Local Taxes Legislation Could Cost Towns More Than It's Worth

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Chelsea City Manager Jay Ash would like more freedom to design city employees' health insurance coverage.
Chelsea City Manager Jay Ash would like more freedom to design city employees' health insurance coverage.

Local officials are expressing disappointment with a proposal in the legislature that's supposed to help cities and towns close their budget gaps. The measure, proposed by a commission of the House and Senate on Thursday, would allow cities and towns to raise the tax on restaurant meals by 2 percent and to raise other taxes.

That part is being welcomed. But mayors and town managers are not getting what they say could save them the most money: the power to redesign health care benefit plans.

Under the proposal, cities and towns would be able to raise the tax on hotel rooms from 4 percent now to 8 percent. People renting vacation homes would have to pay the tax, too. And the phone companies — which until now have not had to pay property taxes on the land around their lines and their cell towers — would have to pay those taxes like everybody else.

Marc Draisen, executive director of the Metropolitan Area Planning Council, said the fact that the legislature came out with this report makes it likely that it will pass many of these proposals.

"Whenever a special commission of the House and Senates comes out with a plan," Draisen said, "I think the presumption is that some parts of it or a lot of parts of it are going to pass."

But when the report was presented at the State House on Thursday, Rep. Alice Peisch, a Democrat from Wellesley who worked on the report, expressed doubt that the legislature would actually vote for the plan because the House recently voted to raise the sales tax.

"I am concerned," she said, " that because of the fact that we have already addressed taxes in the House budget, the support for the local options on the meals tax probably will be very hard to get through."

And the report doesn't recommend giving mayors and town managers the one thing they've been saying for years would help them save the most money: the power to redesign the health coverage of police officers, firefighters and teachers.

Right now — unlike the state — cities and towns need the approval of the unions to raise co-pays, deductibles or the share of premiums that employees have to pay.

But Sen. Bruce Tarr, the Republican Whip, who served on the commission, is optimistic that the legislature will give communities greater leeway in designing their employees' healthcare plans.

"Legislators," Tarr said, "regardless of party, regardless of geographic location, understand that cities and towns are coming to grips with a crisis that's as large locally as it is on a statewide level, and they need additional tools. And I think there's a strong desire in the legislature to provide those tools, and — of all of the issues that are in this report — there are few that rise to the level of importance in terms of their impact on insurance, and health insurance in particular."


Thanks to its thriving Latino community, Chelsea has seen a proliferation of restaurants.

Chelsea's city manager, Jay Ash, can see some of them across the street from his office in City Hall. Ash believes the restaurant tax could go a long way to closing his city's $3 million budget deficit this year. He says the proposal in the legislature, with all the local taxes being suggested, could bring in about $2 million a year for his city.

"But it doesn't go far enough to help us with one of the major problems that we have," Ash said. "And that's health insurance. Just as an example: When I became city manager in 2000, the city was spending about 5.5 percent of its budget on health insurance payments for municipal employees. This current fiscal year that I'm planning for, that number is 13 percent."

Ash said it's tough for him to go to taxpayers and say to them that he needs them to pay more taxes, when those taxes are going to cover the ever-increasing costs of employee health benefits.

"It's one thing to say to taxpayers I need more money to fix roads," Ash said. "Or I need more money to put police on the streets, or I need more money to keep teachers in the classroom. But it's very difficult for them to understand — when they don't see as good a health insurance benefit, when they don't see as good a pension benefit — why they should pay their hard-earned dollars to help subsidize a system which appears to be overly-generous."

The special commission is recommending that cities and towns with high healthcare costs be forced to negotiate plans with their unions that would lower insurance costs. If they do not lower those costs, local governments would pay a penalty by losing state aid.

Mayors and town managers say that puts them under pressure to reach an agreement with unions that might lower health insurance costs, but they worry that the unions would exact concessions elsewhere that would end up costing city and town budgets more money overall.

That is what makes several mayors and town managers say no proposal would be better than this proposal.

This program aired on May 8, 2009.

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Fred Thys Reporter
Fred Thys reported on politics and higher education for WBUR.



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