The Speaker Makes His (Tax) Move

Posted on April 27, 2009 by billmanzi

Speaker Bob Deleo has finally shown his hand on revenues, coming out for a 1.25% increase in the sales tax. Both the Globe and Herald are reporting that the Speaker will support this increase, with the hope that the increase will bring in about $900 million in added revenue. Speaker Deleo plans to dedicate about $275 million to Transportation and about $200 million to local aid, which would leave about $425 million for restoration of other budget cuts. That is the plan as reported, and although I hate to rain on the Speakers parade let us look at some important facts.

1) The 1.25 percent increase will not raise $900 million but will raise about $800 million, if they are lucky. That is my best guess, but sales tax revenue has been in steady decline. Just ask the T how the 1 percent has been working out for them.

2) Revenue Estimates. Yes it is a boring subject, but it is at the core of why this gambit is destined to fail. The House budget relies on a revenue estimate that most sane folks think is short. That shortfall is likely no less than half a billion. If that number is correct then more than half of this increased revenue will be washed away when and if the Senate downgrades its Revenue Estimate when they unveil their budget. That would leave $275 million for transportation and $200 million for local aid, with the human services folks left holding the bag. And that presupposes that the Senate agrees on a sales tax increase of that magnitude and also agrees on the spending priorities outlined in the House version. Assumptions like that are politically dangerous, and put House members in the precarious position of possibly voting to increase taxes and having the Senate and or Governor pull the rug out from under them. I assume the Speaker has built some consensus with Senate President Murray and the Governor. If he has not then the House may end up with egg on its face.

3) The Transportation piece, while adding up to about a gas tax increase of 10 cents, will allow funding of the T at $160 million and the Turnpike at $100 million. Both agencies, with existing cost structures, will need substantially more almost immediately. None of the other vital Transportation needs, including bridge and road repair and taking Mass Highway employees out of the capital budget, would be dealt with.

4) With no cost structure relief the budget problems will just keep coming back. And the anticipation of relief from some of the cuts offered by Chairman Murphy will be an illusion.

5) Where is the Governor? What is his position on the Speaker’s proposal? He has, in the recent past, said that he would veto a gas tax increase that did not provide for full funding of the system. He has also said that he is not in favor of a sales tax. (Although he has refused to offer a veto threat). This proposal does not appear to give the Governor anything except a piece of transportation funding. And his House 1 budget is now not worth anything, since his revenue estimate is so wildly off. Yet the Governor has not stepped forward to revise House 1 in any way. He could still impact the House vote with a veto threat. Will he do so?

The prospective sales tax hike is bad for Methuen, even with the inclusion of new dedicated local revenues. We have managed to build a major retail presence on the Massachusetts side of the border in spite of state tax policy that has just about destroyed retailing along the New Hampshire border. That retail and business presence provides major tax revenue for our City, as well as jobs for citizens of the Merrimack Valley. Municipalities need new revenues, but this proposal, for Methuen, is a job and economic development killer.

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Governor Patrick Continues Slide in Polls

Posted on April 26, 2009 by billmanzi

Rasmussen Reports, in their latest Massachusetts survey, found that Governor Patrick continues a serious slide in the polls. It is reflective of the Suffolk poll that had similar results a couple of months back. Some of the notable findings from Rasmussen:

Sixty-five percent (65%) now disapprove of Patrick’s job performance, including 39% who Strongly Disapprove.

Tough number for the Governor. It is not too late to get that reversed, but the economic problems besetting the Commonwealth make a political comeback a little bit harder.

Just 33% of Massachusetts voters say they are at least somewhat likely to vote for the Democratic incumbent if he seeks reelection in 2010.

That number speaks for itself. And Rasmussen adds a little insult to the survey:

Forty-nine percent (49%) say Patrick’s Republican predecessor, Mitt Romney, did a better job as governor, while 32% say Patrick is the better of the two.

Romney outpolling the Governor? Talk about kicking a guy when he is down. The Sunday Tribune did a story penned by Ken Johnson and Taylor Armerding. The story has comments from several observors, myself included. It reviews some of the clear mistakes made by the Governor that have caused his sinking numbers, with commentary from both sides of the aisle. There is no question that the Governor has been dealt a terrible hand by the gross mismanagement that preceded him. And there is no doubt that he has made some key political errors. But the Governor has told the truth about the fiscal situation, and has made the choice to try to avoid kicking the can down the road further. I do not agree with all of his prescriptions, but he has been quite honest about what ails us. And maybe, as Haverhill Mayor Jim Fiorentini, points out, the public is not quite ready for that type of conversation. It is still to early to write him off, in my opinion, but a turnaround must happen relatively soon if he is to reverse his political fortune.

