June 21, 2007

State Didn't Raise Taxes, Cities and Towns Will

Marc Comtois

Despite this year's budget deficit, the State Legislature commendably held the line on tax policy and forsake any marked increases. However, rather than look for deeper cuts in spending, they have decided to push off--or trickle down, if you will--the expense to the cities and towns that had, unfortunately, become accustomed to a regular increase in state aid, year after year. As a result, citizens need to re-focus on city hall as the source for higher taxes. And here they come:

•Video service tax: This proposal would apply a 3.5-percent tax on all charges for cable and satellite subscribers. At least 48 other states already have such a tax, according to Dan Beardsley, executive director of the Rhode Island League of Cities and Towns.

The tax would amount to an additional $1.75 for a customer with a $50 monthly cable bill. And it would provide hundreds of thousands of dollars to municipalities each quarter after being distributed based on population proportion...

•Real estate conveyance tax: This proposal would raise the tax paid by homebuyers.

Currently, they pay $2 per $500 of the sale price of the home. The amendment would boost that rate to $3.

•Water rates: Two municipal water-related bills could raise water rates for some 150,000 customers in the state.

One allows the five municipal water systems regulated by the Public Utilities Commission to earn a “reasonable rate of return” — essentially a profit — of at least 8 percent of its annual revenues. The other would prohibit municipal water providers from charging rental fees for fire hydrants to cities and towns.

I'm sure that's only the beginning. Of course, all of this is being done to prevent "cuts".
Warwick Mayor Scott Avedesian said that communities would use the money to rescue services now on the chopping block. “Unless we want to say, ‘OK, there will be no more recreation department, or we’re going to close our pools, or we’re not going to have ice rinks,’ you get to that point where something has to give.”
And it's always the stuff the kids use, ain't it? What about personnel? Or how about, in the future, "flat-budgeting" so that "flat-funding" doesn't hurt so much? Unsurprisingly, RIPEC and the Guv aren't so cool with this:
“It doesn’t guarantee property tax relief,” said Gary Sasse, who heads the business-backed Rhode Island Public Expenditure Council. “And this doesn’t guarantee a penny will go to schools.”

“There are many ways that municipalities can balance their budget, such as controlling spending and attracting businesses into their community. However, plugging budget holes by using the General Assembly for special bills that increase taxes is not the way to solve the problems,” Governor Carcieri’s deputy chief of staff, John R. Pagliarini, wrote in a letter to Alves yesterday.

Then there is the ever-present temptation to turn to gambling to bail us out:
Meanwhile, the governor’s office acknowledged discussions had taken place in recent weeks about allowing the state’s gambling facilities, Twin River and Newport Grand, to stay open 24 hours. Legislators briefed on the proposal said the move could generate between $25 million and $30 million in new state revenue.
What's more addictive: gambling or the (potential) revenue it generates?

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"Meanwhile, the governor’s office acknowledged discussions had taken place in recent weeks about allowing the state’s gambling facilities, Twin River and Newport Grand, to stay open 24 hours. Legislators briefed on the proposal said the move could generate between $25 million and $30 million in new state revenue."

How is that? If I usually go to Lincoln Park from 10-12 PM and now I can go from 2:30-4:30 AM that doesn't generate additional revenue, it just moves WHEN they make the revenue.

I really think some people in government just have no concept of reality.

Posted by: Greg at June 21, 2007 11:18 AM

The longer a casino stays open, the more money it makes.

If Vegas casinos could make the same amount of money staying open 12 hours a day that they do staying open 24 hours a day, they would only operate for 12 hours and save themselves the operating expenses.

Of course, most of the money spent between 2-9AM would probably come from people with gambling addictions.

But without the extra gambling revenue how will the state be able to afford to the mental health programs to treat people with gambling addictions?

Here's a better idea. The state should open liquor stores and use the proceeds from the alcohol sales to treat alcoholics. Brilliant!

Posted by: Anthony at June 21, 2007 1:26 PM

We'll have to see if that holds true for a slot parlor. Of course, by the time we know for sure I'll have to read about it from whatever state I'm moving to next.

Posted by: Greg at June 21, 2007 1:34 PM

Now everyone trot over to the Tax Foundation website. FYI, it's a group that is adamantly opposed to taxation.

