Howard Rich's Blog

May 11, 2009

Let communities off the leash

From the Boston Globe

THE MOST SEVERE budget crisis in Massachusetts history may at last break the back of a legislative tradition that treats cities and towns like wards of the state. Recognizing that local communities need more financial aid than the state can afford, top legislators are backing a municipal relief act that gives communities new autonomy to raise revenues and manage their own budgets. It’s a big improvement. But the proposals from a special bipartisan commission still keep the communities on a short tether.

For years, cities and larger towns have wanted the option of raising local meals and lodging taxes. But the Legislature held tightly to the purse strings, preferring to dole out local aid from state tax revenues. The special commission’s plan, expected to get a legislative hearing tomorrow, gives communities the option of raising an additional 2 percent on the 5-percent meals tax, which could yield an estimated $230 million if all communities participate.

Half of the money raised would still go back to the Legislature for redistribution to the communities – minus a small percentage for incentives aimed at getting towns to try regionalization schemes. But that compromise may be necessary to win support from legislators who represent bedroom communities that lack restaurants or hotels.

Where the leash tightens uncomfortably is in the area of health insurance for municipal workers. Governor Patrick made much of his legislation in 2007 to allow local communities to join the state’s Group Insurance Commission, to take advantage of economies of scale. But only 30 communities or districts have joined, even as municipal healthcare costs rose 63 percent from 2001 to 2005. Plus, the Patrick plan requires ratification from the municipal unions, many of which have resisted asking their members to contribute more of their own healthcare costs under the GIC.

The commission recommends a combination of carrots and sticks, including local aid penalties, to get more communities to join the GIC. But the plan seems needlessly complex, and it still allows for a union veto.

Geoff Beckwith of the Massachusetts Municipal Association says that real reform would allow communities to adjust the designs of their existing healthcare plans – a freedom the GIC itself enjoys. Currently, communities must negotiate with employee unions for changes as simple as raising a co-pay for an office visit from $10 to $15. The debate over GIC or local plans is unproductive; communities should be encouraged – and allowed – to make whatever choice is best for the taxpayers.

Local communities are in very dire financial straits, and things are going to get worse. They need the tools to be able to manage more with less, and the Legislature needs to set them free.

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White House: Budget deficit to top $1.8 Trillion

From the Washington Times

WASHINGTON (AP) — With the economy performing worse than hoped, revised White House figures point to deepening budget deficits, with the government borrowing almost 50 cents for every dollar it spends this year.

The deficit for the current budget year will rise by $89 billion to above $1.8 trillion — about four times the record set just last year. The unprecedented red ink flows from the deep recession, the Wall St. bailout, the cost of President Barack Obama’s economic stimulus bill, as well as a structural imbalance between what the government spends and what it takes in.

As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.

For the current year, the government would borrow 46 cents for every dollar it takes to run the government under the administration’s plan. In one of the few positive signs, the actual 2009 deficit is likely to be $250 billion less than predicted because Congress is unlikely to provide another $250 billion in financial bailout money.

The developments come as the White House completes the official release of its $3.6 trillion budget for 2010, adding detail to some of its tax proposals and ideas for producing health care savings. The White House budget is a recommendation to Congress that represents Obama’s fiscal and policy vision for the next decade.

Annual deficits would never dip below $500 billion and would total $7.1 trillion over 2010-2019. Even those dismal figures rely on economic projections that are significantly more optimistic — just a 1.2 percent decline in gross domestic product this year and a 3.2 percent growth rate for 2010 — than those forecast by private sector economists and the Congressional Budget Office.

For the most part, Obama’s updated budget tracks the 134-page outline he submitted to lawmakers in February. His budget remains a bold but contentious document that proposes higher taxes for the wealthy, a hotly contested effort to combat global warming and the first steps toward guaranteed health care for all.

Obama’s Democratic allies controlling Congress have already made it clear that they will reject key elements of his plan. Already apparently dead is a plan to raise $267 billion over the next decade to pay for his health care initiative by curbing the ability of wealthier people to reduce their tax bills through deductions for mortgage interest, charitable contributions and state and local taxes.

And the congressional budget plan approved last month would not extend Obama’s signature $400 tax credit for most workers — $800 for couples — after it expires at the end of next year.

Obama’s remarkably controversial “cap-and-trade” proposal to curb heat-trapping greenhouse gas emissions is also reeling from opposition from Capitol Hill Democrats from coal-producing regions and states with concentrations of heavy industry. Under cap-and-trade, the government would auction permits to emit heat-trapping gases, with the costs being passed on to consumers via higher gasoline and electric bills.

Among the new proposals is a plan — already on its way through Congress — that would increase the Federal Deposit Insurance Corporation’s borrowing authority from $30 billion to $100 billion in order to grant a two-year reprieve from higher deposit insurance premiums while the industry is struggling.

Also new are several tax “loophole” closures and increased IRS tax compliance efforts to raise $58 billion over the next decade to help finance Obama’s health care measure. The money makes up for revenue losses stemming from lower-than-hoped estimates of his proposal to limit wealthier people’s ability to maximize their itemized deductions.

The updated budget also would repeal an unintended tax windfall taken by paper companies that use a byproduct in the paper-making process as fuel to power their mills. The tax credits were never intended for paper companies, but now they could be worth more than $3 billion a year, according to a congressional estimate.

The budget would make permanent the expanded $2,500 tax credit for college expenses that was provided for two years in the just-passed economic stimulus bill. It also would renew most of the Bush tax cuts enacted in 2001 and 2003, and would permanently update the alternative minimum tax so that it would hit fewer middle- to upper-income taxpayers.

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