Noho schools/budget public forum: "How do we protect our schools and our city?" 3.31.11 Community Room, JFK Middle School Panelists: Mayor Higgins, City Councillors Schwartz, Narkewicz, XX, State Rep. Kocot, State Sen. Rosenberg, Joel Feldman of YES! Northampton Sponsoring organizations: School Committee City Council Conference Committee, YES! Northampton. Agenda: -Mayor Higgins will present on budget -Feldman, YES! Northampton on proposal to raise revenues -Rep. Kocot on state perspective -Sen. Rosenberg on state perspective -Q&A Mayor Higgins (MCH): Health insurance costs continue to balloon and take up a lot of our expenditures. We work to contain it, but there's only so much we can do. From datasheet on median annual increases in revenue sources, 2000-2011. Local taxes: +3.7% Services (mostly Smith Voc. tuition): +4.2% Licenses/Permits: +4.5% Fines & Forfeits (tickets, etc.) -2%. City improvements in parking have led to the 15-minute spaces, which are great, but mean less parking ticket revenues. State aid cherry sheet: +2.5% (State aid used to come on a pink sheet, hence the name. Now it comes in an email [not pink]). Other state aid: 15.7% Federal aid: -1.2% (some of this decrease is due to less medical billing in schools - Medicaid money goes back to schools by way of town). Interfund operating transfers: +5.3% (a lot of this is health insurance increases). Free cash/captial reserves: -9.5% Misc. revenue: -18.6% (small number, highly variable. Ex.: we received state money for the special election to replace the late Sen. Kennedy). Some expenditures, avg. % change/year FY2004-2010: Personal services (mostly city wages and benefits - raises have occurred, but so have a lot of layoffs): +2.6% Ordinary maintenance: 4.9% Other than ordinary maintenance: -0.2%. Some notes about the general fund FY12 budget: Undesig. fund balance/capital reserve, stabilization fund: $0 budgeted. Not enough money left in this account to indicate it on the budget as available funds to avoid a deficit. We could draw what's left, but if that account balance gets too close to zero, bond rating agencies don't like it. We need a good rating to borrow money. One time federal and state grants: we had these last year as part of ARRA, but not this year. ~1.2 million lost. Every day, we meet with department heads to try to recoup some of this. If we put it all on the schools , it would be ~4.6% cut to the budget. We're trying to spread it across departments - more like 1.2% overall. Unappropriated expenditures: effectively, these are cuts to the state aid we receive before it even gets to us. It's reserved for uses mandated at the state level. ~4.2 million. Subtract this from cherry sheet aid to get the real income from the state. Total expenditures-total fixed costs: about 51 million. This is what's available for reduction. Because we're continually negotiating for further savings, we're currently about $300,000 in the red, and still working. That's before any salary increases. Now to Joel Feldman, YES! Northampton: State-level: it's been stated that this needs to be made up with spending, not revenues. 1998-2008: strategic errors that have led us to this. Decrease in income (5.9%-5.2%) and capital gains taxes. Increase in sales tax revenue (5%-6.25%) has largely been offset by an increasing amount of non-taxable services. Note that even in 2008, the last "good year," we still had a deficit. If you're not in favor of some revenue option, you have to be in favor of fewer teachers, police, etc. That's a choice. Now we come to An Act to Invest in our Communities. MA is mandated flat income tax, so the only way to make the tax system more progressive is to increase personal exemptions. This bill would do that, as well as increasing capital gains, dividends, interest income tax to 8.95%. Not all the way back up to 12.% percent (pre-1998), but still very good. 60% of people would get a tax cut under this. Next 20% have an approximately $100 increase. Above that, more increases. If we're talking about shared sacrifice, some needs to come to the top. Now to Rep. Kocot: Thanks to mayor, city council, school committee for doing so much good with so little in the last few years. To Pam Schwartz in her work against Q1. I'm biased about this issue because I went through the entire Noho public school system. Once child at NHS, one at UMass Dartmouth. MA is doing better than most states by most measures in this crisis. Adding jobs at a rate second only to Texas. Still maintaining 98% health insurance coverage. Wall St., Moodys, S&P, Fitch's, all have us at maintaining our AA bond rating. S&P is even considering raising it! Re: income & capital gains tax cuts - these came from referenda, not the legislature. The people of MA took a conscious step towards this. Past month: 15,000 jobs added, but compared to the 2000 economic downturn, we're still hundreds of thousands of jobs foam where we should