In his remarks at the Municipal Partnership Act rally at the State House on Thursday, Patrick pretty much destroyed any argument Verizon might have for hanging on to their 1915 telephone pole tax exemption. Below Boston got the transcript:
Now, the final step: the MPA proposes to eliminate a 92year old law. Exempting phone companies from paying the same property taxes that the rest of us pay. That law was written in 1915 to expand telephone coverage in Massachusetts. In fact, to create universal telephone coverage in Massachusetts. Now with communities everywhere all over the commonwealth struggling to fund services, homeowners struggling to pay property taxes, I think it’s time to retire that law. It’s done its job.
This old law just makes no sense today. It did once. It doesn’t now. You and I pay property taxes. Most other businesses pay property taxes. the electric company pays property taxes on it’s poles – even the same poles by the way that it shares with the phone company. So understand the point. The electric company pays property on the same poles that the phone company does not. No-one is asking that the phone company to do more than to pay its fair share.
Now, the phone company claims that if they have to pay what everyone else has to pay, they will raise our rates, cut jobs, and slow down the broadband investment which is hugely important particularly for western Massachusetts. I just don’t buy it. And neither should you.
Let’s look at the facts. Here are the facts: from 2003 to 2005 while your and my homeowner property taxes steadily rose, the phone companies? total Massachusetts tax bill went down almost 46%. Over that same time period our average monthly phone bills went up almost 30%. There is no correlation between taxes paid and rates charged. If there were they would have passed that savings on to us as phone company consumers. It hasn’t happened.
Here are the facts: the fact is Verizon pays higher taxes in Texas, Washington, New Jersey, California and others. Guess what? In those places rates are lower than rates are for us here in Massachusetts. They charge less where they pay more taxes it turns out. Let’s focus on the facts. No other state has this kind of property tax exemption for the phone companies. And yet employment has grown in all those other states. Not fallen off as they threaten here. And as for that claim about broadband investment, we’ve had this law for 92 years. We still don’t have broadband investment in the western part of the Commonwealth.
The fact is, we are going to have to deliver on broadband access in the western part of this commonwealth and all across the commonwealth without waiting for the phone company.
There’s a really important pattern here that it’s important that we be able to identify when we see it: Government tries to raise revenue from business; business warns that it will have to raise prices to compensate.
Please. It just doesn’t work that way. Sellers raise prices if and when a.) consumers decide they’ll bear the costs, or b.) they’re allowed to do so by the government, as in the case of highly regulated industries like utilities, or auto insurance in MA.
I’m not saying that costs and prices are totally disconnected, but they’re not directly causal, either.
UPDATE: Joan Vennochi’s got a lot more on the “We’ll leave the state!!!” refrain.
I’m not going to argue for one second that the telecom tax exemption shouldn’t be retired; of course Verizon, and other telecom companies, and all companies generally should pay their share of taxes.
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But your contention that “it just doesn’t work that way” leaves out the matter of elasticity. Consumers don’t just “decide” to pay or not to pay; different goods and services have different price elasticities. Phone and internet service, being something pretty close to a necessity (and pretty far from a luxury) are fairly inelastic: people will pay pretty much any price for them because they need these services. So the telecom industry can keep rates high and still stay in business.
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Toss in the oligopolistic nature of the telecom industry in MA, and you have still another disincentive for telecom companies to lower rates – little price competition among firms offering pretty much the same service.
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(As for the governor’s juxtaposition of higher taxes and lower rates in certain states, there’s probably something else going on there. I don’t know if meant to say that people should support ending the tax break because doing so will lead to lower rates, but that seems to be the implication. As he says, however, “[t]here is no correlation between taxes paid and rates charged.”)
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Bottom line: economists don’t really know where the tax incidence (i.e., who actually pays the tax, in the form of a price, rather than who writes the check to the government) of different goods and services falls. But given the low price elasticity of telecom service and the oligopolistic nature of the industry, it seems likely that much of the tax incidence will fall on the final user. So households may end up paying more for their telecom service if the tax break expires.
…I’ve been reading about this telephone pole tax exemption here for a couple of months. (I’m surprised it even exists, but that’s another issue.)
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The question is, has anyone estimated how much additional revenue cities and towns might realize if the exemption is removed? If it’s minimal, there are probably larger itches that could be more profitably scratched.
It’s $78 million.
Here’s a link to the interactive map showing the estimated revenue by town from ending the telephone tax exemption. It would certainly benefit Boston ($15M/year), suburban towns like Lexington and Burlington ($1M/year), benefits to more rural areas are much less.
