To: The General Court
April 2, 2002
Re: Proposed Proposition 2½ tax hikes
"He does not want to tap into the free cash account to fund the budget."
The Fall River Herald News, Apr. 1, 2002,
reporting on Fall River Mayor Edward M. Lambert Jr.
Mayor Lambert, president of the Mass. Mayors Association,
wants you to hike the income tax rate to 5.95% while he sits on free cash and excess property tax capacity. We suspect
that the legislative proposal for "local option" changes in Proposition 2½
is your way to let mayors and selectmen know that if they want a politically unpopular tax vote, they can take it
themselves.
However, attacking Prop 2½ by allowing an increase in the
auto excise or excluding the Overlay account from the levy limit is no solution to your and municipals officials'
overspending problem that created the present revenue "shortfalls."
1) In 1980, the auto excise was $66 per thousand of value.
Because it was annually paid directly, not as part of the mortgage or withheld from the paycheck, it was much noticed
and hated.
So Proposition 2½ cut not only the property tax levy but
the auto excise to 2.5% of value or $25.00 per thousand. But the amount collected by the cities and towns $266 million in
1980 which dropped to $112 million after Prop 2½ reduced the rate had risen to $534
million by FY 2000, according to the Division of Local Services.
Legislators who bemoan that the rate has not increased in 20
years are missing the point: the revenues collected from cars that have greatly increased in value are almost
five times
higher since the rate reduction. As we and our Mass. Auto Dealers Association allies predicted at
the time, the rate reduction was good for business, and increased car sales were
good for state revenues.
It was recently reported that zero-percent financing by the
auto industry led to such significant sales increases that it lifted the nation's consumer confidence index. With the
economy moving into recovery, you don't want to even hint at a reason not to buy a new car.
2) The Legislature wisely decided 20 years ago not to allow
any exclusions from the Prop 2½ levy limit except those passed by local voters. Excluding
Overlay revenues would hike
property taxes by approximately $160 million statewide, effectively doubling the present
2.5% base levy; before adding new growth, various overrides, and the Community
Preservation Act. Property taxes could increase by 10% or more next year!
I'm sure local officials would not hesitate to blame you for
voters' outrage if this happens. It really is best to just leave Proposition
2½ alone: though property taxes are still high and regressive, they are at least somewhat under control,
and the Legislature can take credit for preserving the voter-passed limit for over 20 years.