start program, the Low-Income Home Energy Assistance program, and the Job Corps program, to name just a few.

As federal agencies look to avoid severe cuts in programs for the most vulnerable, they may cut even more deeply than the estimated $7.3 million from the Community Development Block Grant program for Massachusetts, according to the MMA. “It is possible that the CDBG cut could double or triple in size, with no warning to municipalities.”

The sequester, the briefing paper states, “represents just one more step on an austerity path that threatens to dramatically undermine federal domestic spending, cutting cities and towns loose to absorb the fiscal and economic damage.”

Massachusetts municipal leaders, the paper states, “fully recognize that some very difficult decisions need to be made in order to put the federal government’s fiscal house in order.” The briefing offers the following guiding principles “to consider when evaluating any deficit reduction proposal that would negatively affect local government”:
• Preserve municipal and state authority.
• Practice tax policy maintenance at the federal level.
• Pay a proper share of federal mandate costs.
• Protect infrastructure investment.

As leaders in Washington look for revenue to reduce the federal deficit and fund the budget, proposals have surfaced to curtail or end the tax-exempt status of municipal bonds. Such proposals, according to the briefing paper, “could drive up the cost of vital local infrastructure projects in Massachusetts” by up to $525 million a year and “impose a massive new cost on cities, towns and local taxpayers.”

Investors are willing to accept lower interest on tax-exempt bonds because they also receive a tax benefit. As a result, local governments save an average of 25 percent to 30 percent on interest costs.

“Eliminating or limiting tax-exempt financing will drive up the cost of … infrastructure investment, which will reduce the scope of projects and impose a much higher burden on local taxpayers,” the paper states.

More than $3.7 trillion in outstanding tax-exempt bonds have been issued by 30,000 separate governmental entities in the U.S. In 2012, more than 6,600 tax-exempt municipal bonds financed more than $179 billion worth of infrastructure projects.

The MMA estimates that each year, cities and towns in Massachusetts issue $3 billion in tax-exempt bonds and notes.

During their meetings with Massachusetts local officials, Sens. Warren and Cowan vowed to protect the tax-exempt status of municipal bonds.

Addressing the Marketplace Fairness Act, the MMA’s briefing paper states that “consumers should pay sales taxes to support government services, and the tax should apply equally to all retail establishments.

“Today, online giants such as Amazon and Overstock dwarf Main Street retailers, who dutifully charge and forward sales taxes while their Web-based competitors do not. … If an online retailer can automatically calculate shipping fees based upon how much a consumer is spending, what product is being purchased, where the product is coming from and where it is going, then sales taxes certainly can be calculated and forwarded.”

Fitzpatrick and Beckwith were leading a group of local officials from Massachusetts who were attending the National League of Cities’ 2013 Congressional City Conference March 9-12 in Washington, D.C. Participants in the meetings with the senators included Gardner Mayor Mark Hawke, Pittsfield Mayor Dan Bianchi, and four representatives from Cambridge: Vice Mayor Denise Simmons, Councillor Minka vanBeuzekom, Deputy City Manager Richard Rossi and Mayoral Chief of Staff Matt Nelson.

• Download the MMA’s Federal Issues Briefing Paper (227K PDF)

Written by MMA Publications/Web Director John Ouellette