Sunday, October 19, 2008

The Definition of Fiscal Insanity –Question 1

Question 1 on this year’s election ballot proposes the elimination of the state income tax in two phases – half beginning in January of 2009, and the remainder in January 2010. This is the second go round for this initiative. It was first proposed in 2002 when an astounding 45% of voters supported it after it was largely ignored by most as an idea so obviously misguided and reactionary that it required no organized opposition.

The personal income tax yields $12.5 billion per year, or 40% of current state spending. The sheer size of the revenue loss ought to make obvious the utter recklessness of the proposal. How many entities —the company your work for, your town government, your own budget,--could sustain a loss of 40% without massive consequences? Consider that the elimination of every employee working for the State of Massachusetts would only save $5.3 billion per year.

Unfortunately, when you consider the impact on local communities generally and Milton in particular, the impact would be even greater. The state has a number of legal obligations it must fulfill irrespective of a momentary loss of sanity at the ballot box. These include Medicaid payments (required under Federal law to continue to receive 50% match), Chapter 70 education aid (that portion mandated by statute for foundation aid), debt service, MBTA funding, and the Massachusetts School Building Assistance fund.

These obligations total about $12.5 billion. Therefore, cuts to state spending necessitated by the loss of income tax revenue would have to come from the balance of state spending- totaling $19.3 billion. Cuts would have to be in the range of 71% under this scenario. Let’s look at the category and amounts of local aid Milton receives that could face an average 71% cut.

Lottery Aid------------------------------------------------------$2.75 million
Additional Assistance------------------------------------------$1.25 million
Police Career Incentives ---------------------------------------$266,000
Pilot for State Owned Land -----------------------------------$608,000
Library Grant -----------------------------------------------------$31,000
Elderly Exemptions ---------------------------------------------$28,000
Veterans Benefits -----------------------------------------------$104,000
School Lunch -----------------------------------------------------$21,000
Charter School Reimbursements -------------------------------$35,000
Chapter 70 Non-Obligatory -----------------------------------$1,580,000

Total $6,678,000

If these aid items end up being cut an average of 71% Milton stands to lose approximately $4,737,000. This is about twice the size of the largest override in Milton’s history. It would come on the heels of an existing need for an override of between $2-$3 million in order to restore substantial lost positions in the last two years and prevent further losses. And the impact could be further increased if state revenues continue to decline and further cuts in current state spending need to target local aid.

All of this is not to suggest that local aid cuts alone would be sufficient to make up for a 40% loss in revenue. On the state level substantial cuts would be necessary in public safety, higher education, human services, business development, and many other areas. Capital spending on state infrastructure, already deficient in the face of substantial, demonstrated need, would be decimated. Current state law caps levels of capital spending as a percent of state spending. A 40% cut in state spending under the mandated formula results in no spending on capital items for seven years.

The author of this initiative, as in 2002, is Carla Howell, self-styled Libertarian. Libertarians are the closest entity we have in America to Social Darwinists. Not only should human beings sink or swim based on their own actions or abilities (social survival of the fittest), but government at all levels is largely an unnecessary evil that stands in the way of a true utopia thwarted only by bizarre notions of social needs and social responsibilities.

Happily, if supporters of Question 1 were limited to holders of such views, no one would be worried about the vote. But the question seems to be attracting support from an indeterminate number of angry, frustrated voters. Fueled by an unprecedented level of cynicism, some people are toying with the idea of a “message vote” as some sort of feel good substitute for calm, thoughtful analysis.

It takes very little effort to discover that proponents of Question 1 have no basis for believing the state could sustain such a loss of revenue without severe consequences. They dismiss cuts on the state level as simply a matter of cutting waste or unnecessary programs. They don’t bother to identify or quantify these cuts, for good reason. Local impacts are completely ignored. We’re supposed to be satisfied with expressing our anger and the prospects of more money in our pocket while turning a blind eye to what will happen to public safety, education, and virtually every area of town services.

We can only hope that reason will trump emotion on election day.

The Massachusetts Taxpayers Foundation’s analysis of Question 1 can be read here:


Is anyone else as frustrated at the media’s analysis of voter fraud allegations as I am? It’s not surprising that the Republican Party and Sen. McCain are conducting this offensive. This has now been a campaign tactic of theirs for a few election cycles. Remember that two of the US Attorneys fired by Attorney General Alberto Gonzales in the scandal that lead to his and other Bush administration resignations were fired for their refusal to file voter fraud charges against Acorn in 2004 due to lack of evidence.

The media’s response to this organized campaign has been poor. For those who might be interested, read Acorn’s response to the charges made against them. [www_acorn_org]

For an analysis of the myth of voter fraud in America, have a look at Justin Levitt’s (NYU Law School) study of the issue.


Anonymous Anonymous said...

Fortunately or unfortunately I believe Question 1 will pass as people are fed up with the waste at the State level. Many people will also vote to "send a message" with the belief the legislature will not enact the voter referendum. There is a history of failure to act on voter referendums (shouldn't the tax rate really be at 5% now? And I remember something about campaign finance as well). In addition most people would be happy to save on state taxes and pay more in local taxes where they had some control over the spending. There are approximately 9,000 houses in Milton with an average household income of $98,000 in 2007. A $5 million revenue shortfall would cost the average household approximately $555 in additional property taxes which is dramatically less that the average household would pay the state at 5.3% of income. In fact most people would rather pay twice this to their town rather than state income tax.

10:48 AM  
Blogger Philip Mathews said...

$98,000 is not the average, but the median household income. That means half of households in Milton make less, some considerably less.

The cost of a $5 million override would vary considerably based on the assessed value of property. Many people would be paying considerably more than the average.

Placing even more emphasis on the property tax for local services is unwise and unfair for a great many reasons that I will lay out in a future post.

Your proposed solution ignores the massive losses at the state level. The charge that we only have to eliminate "waste" is often made but never supported. Where specifically is the waste and what amount of money does it represent?

I don't think either of us know what "most people" would like to do. That's why we're going to have a vote.

9:29 PM  
Anonymous Anonymous said...

Phil, I want to thank you for posting this excellent information and analysis. I agree with you about the GIG. The town will save money. I haven't seen anything that contradicts this so far. On another point, I truly believe that we must think of this as a town-wide issue and understand that we are dealing with challenges that we haven't seen in our lifetime. I commend the Town of Milton, particularly, the Selectmen, for trying to put the interests of the town first.

11:41 AM  
Anonymous Anonymous said...

So question 1 was defeated and state aid to towns was still cut. So now I will get hit from both sides. Talk about being played for a fool

10:27 AM  
Blogger Philip said...

One thing has nothing to do with another. If Question 1 hadn't been defeated, the cuts would be much more severe. Unless you are suggesting voting for fiscal sanity caused the massive recession?

2:02 PM  
Anonymous Anonymous said...

The recession isn't they only reason for aid cut to towns. There is no such thing as fiscal sanity in this state.

Let's take one agency, the MBTA for instance. Can any sane person really defend their payroll? Can any sane person really defend it's retirement policy? The rest of the country uses the MBTA example as a "how not to run public transportation". The MBTA is a definition of fiscal insanity.

11:04 AM  
Blogger Philip Mathews said...

In fact the recession is the reason for cuts to communities.

The MBTA will be reformed under the Governor's transportation proposal. It is not the reason for cuts to local aid.

2:56 PM  

Post a Comment

<< Home