…I presume that the relatively low figure for Wellesley is because Verizon (and Comcast) largely piggy-back on the town DPW-owned poles used for its electric distribution system.
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The irony is that the DPW makes payments in lieu of taxes to the town for property it owns–including poles. I wonder the extent to which that’s the case in many suburban towns.
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BTW, I fully favor doing away with property tax exclusions, such as the pole tax. And I very much favor doing away with property (and other) tax breaks used by big-box retailers such as (but not limited to) Wal-Mart.
The other half is competition.
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There’s no competition to the phone company landline you might say — and I would say false.
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p> * Mobile phones * Vonage [VoIP] * Skype [VoIP] * Comcast [coax]
etc.
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It’s true, few people have access to all of the choices, and not all choices make sense for everyone. But, many people have access to at least one other choice, and that competition will keep prices down. As broadband continues to expand, choices will expand. As mobile phone towers go up to clear up the “dead spots”, choices will expand. As young people continue to move out of their parents house, the transition away from land lines continues.
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It’s not just about elasticity. It’s true — Americans living in modern society need reliable personal access to a telephone. They don’t need local POTS to do that, however, and that competition will prevent the local telco from raising prices.
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More to the point: if it was all about inelasticity, telephone companies would have raised prices already.
And I also didn’t say there was “no competition”: I cited oligopolies. As you point out, “many people have access to at least one other choice.” But most people don’t have access to much more than that. So few choices make it easy for competitors to engage in what amounts to legal collusion, since they can send and receive price signals with relatively little noise, setting those price points high enough to guarantee both substantial market share and fat profits.
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You’re right that there are other options besides the landline, but the ones you list are not (yet) substitute goods for POTS. (Thanks for adding another acronym to my lexicon, by the way!)
just not perfect substitutes.
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It’s true, Comcast, Vonage, and Verizon might all collude on price. But, I doubt it. The industry is cutthroat, as all the dang advertisements indicate. People don’t change their service providers very often, but are more and more selective when choosing a telco provider as they come to understand there’s more than one choice, and that the choices aren’t perfect substitutes.
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So, they don’t quite have oligopoly power like Coke and Pepsi do in the cola market so far as I can see. Methinks their oligopoly power is quite weak in fact.
Demand for a phone is quite inelastic. Demand for a landline: far less inelastic, and growing more elastic daily. As for oligopolies: I just don’t see it in the telco market.
…at the cost level, all, except, perhaps, for cell phones, have a base build-in cost, and that would include the pole tax. VoIP services, broadband services (Comcast and Verizon) and other services, make use of poles that may (if they are not owned by a telecom), or may not (if they are) be subject to property tax. The built-in cost subject to all–or virtually all–competitors sets something of a floor on pricing.
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Cell phone service is, of course, the outlier in this (no poles, but lots of antennas), but it is doubtful that many people would want to rely on cell phones for a lot of Internet access. Phone service, perhaps. Fifteen years ago, when my then current employer was offering corporate discounts for cell phones, some people were considering taking up the offer and discarding their Plain Old Telephone Service* since they had so few calls to make or receive.
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*POTS: actually, an acronym traditionally used to refer to dial service. I suppose it may have been extended to touch-tone, but I’m not aware of that.
It?s our government, after all, and it?s about time we talked about putting in place a fairer tax system, one that could ensure that each and every one of our Commonwealth?s communities is fully supported and thriving.
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It’s about time for a once-in-a-lifetime, community-wide civic engagement project that creates a space where a diverse network of civic leaders and constituencies across race lines, across traditional issue silos, and across the state can work together and learn from and with each other about taxes and all the other revenue streams that fund local and state governments.
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It’s about time we used such a space to work together to ratify our founding parents’ vision of Massachusetts as a Commonwealth of communities fully supported and thriving. And then figure out how to pay for it. It all comes down to how we get the revenue and it’s important that we all continue to have honest, fact based conversations about where the revenue is going to come from.
Where is this revenue stream going to come from?
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First we have to do this, then we have to do that, then we have to make sure that everything is equal, but in reality, we are never equal, then we have to rob the rich to pay the poor, and care for everyone that is uncared for, even if it is due to their own egregious neglect, and I the tax payer, who has been pillaged by the IRS and the state dept of revenue my entire adult life gets screwed again.
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Why not? It’s all in the interest of a certain sector of society feeling good about themselves. Leon Trotsky got the message.
You mean an axe in the head? Now, really, if you’re going to throw around references to last-century Russo-Ukranian exiles, you should be specific about what you mean old chap.
