Patrick Signs Sales Tax Increase, Sends Back $147M In Vetoes

The sales tax in Massachusetts will increase 25 percent on August 1, now that Gov. Patrick has signed a state budget bill for the fiscal year that begins Wednesday.

The budget will also let cities and towns raise money from local taxes on meals and hotels. But all of the new revenue — maybe $1 billion or more — will not offset the billions of dollars in cuts residents will see in virtually every program that receives state funding.

The sales tax increase became a political football in the spring, with lawmakers saying they needed it to avoid even deeper budget cuts, and Gov. Patrick saying he would veto it unless the legislature sent him meaningful pension, ethics and transportation reform bills.

"The legislature has kept their end of the bargain, I’m going to keep mine and have by signing this budget," Patrick said.

Store owners, especially along the New Hampshire border, are bracing for a downturn in business. Sales figures already show that a steady flow of Bay State buyers cross the border to shop in the sales tax free Granite State.

Retail Merchants Association of New Hampshire President Nancy Kyle said her members are expecting an increase. "People are trying hard to save money wherever they can," Kyle said. "It’s unfortunate for the Massachusetts retailers that they have to experience this."

Retailers in Massachusetts say they will press for another sales tax holiday to offset the impact of the tax increase, but the governor indicated Monday that is not likely. The sales tax will apply, for the first time, to alcohol. Residents will see the rise from 5 percent to 6.25 percent on restaurants and satellite TV bills as well as other purchases, except food and clothing.

The budget gives municipalities the option of taking the meals tax up to 7 percent, and boosting their local hotel and motel taxes by 2 percent.

Massachusetts Municipal Association Director Geoff Beckwith said his members are grateful for these options, but the $100 million these local taxes would raise is a fraction of the cuts that cities and towns will have to absorb. "Overall, communities will lose about $600 million, a 29 percent cut in municipal aid, and major cuts in many important reimbursement programs — for special education costs, for libraries, for police salaries," Beckwith said.

The new state spending plan takes effect Wednesday, but it may not be final. Gov. Patrick vetoed $147 million from the budget approved by the House and Senate, including $25 million for nursing home payments, $7.65 million for trial courts and $2.3 million from a court-ordered fund to provide children’s mental health services that are scheduled to begin Tuesday.

Lisa Lambert runs a children’s mental health support organization, the Parent Professional Advocacy League.

"Families had been anticipating these services and had been really counting on the commitment that came out of the lawsuit," said Lisa Lambert, who runs the Parent Professional Advocacy League, a children's mental health support organization. "To see the state pull back in delivering these services at this point is really puzzling, confusing."

This children’s mental health fund is typical of dozens of state programs where advocates are blasting the loss of state funds, and State House leaders are praising their ability to avoid even deeper cuts. There is at least one major funding issue still at play. The House and Senate eliminated subsidized health coverage for some 30,000 legal immigrants.

Gov. Patrick wants to restore $70 million to the program. The governor was asked Monday why coverage for this group is critical in a bare bones budget. "Health Care for All means health care for all," he said, "and that’s a part of the experiment that was in there to begin with, it’s one I support, and we’re coming up with some creative ideas to see if we can’t continue that benefit."

But the $70 million is in a supplemental budget the governor has filed, meaning that the coverage will not continue past July unless the House and Senate approve that bill.

Monday night, House and Senate leaders declined comment on that issue as well as the governor’s budget vetoes. Many legislators are nervous about whether the economy will support the budget they’ve passed. If it doesn’t, there is little interest right now in further tax hikes, although Patrick did not rule out the idea of a gas tax increase to fund the state’s growing backlog of road and bridge repairs.