Read the Tribune story here.

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Sales Tax Talk Moves to Seven Percent

Posted on April 26, 2009 by billmanzi

I had done a posting on the financial potential of a one percent hike in the sales tax a couple of days back, and I guess the numbers are not that hard to figure, since the House is now talking about a two percent hike in the sales tax, and a broadening of the items covered by that tax. Talk also includes adding gasoline to the list of covered products, and omitting the Governor’s proposed gas tax increase. It is difficult to put numbers out for discussion since those numbers are dependent on what additional items or services would be added, but a real big expansion of the “sales tax eligible” goods and services would likely produce a very big bump in revenue. Without an expansion a two percent hike would be worth about $1.3 billion. If gasoline alone is added the figure I have seen is an additional $400 million. So the Legislature can, with one vote to raise the sales tax by 2 points and add gasoline, raise about $1.7 billion and not have to deal with a separate vote on the Governor’s gas tax proposal, or any of his other tax proposals.

If the $400 million dollar number is correct this would be the equivalent of a 15 cent gas tax increase. (At $27 million per penny). But there are wider ramifications beyond static revenue raising at stake here. Current Massachusetts tax policy has created a dismal business enviroment on the New Hampshire border, and a two percent sales tax increase will be a pretty big disincentive for business to locate on the Massachusetts side of the border. Methuen has benefitted greatly from the presence of “The Loop”, which pays significant property tax to our City. The Loop, and the commercial corridor it has helped to create, could take a substantial hit from such a sales tax increase. As the legislature contemplates revenue it should be mindful of the adverse consequences to job creation and local tax revenues that a sales tax increase of that magnitude could engender. It would excacerbate an already terrible climate for business on the Massachusetts side of the border.

Finally on this topic the Governor must exercise some leadership. If he does not support a sales tax increase then he ought to say so. I understand that he is looking at the 15 cent gas tax increase achieved through the sales tax expansion with some realization that it may be the most revenue he can get for transportation, but he needs to make the call. If the Legislature’s talk of a sales tax increase is not acceptable he ought to threaten a veto. If the transportation revenues are too much to resist then he ought to be negotiating and setting parameters for the Legislature on a bill.

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President Obama’s Weekly Address

Posted on April 25, 2009 by billmanzi

The weekly address by the President, focusing on bringing innovation and fiscal discipline to government.

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Rampant Socialism

Posted on April 24, 2009 by billmanzi

With the Republican hit machine deciding that the term “socialism” should be the cornerstone of the attack on President Barack Obama new revelations about the Bank of America purchase of Merrill Lynch should provide some interesting discussion. New York Attorney General Andrew Cuomo is investigating the lack of full disclosure by BoA of the mounting losses at Merrill that they knew about before the purchase. From the Washington Post:

Federal Reserve Chairman Ben S. Bernanke and former Treasury secretary Henry M. Paulson Jr. threatened to remove the management and board of Bank of America if it backed out of its deal to acquire ailing investment house Merrill Lynch late last year, according to documents released yesterday by New York Attorney General Andrew M. Cuomo.

Kenneth Lewis, Bank of America’s chief executive, told investigators he wanted to stop the merger because “devastating losses” at Merrill would be detrimental to his company, the documents show. But the threat from Paulson changed his mind, he told the attorney general’s office.

Paulson said he made the threat at the request of Bernanke, according to the documents, out of concern about the danger to the wider financial system.

So the Republican Administration of President George W. Bush not only threatened to remove the CEO of the biggest bank in the country and the entire board of directors, they ordered him to conceal the material facts surrounding the huge losses mounting at Merrill. Sounds suspiciously like “socialism” to me. Socialism for the financial class. And it more than likely violated many state and federal laws dealing with public disclosure of material facts in a merger of public companies. Some might even say that BoA shareholders were victimized by a conspiracy to defraud them by imposing the acquisition on to their balance sheet by fraud and intimidation.

