Cut Taxes, Increase Taxes? Where is the Money and Who Pays?

Gov. Maura Healey's current proposal to give cities and towns new tax-hike authority would provide "game-changers" at the local level, especially for less populated areas, one mayor said last Tuesday.

And it turns out a bill Healey filed last month would offer municipalities the option to increase or impose new taxes on lodging, meals and motor vehicle ownership, drawing mixed reactions from legislative leaders.

But among those municipal officials who would wield that new power -- and collectively stand to gain tens of millions of dollars in revenue -- the reviews have been far more positive.

"The local options that the act puts forward are game-changers for small communities," Easthampton Mayor Nicole LaChapelle told administration officials during a Local Government Advisory Commission.

Healey's wide-ranging "Municipal Empowerment Act" proposes a trio of major local-option tax changes: increasing the maximum tax on hotels, motels and rentals from 6 percent to 7 percent of the price of a room (and from 6.5 percent to 7.5 percent in Boston), increasing the meals tax from 0.75 percent to 1 percent, and appending an additional 5 percent surcharge on motor vehicle excise taxes.

LaChapelle, who serves as president of the Massachusetts Mayors' Association, cited a recent report from the Greater Springfield Convention and Visitors Bureau that estimated tourism spending in 2022 had a $1.3 billion economic impact in western Massachusetts.

"As you read through the content of that [report], it talks about the need for more hotels. It talks about the need for improved services in getting people to and from restaurants," she said. "This excise tax is kind of like the chicken and the egg -- if we can have the option to increase that tax, then we have the option to build and support more infrastructure for tourism and local jobs. Even though Easthampton doesn't have a motel or a hotel, the fact that this act is putting forward an option that's tailored to our needs and other small communities around us is very exciting."

The governor's bill also seeks to make permanent some policies that have been in place since the pandemic on a temporary, regularly extended basis, like greater outdoor dining flexibility and the ability for restaurants to sell cocktails to go.

Danielle Cerny, the chief of staff at the Executive Office for Administration and Finance, told the LGAC the proposal additionally calls for creation of a new commission to explore health care and non-pension benefits paid to public sector retirees. The panel would "take a fresh look at how we can reduce the burdens that these benefits are placing on the budgets of our cities and towns," Cerny said.

The Mass. Municipal Association in the past has warned that those benefits, sometimes referred to as other post-employment benefits or OPEB, pose a major burden to municipal budgets.

"We didn't get there a decade ago. We got close, but we didn't get across the finish line," Cerny said about a bill former Gov. Deval Patrick filed in 2013, which did not win approval in the Legislature. "We are optimistic that a fresh look can allow us to actually implement some commonsense reforms in this place."

In a somewhat unusual twist, Healey's bill (S 2571) is under review by two separate legislative committees. Some sections dealing with the local option taxes are currently before the Revenue Committee, while other provisions are before the Municipalities and Regional Government Committee.

Municipal leaders told Healey's budget chief Tuesday that they still need more money from state government to cover K-12 education expenses, even while praising the governor for moving to fund another year of the landmark school funding law known as the Student Opportunity Act.

Amherst Town Manager Paul Bockelman said 211 Massachusetts school districts are in line in fiscal year 2025 to receive the statutory minimum $30 per student in state education aid. He asked the state to increase minimum aid to $100 per student to "more accurately reflect the true cost facing our school districts."

"Right now, we're presently looking at a $1.5 [million] to $1.9 million gap in our FY25 school budgets," Bockelman said about Amherst. "The increase from $30 to $100 is not sufficient to bridge the gap, but it's one way the state could contribute to addressing this deficit."

Some schools might tap into unspent federal pandemic-era ESSER funds to cover gaps, according to Bockelman, who warned that doing so "just builds the economic cliff that we see coming forward."

"Since most of our budgets are contractually bound staff salaries, the rest of the gap can only be closed by eliminating staff positions, which we do not want to do," he said.

One other funding reform that rural communities in particular have long sought might be gaining traction among Healey's team: Transportation Secretary Monica Tibbits-Nutt signaled the administration is thinking about possible changes to the formula that reimburses communities for local road and bridge maintenance.

"It is incredibly exciting to let you know that we are exploring the possibility of reforming how Chapter 90 funds are allocated. This is really to help a lot of the smallest communities and, by extension, some of the neediest to get easier access to that money," she said. "This would mark a big step forward in bringing equity to this piece of the funding puzzle."

Tibbits-Nutt did not provide details about what kinds of reforms the administration is weighing or put a timeline on its deliberations.

Healey last month filed a bill to fund the Chapter 90 program with $400 million over two years, a multi-year approach that House and Senate Democrats have hesitated to embrace despite repeated requests from municipal officials.

The governor's fiscal 2025 budget would also steer another $100 million to the program using surtax revenue, plus $24 million for rural and regional transportation needs.

Correction: An earlier version of this story incorrectly named the organization Mayor LaChapelle's organization. She is president of the Mass. Mayors' Association.

--State House News Service