Memo to Doug Rubin II: Great work on economy so far, but don’t sleep on the local finance crisis

That said – I think a major risk going forward for the Governor is the local fiscal crisis (at least a perceived crisis and which could deepen as the economy softens) and the reality of ever increasing property taxes and/or cuts in local services which could affect voter’s views of Patrick.

Local property taxes are the most visible and therefore potentially damaging of issues for politicians.  This is true the world over – what brought Maggie Thatcher down in Britain after 11 years in office was public outcry over local property taxes – her “poll tax” – which ultimately led her own Cabinet to topple her.  During the campaign, Patrick was able to skilfully shift focus from incomes taxes to property taxes and thus take the sting out of Reilly’s and then Healey’s income tax rollback calls.  He made the correct point (something Democrats had long failed to) that State tax cuts just shifted the burden on to local communities and forced property taxes upwards, often affecting those on fixed incomes and flat wages who could least afford to pay.

The problem is actually being able to do something about property taxes you don’t control, especially given the State’s poor fiscal position.  Patrick has gamely tried to gain traction on the issue – municipal relief and local tax flexibilities, greater State aid, telecoms equipment, even linking casino proceeds to property tax relief.   But it is safe to say that much of this agenda has been stalled.  And yet, local finance has been in trouble for a long time and worse is potentially on the horizon.

So this is a major risk for the Governor, partially because he rightly focused attention on the link between State and local taxes and people expect action on these issues.  As communities across the state engage in the ceremonial bloodlettings that are 2 ½ override fights, with many of them voting against them given the economic climate, and therefore necessitating local service cuts, there is the potential for the Governor who said he was going to change the State-local relationship to be seen as sleeping on the issue (however unfairly).  

Growth Districts and life sciences spending will no doubt benefit our state, but when a town loses a fire truck or cuts all JV sports, and still property taxes go up while house prices are flat and people can’t refinance, that other stuff is not going to matter much to their voting preferences.  If you’re Patrick’s opponent in 2010, pointing to rising property tax burdens and every shuttered local library or fired teacher could be an effective tool.

So what do you do?  On the radical side, the time may be ripe to consider a New Deal for our Communities .  The State could look to dedicate a bigger slug of its revenues and possibly its taxes – (income and sales tax hikes may be necessary to lower property taxes) to local services in return for offsetting cuts in property taxes.  It could be billed as a progressive reform and linked to the expanded credits (circuit breaker) for property taxes already proposed by the Governor.

Other states have done similar things to varying degrees of success.  It’s certainly not a panacea and fiscal problems/challenges won’t just go away.  It makes cities and towns more dependent on the State for funding (which has been the trend anyway since 2 ½, Lottery Aid and Education Reform).  It would be hard to keep such a reform revenue neutral without a hike in State taxes, which could be a tough sell unless it was clearly offset by lower property taxes.  As part of the trade-off, similar to Ed Reform, if the State took a greater role in financing local services, then it should be able to dictate more how those services are run (to ensure efficiency and higher standards) and what policies local governments pursue, i.e. local government would become more an arm of delivering state-wide goals – and thereby a new partnership relationship would evolve.

In a sense there are two related by separate crises that such a reform is trying to address: 1) the ever growing strains on local governments; and 2) the related increase in property tax burdens.  Comprehensive reform would tackle both points.  A less radical option would be just to go after the second matter – and thus instead of an increased role for State Govt in financing local services, you would just pursue tax relief.

Less radical ideas could also include – giving municipalities a guaranteed two-year budget, essentially a two-year local aid package (covering big pots like Lottery,. Chapter 70, etc…).  It let’s them plan ahead better and locks in their level of aid over the period.  Any shortfalls would have to be made up in other areas of the budget.  Now of course this diminishes flexibility but it provides wanted certainty.  It would work well with a fundamental reform of state-local taxation and it may require redoing local formulas with the attendant trauma that would entail.  But, why not look at it.

And building on the Growth Districts proposition, and looking to revitalise our older industrial cities, why not examine some of the property tax reforms Pennsylvania cities have been using.  Nearly 20 Pennsylvania cities employ a two-rate or split-rate property tax: taxing the value of land at a higher rate and the value of the buildings and improvements at a lower one.  The idea is that this split-rate creates an incentive for landowners who have left sites vacant to build on them (or sell to someone who will).  The win for our struggling cities could be greater levels of development.  And from the point of view of developing the proposal, right here in Massachusetts we have the in-house experts on land value taxation, at the Lincoln Institute for Land Policy.  I also know that a few years ago, Holyoke hosted a conference on the issue and I believe a Bill had been filed on the Hill, but I have not seen it make any progress from there.  

Related to this could be the use of development impact fees to finance infrastructure, which many states (and other countries) use to facilitate sustainable development.  There are State constitutional issues that would need to be cleared up (some communities – like Franklin I believe – have tried to do this unsuccessfully) but it could be worth taking a look as it addresses the infrastructure deficit and lack of local fiscal flexibilities.  Linkage payments and development deals (private-public partnership arrangements) often function as impact fees.  But, they are not very transparent or equitable and have too often been perceived as slush funds for politicians as opposed to real infrastructure financing tools.  Every bit of infrastructure investment made by the State creates enhanced value for nearby property owners.  Why not capture some of this uplift for public necessities?

And I recently noticed Speaker DiMasi mentioned some form of municipal audit board.  The idea has some merit and certainly if the State provides more revenue for local government, it should have a greater ability to ensure that revenue is spent wisely.  In considering the idea, it may be worthwhile to think about creating a more robust audit function for the State overall – looking at whether the arrangements we have – an elected State Auditor, the IG, the Boston Municipal Research Bureau, the legislative Post Audit Committees etc… are fit for purpose.  Personally, I think the State could do much more to hold itself (and local governments and public authorities) to account for delivering world-class public services and seeking innovations/efficiencies and that audit could be used much more effectively as an improvement tool.

Now of course winning such landmark reforms would be immensely challenging and not without major risk.  There are bound to be losers as well as winners (both individuals and possibly communities) and possible outcomes (both positive and negative) would have t
o be carefully analysed in advance.  These are obviously initiatives that couldn’t be rolled out without significant evidence gathering and consultation.  These are the type of matters that may lend themselves to consideration by a high-profile reviewer – maybe Paul Grogan from the Boston Foundation could lead a review of State-local relations: touching upon finance, services and economic development/regeneration.  Buy-in from key legislators would also be necessary just to kick off a comprehensive look.  This is difficult stuff and at the least the Governor should redouble efforts on his municipal relief package in the interim.

But ultimately, I feel like tackling the local finance crisis was a key (if not the key) challenge Patrick was elected to address and could be held to account for.  It’s an issue that potentially puts his re-election under threat (depending of course on depth of the downturn and related local fiscal conditions) as local taxes/cuts will directly shape public opinion.  He has been right on these issues from the start and people want to see the change he promised.  A new partnership between the State and local communities fits the bill.

And one more thing: the more I think about these issues, the more I really would like to recommend a good friend of mine for a job working with Governor Patrick.  My eminently reasonable friend (who can’t blog because of his work) is really the one with all the good ideas for the Bay State and Governor (he just feeds them to me here).  He got me hooked on Patrick before I even knew who he was.  He’s worked in public service for many years, including on Beacon Hill and in Washington, and the opportunity to work with Governor Patrick and pursue his progressive agenda would likely convince him to take the plunge back into service.  Feel free to excuse the shameless pitch for my friend – but he and I do genuinely want to contribute.  If you’re interested in the name, drop me an email at vibe_101@yahoo.com and I will put you in touch with him.