Lest there be any doubt about the Paulson use of threats and intimidation to bend businesses to his will lets return to the Post:

In a series of interviews last year, Paulson acknowledged he often had to force firms to bend to his will to prevent the banking system from collapsing. Those actions required him to stretch the boundaries of his authority as Treasury secretary, he said.

“Even if you don’t have the authorities — and frankly I didn’t have the authorities for anything — if you take charge, people will follow,” Paulson said in the interviews. “Someone has to pull it all together.”

I am not sure what our Republican friends would call that? Do you think that socialism might be a term used?

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Sales Tax Increase on the Way?

Posted on April 23, 2009 by billmanzi

The media generated talk these days has many focused on the possibility for an increase in the sales tax as a way to forestall some of the major cuts put forward in the House budget. The Globe has run a couple of stories, with Speaker Deleo indicating he was “open” to discussing a sales tax hike, with a follow up story pointing to increasing support amongst House members for increasing the sales tax. With the House budget creating outrage amongst the many constituencies facing steep cuts the House has a raft of budget amendments that attempt to raise revenue, including hikes in the income tax, (a full point), a 29 cent increase in the gas tax, a two point increase in the sales tax, and a broadening of those items that have a sales tax attached. Quite a lineup. Lets take a very quick peek at some of the numbers involved.

A one cent hike in the sales tax is estimated to bring in $750 million at the top end. With the economy performing as it is I doubt that you would hit that number, so lets say you hit $650 million. The House budget gap for FY 2010 was over 2 billion, and although that huge gap was closed by Chairman Murphy the budget is balanced on a precarious revenue number. (House Ways and Means cut the revenue estimate by Governor Patrick by about a half billion, but their own lower number appears too be to high) With that in mind Senate budget writers may be forced to further downgrade revenue estimates, with the result that an additional $500 million may be needed to keep the level of spending that is contained in the House Ways and Means budget that we are all complaining about. In short, adding one penny of a sales tax increase directly into revenue for FY2010 may, after the Senate gets done, produce the exact same level of spending contained in Chairman Murphy’s budget. That should be a sobering thought for many who think that a sales tax hike of one penny will produce miracles.

The Globe stories also refer to some on the Senate side who have referenced a sales tax hike as a possible substitute for a gas tax hike. That scenario certainly would help clear up some of the mess we are in on the transportation side, but would leave just about nothing for any other budgetary problems. The gas tax will bring in about $27 million per penny of increase. With the MBTA needing $160 million and the Turnpike needing about $100 million for next year the choice for the Legislature is clear. 1) Provide no revenue stream for either, and watch both sink into insolvency 2) Provide a ten cent gas increase, and as the Governor has outlined dedicate 6 cents to the MBTA, and 4 cents to the Turnpike, leaving out the Governor’s other spending requests relative to Transportation 3) Pass a gas tax of less than ten cents (or no gas tax) and provide $260 million to transportation from another revenue stream such as the prospective sales tax increase (less any of that prospective gas tax under a dime). Under scenario 3 there simply will be no additional revenue to pass along to any of the constituencies looking for more help than the ways and Means budget offers, including local aid. With the revenue numbers referenced earlier any attempt to substitute the sales tax for the gas tax will displace normal budgetary priorities in order to put a band aid on the mess we are in on Transportation.

On top of the bad choices outlined above the top leadership in the State do not appear to be in concert on revenue. The Governor, up to this point, has expressed strong reservations about hiking the sales tax. The Governor appears to be standing by his revenue proposals, including additional levies on soda, beverage alcohol, and a statewide meals tax. The Governor’s proposals, unlike anything I have seen in the Legislature, dedicate the meals tax increase to local aid as well as giving municipalities some local option tax choices. Maybe I missed it but a one cent hike in the sales tax does not appear to have any portion dedicated to local aid. If there is to be a revenue solution it needs to have some portion dedicated to local aid, as the Governor’s proposal does.

The dismal outlook tends to support the proposition that revenue alone cannot bring us into budgetary equilibrium. Reform alone cannot achieve the trick either. But the idea that you can defer real reform until later, or not impact the current state and municipal workforce is just not correct. The budget is structurally out of balance, and even if you raise taxes this year budget escalations built in to state and local budgets will overwhelm us again next year. (What will the increase be in the Massachusetts health care budget for FY2011? What will be the increase in local health care and pension costs?) Reform is a critical part of the budgetary equation, and without it we will not get out of this mess.