They posted a Special Report in April with a beautiful graph of the evolution of state & local taxes. It starts in like the early '80s & runs to '05 or '06.

The interesting thing? There have been two HUGE jumps in S&L taxes. The first came after Reagan's '83 "tax cut." The second came in '02/03, after GWB "cut taxes."

Yup, good thing we elected them 'publicans. They sure cut or tax bill.

I have figured out that the believers in cutting fed taxes are the "some of the people you can fool all of the time."

Fed taxes weren't cut in '83 or under GWB. They were shifted and deferred.

Posted by: klaus at June 21, 2007 8:08 PM


I responded to this on the level of principle in a previous comment thread, and you never saw fit to check back in, so I guess I'll leave that angle be. But looking at this pretty chart of the Tax Foundation's (available on this PDF), I'm wondering what your narrative is.

Reagan cut taxes in '81, which rolled out over three years during which the state and local tax burden remained unchanged. Then it took another two years for those taxes to begin to rise. They stopped doing so in '87 and did not go up again until '90, which was the year that the first President Bush relented to the push to raise federal tax. You explain that how?

The rate then drifted back down somewhat until the second President Bush passed his own tax cut plan, at which point the state and local tax burden dropped back to the pre-'90 level and remained below the '90s' average until 2004, which (as Rhode Islanders know who watched the values of their properties, or properties that they would have been able to buy just a year or two previous, skyrocket) coincides with a boom in housing values.

So how 'bout a little more detail to your analysis?

Posted by: Justin Katz at June 21, 2007 9:18 PM

"Here's a better idea. The state should open liquor stores and use the proceeds from the alcohol sales to treat alcoholics."

Or the proceeds from a tobacco law suit to ... never mind.

Posted by: SusanD at June 21, 2007 9:46 PM

Congratulations, Justin. You caught me in a factual error. Taxes didn't go up right after the first round of cuts made by Reagan. My bad, and my apologies. Next time I guess I need to increase the size of the print on the PDF.

Actually, my real mistake may be that I oversimplified a bit. Remember the lag in these things. Fed tax cut gets voted one year, implemented the next, the states & cities start to feel the pinch & raise their taxes which go into effect the follwing year...so there is a 2-3 year lag.

Remember this is not a chart of RI. This is national.

However, the point remains that S&L taxes did go up after Reagan started cutting social programs, aid to schools, etc. With Reagan (who also raised taxes), the problem at the local level was more that Reagan's priorities were defense-related, and money got shifted from domestic programs to pay for military hardware. As a result, state and local taxes increased.

Recall too, that Traficante said that, as mayor, he had 17 sources of revenue. The current mayor in Cranston has 4 or 6. Where does the shortfall come from? In this case, local taxes.

And, yes, taxes initially dropped after George II's first cut. For a year. Then they went back up immediatley after that, and have more or less kept going up. Why? To make up for the shortfalls left by loss of fed funds.

So, is that enough analysis? The point remains, that the level of fed taxation is significantly lower than it was in the 70s. Let me repeat that: the level of fed taxation is lower than it was pre-Reagan. This shortfall has been made up by consistent increases in S&L taxes.

I made the mistake of pinning the timing too closely, but my fundamental point remains: S&L taxes have gone up as a direct result of cuts in fed taxes. The timing? I oversimplified and cut it too finely, but how else do you explain the one-to-one correlation? Fed down, S&L up, over a period of 25 years. That sure looks like negative correlation to me.

What does the RI property tax/housing boom have to do with this? It's a nat'l chart, and the chart tracks the level of taxation, not the revenues generated. Higher tax collection due to higher property values would cause the second, but would not show up in the first, which is what the chart measures.

And S&L taxes remained under the 90s avg for all of two years. Remember the lag: Fed cut voted in '01, takes effect in '02, state & cities run out of money in '03, and PRESTO! a big jump in '04 (after another, smaller jump in '03) as the implications of Bush's cut hit the fan. And now they're at a 25-year high, as the Tax Found tells us.

Why didn't the chart start earlier? It would have blown a hole in their "argument," for the same reason that all encomia to the Bush economy start in 2003.)


And sorry I didn't catch your first go-round with this, but, that's life.

Posted by: klaus at June 22, 2007 6:37 PM
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