I really don’t see any harm in making some space to work together to learn who contributes what to which revenue stream. And then figure out what each reveue stream pays for in our local, county and state governments. It’s a New England town meeting tradition after all.
and did.
Obviously the telecom’s will stay no matter what. They will also pass on any added costs to the consumer, one way or the other. Didn’t the governor just have a fundraiser hosted by big business types?
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The governor makes phone calls and has started taking money from big business, but everything is on the level, riiiiiiight.
Vennochi says:
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She should go one step further. People are leaving this state. Why? Because they have realized two things:
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1) housing costs in communities that provide the services they desire don’t stack up when compared to other states
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2) services in communities they can afford don’t stack up when compared to other states.
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Forget companies leaving. People are leaving.
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That should scare most businesses out there. Their customers are leaving, not because of the cost of private goods and services, but because of the cost of housing and public services.
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The fact that there is such a heavy reliance on the property tax makes it in everyone’s immediate [but short-sighted] best interests to block any and all development. “New residents are a money-loser” is burned into everyone’s brain.
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Shifting more costs onto the people who oppose development means that it will be even harder to grow this state’s economy. They’ll fight even harder to push away that $150k-per-unit development, because by their math, it takes a $500k unit to break even in property taxes. So when that new grad looks at her job options, she says “Hmm. I can spend $2,000 a month on rent in Boston and make $50k, or $500 a month on rent in Las Vegas and make $40k.
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A couple with 2 kids say “Hmm. I can buy a house for $800k in an excellent school district in this state, I can buy a house for $500k in a decent school district in this state, I can buy a house for $300k in a failing school district in this state, or I can buy a house for $250k in a good school district in another state.
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It’s a no-brainer for many people to leave.
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Imagine if there was a local revenue component tied to economic activity such as meals, or even local property tax (which is common in other states). People wouldn’t oppose development anymore. They’d do the math and realize that if you add a resident, you get property taxes AND sales taxes AND excise taxes AND meals taxes. And if you add people, the economy grows.
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A growing economy is much easier to live in than a shrinking economy. Which is why people are flocking to other states.
-Try making a living in the construction business. Quote a state or local job, for heavy equipment and you pay prevailing wage, so you’re stuck paying $30-$50 per hour when the same private job means you can get a certified heavy equipment operator for $20.
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-Build a residence. The enviro inspection, fire inspection, highway inspection, zoning inspection, building dept inspection and related certfications cost thousands and takes months. God help you if you’ve cut a tree down within 100 feet of a wet area.
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-Bid a state or local road job, and the REQUIRED troopers can cost 10% of the job. Did you know a lot of those guys earn mid hundred thousand per year with 50% of that earned on traffic details, sitting in their cruisers.
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-Want to build a mult-home development? Gotta finish the road and in-the-ground before breaking ground for the foundation. $$Millions in the ground before you can show a model home to buyers.
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-Unemployment and workers comp. Here’s a true story. Guy’s (employee) drunk on the job and gets a warning. Drunk a second time, agrees (in writing) to be tested and terminated if he’s found to be positive for booze. Drunk a third time, is tested and fired. On appeal, he gets unemployment benefits. WTF?
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Now someone can look at each of these gripes I’ve listed above and say ‘yeah, there’s good reasons for those rules’, but in cumulative, they smother development.
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Maybe that’s what we want. Pristine pastures, vistas and views. But that’s only a small part of what brought New England to where it is today.
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Ask any contractor with outside-the-state bidding and construction experience. There’s just something about the state that makes building and developing things expenive and difficult and pits government against business.
are points 2, 4, and 5 really much different from other states? Sure, 2 will vary somewhat but it never goes to zero. The requirements for item 4 are good public policy and I’d bet they exist elsewhere… they seemed to exist in NC when I lived there. Item 5 is clearly either [not the whole story] or [a bad decision]. But, while its true that firing employees for just cause requires a paper trail, isn’t that true everywhere?
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1 and 3 are genuine issues relevant to MA and perhaps a few other states, good bad or otherwise. But are 2, 4, and 5 really any different from most other states?
If people in this state were pro-development, those issues would cease to exist. But people are anti-development, so they make excuses like what you outlined because that’s the way to be anti-development.
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Most people aren’t all that concerned about wetlands, except that they are a marvelous excuse to stop someone from building something. It’s as close to a silver bullet as you can get.