The below numbers are what the Governor proposes to spend his recommended 19 cent gas tax increase on.

4 cents to roll back the proposed toll increases on the Turnpike
6 cents to preserve current MBTA services and prevent a fare increase
1 cent for Innovative Gas and Toll Solutions
1.5 cents for Regional Transit Authorities
1.5 cents for targeted regional road projects
3 cents for rail projects outside of Boston
2 cents to address the costly practice of paying for personnel with bond funds

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Gavin Newsome Enters the Fray in California

Posted on April 22, 2009 by billmanzi

San Francisco Mayor Gavin Newsome has entered the California Governor’s race, which promises to be a real donneybrook on the Democratic side, with California AG (and former Governor) Jerry Brown, Los Angeles Mayor Antonio Villaraigosa, and Lt Governor John Garamendi all considering bids. The Republican side has Mitt Romney acolyte Meg Whitman (former Ebay CEO) pledging to pump in a ton of personal money to win this race. From the perspective of a political junkie this race has everything you would want, and will truly feature some hard hitting campaigning before long. We will follow it closely here whether you are interested or not. But if you like politics this race will have it all! Here is Mayor Newsome’s announcement.

Read the LA Times story on Jerry Brown here.

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Congratulations Martha Welch

Posted on April 22, 2009 by billmanzi

Martha Welch has stepped down as a member of the Historic District Commission, ending over twenty years of involvement with Boards and Commissions that deal with historic preservation in Methuen. She has served as a Methuen School Committee member, and has been a real driving force in preserving our historical heritage. Her recognition with a mayoral citation is a small token of the appreciation our community has for her long hours of volunteer work on just about every important preservation project that Methuen has undertaken. Congratulations Martha. You have been a true friend to Methuen, and you have left a huge and indelible mark on our city.

Martha Welch Receives a Mayoral Citation

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The House Moves to Restore Quinn Bill

Posted on April 21, 2009 by billmanzi

The Boston Globe is reporting that the police unions have amassed 81 votes in the House to restore the Quinn benefits cut out entirely in the budget submitted for consideration by the House Ways and Means Committee. Rep. Chris Fallon, a Democrat from Malden, is the chief sponsor of the amendment.

“I don’t know if you can emphasize enough the impacts of having an educated police force,” said Representative Christopher G. Fallon, a Malden Democrat and lead sponsor of the amendment to restore funding.

“I don’t think the state, given this economic time, should be telling people: ‘By the way we’re going to be cutting your pay. We’re gong to be cutting an incentive,’ ” he said.

Fallon reportedly shouted in a public venue at Speaker Bob Deleo about the Quinn Bill cut after Ways and Means released their budget. And it appears that Fallon has hit a $52 million dollar jackpot, as he has 79 co-sponsors, with one other Rep. filing an amendment that provides Quinn funding at a slightly lower number.

The number of lawmakers who signed onto the amendment demonstrates the political clout that police unions still carry. Within two days, the unions were able to get 80 House lawmakers, including several Republicans, to sign onto two amendments that would fund the program at $51.2 million.

House Chair of Ways and Means Charlie Murphy correctly points out that restoration of any funding cut in his budget would require further cuts elswhere, or additional revenues to pay for the restored benefit.

Representative Charles A. Murphy, chairman of the House Committee on Ways and Means, said that “we’ll have a debate on the issue,” but that other programs may have to be cut if the Quinn Bill funding is restored.

“The practical effect is for us to fund $52 million; that’s $52 million not going to, well, pick a program,” Murphy said yesterday. “It all comes down to: ‘How you going to pay for it, folks? What are you going to cut so you can restore it?’ The whole thing has been a balancing act.”

The Globe apparently did not ask Rep. Fallon how such a benefit should be funded. No reference is made to a specific proposal for funding this benefit, although many tax amendments have been filed. There is still a long way to go on the issue of what form the House budget will ultimately take, keeping in mind that the House budget revenue number is considered to be too high, and will likely be reduced by Senate budget writers. That will leave less room for restoration of any cuts without bringing new revenues to the table.

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The CCHS Girls Team Honored in Methuen

Posted on April 20, 2009 by billmanzi

Some video of Coach Sue Downer and the State Champion CCHS Girls Basketball Team. Lawrence Mayor Michael Sullivan was on hand to present citations from Lawrence. Great job by the Girls.

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