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We can have pristine pastures and vistas AND development. How? By unlinking local revenue from property taxes. Suddenly you don’t need $500k houses, so you can get rid of your 2-acre requirement and go back to the 1/4 acre lots that many people grew up on.
From today’s Springfield Republican:
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So now our towns are in the business of buying up property to restrict development, because somehow, residents are a money-loser. If residents are a money-loser then maybe our towns should pass laws outlawing all residents, huh?
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If the revenue laws were structured in a way to get more than just property taxes from those 60 housing units, the town would probably be falling over itself to get them built.
People deserve the government they elect.
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Great article.
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The town of Deerfield pays a $1.8 million because they fear houses will be built on the site. Christ, you’d think it was a nuclear reactor. This, in a time when Western Mass hill towns are dying for buildable residential land.
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Scan back about 3 years when the corporate owner of the plant bailed to Mexico and sold the plant to four local farmers. Just a hunch, but I bet the local paid less than $1.8 million. I’d love to know.
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So, surprise, surprise. The four local guys couldn’t make a go at it either and decided
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Blackmail?
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And Deerfield bit. The wise town of Deerfield knows better. The big Corporation couldn’t make a go of the farm and pickle business; local farmers couldn’t but the Town can.
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The Town will take the property for $1.8 and make it work. Audacity at taxpayer’s expense.
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Because the official of the town of Deerfield are such great venture capitalists.
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NIMBY. The folks in Western mass want so badly to keep out development they’ll cut their own throats to stop new houses and industry from being built–pastoral scenes and pristine views ya know–then wonder aloud why their property taxes are so high.
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Remind me how farms and land trusts don’t pay so much in taxes.
Sugarloaf Properties Development LLC bought the land, buildings and business in 2002 for $3.5 million.
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Sold the business in 2006 to Big Valley Foods. Terms are undisclosed, but net sales were $24 million. Sales price?
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Cool transaction. Buy the business and land. Close and sell the business. Separately sell the land in a sweet deal to the town: 16 acres for $1.8 million.
If things worked correctly in this state, there wouldn’t even be a “threat” to develop 16 acres of agri-industrial land in Deerfield into family housing. Development would be concentrated in more urban areas such as Greenfield or Northampton. Demand would be centered in those areas, population would be concentrated, making it easier to site businesses and transportation.
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Instead, demand is dropping in urbanized areas, people are flocking to the rural/suburban areas, and then demanding levels of service that can exist only when you have efficiencies of scale in urban areas. Taxes go up, and then people leave.
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The whole system is broken. We’re in a destructive feedback loop.
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…is that rising property taxes are driving older people out of the state (perhaps that’s one of the reasons for a net outflow), who are being replaced by people with children, who demand that they be educated in the public schools. Each new “married (or un-) with children” puts a burden on the public school system that is not financed by the property taxes. That’s why I’ve been referring to local option taxes, not the rather silly limitation to local meals taxes, but also local income taxes.
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Given the above, I’m actually not surprised that the town in your example would prefer to buy the land rather than allow it to go to new residential development. New residential development puts stresses not only on the public schools, but also on utilities that the town may provide–water, sewage, perhaps also electricity distribution. It’s probably cheaper for the town to buy the property than to expand the services.
You write that each new pupil puts a burden on schools that is not funded by property taxes. Is that true? I thought that schools in MA are largely funded by property taxes, and that state aid is tied to attendance – stepwise, if not linearly, but still: each new pupil puts you closer to the next step.
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(Not to say that new pupils are desirable given already scarce capital and operational resources.)
You write that each new pupil puts a burden on schools that is not funded by property taxes. Is that true?
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…but it appears to be the case that property taxes on a residence will not fully support (including a state contribution) the full cost of public education.
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That was noted in an article in the Boston Globe over a decade ago, in which officials in the town of Acton were decrying the fact that increasing property taxes were driving elderly residents (people without children) out of town, to be replaced by younger residents (people with children) who were demanding public school services. But the property taxes would not support their demands. It was a viscious circle: property tax increases, older people leave, younger people (with children) replace them, property tax increases, etc.
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I suspect that a similar thing is happening all over the state. If we could emigrate to Germany (we probably could, but we haven’t investigated it) we would. Why? Primarily because of the increases in property taxes. Our property taxes here in Wellesley have increased three-fold in the 20 years that we’ve been here. That’s ridiculous.
…nobody apparently wants to address the issue of why poles owned by one type of entity (“telcos”) should be taxed differently than poles owned by other types of entities (“electricos” or “Cableos”). Why nobody is interested in the discrimination among the ownership is a mystery, but, whatever.