be. Over 29 million unemployed in this country. MA taxes are lower than the country average. In 1977, our tax burden was definitely higher, but since then, MA tax burden has decreased 25% while spending has stayed constant. Higher decrease than any other state. How was the FY2010 budget cap closed? $2.2 billion spending cuts. $1.6 billion ARRA. ~$600-700 thousand tax increases. FY2011: $1.56 billion ARRA - far bigger percentage than FY2010. The climate in DC of cutting discretionary spending left and right means we have no idea how much money we're really going to lose. It's a "moving target." Maintenance of last year's programs costs $970 million alone. Governor's solutions: $1.3b cuts/savings. $253m revenues. $360m temp. revenues. This includes health insurance cuts, and an interesting restructuring of publicly appointed attorneys. Since FY01: 7.6% decrease in Title 70 education aid. As a percentage of total education spending, no state has cut more than MA. 23% decrease in spending early education & care since FY01. Longitudinal study tracking welfare, college graduation, owned a home. These 3 indicators of later-life success were strongly correlated with early education and childcare. Higher ed. 32% cuts since FY01. Public health: 29%. Environment: 25% MA property taxes are regressive. Since property taxes are a large part of local government revenues, this is a problem. We need to lower the burden of property taxes in every community. Sales tax is also regressive. Income tax is fairly progressive. Has been decreasing over time, however. Tax expenditures: FY2002-2010 - 35% increase ($400m). There's currently a movement in the legislature to reduce these expenditures. One argument is that since there are 170,000 people employed in the financial services industry in MA, we should move slowly in evaluating these expenditures. Sen. Rosenberg: We think this is the last really bad year. $1.5b cuts. Revenues are starting to bounce back. $1b increase there is really significant, but still not enough. So far there hasn't really been an effort in Senate leadership on revenue increases. I'm moving a proposal to bring a referendum on a constitutional amendment to allow a graduated income tax. The income tax itself is fairly progressive given the constraints, but overall the system is still quite regressive. This is a 4-year process. This has appeared on the ballot several times in the 20th century (never since then), has failed by a larger margin each time. This occurred as the standard of living and the economy was continually growing. People believed that that would transfer over to them, so they didn't want to pay more taxes. But in reality, average workers' standard of living has stagnated or dropped. Only a very small percentage at the top is actually seeing real increases. A fair taxation system is only really possible with a graduated income tax. At the federal level, Medicaid, Medicare, and Social Security, would consume every single bit of federal revenue by 2040. This is a problem! Prior to Reagan, the federal government did a lot revenue sharing with localities, but those are pretty much gone by now. States get very little federal money. MA gets some because of our defense contractors (ironically enough) and because we have the highest concentration per capita both of research & teaching hospitals and higher education. Even so, the amount of money has "dropped dramatically" over time. Many other regulations (sewers, water) are handed down from DC, and from the state as well, but don't' come with money for implementation. The problem is that we can't convince voters to allow levels of taxation or tax structures that can pay for the benefits they want. The wealthy are getting wealthier - and they're not generating more wealth at the bottom. The schemes that lead to these recessions come from structures designed to increase income for wealthy people without creating wealth. Interesting political observation: had the past November's ballot question only aimed to roll back the 1.25% increase in sales tax, it likely would have been successful. They got greedy and went for a reduction down to 3%, and that's why it didn't work. Back to Kocot: Education is key: when people understand where their money is going, they're more willing to pay for tax increases. Federal Reserve bank in Boston has ranked every community in the Commonwealth and come up with a number that represents the gap in aid that community receives compared to how much revenue they can raise. Northampton's is quite high. Other communities, such as resort communities have a lot more revenue ability. Example: nationally, the large banks have about 1 trillion in capital. If you're a small business in Northampton and Amherst, your primary obstacle to expanding isn't the local tax rate, it's capital access. The state treasure, Steve Grossman, is traveling around the Commonwealth to work with local banks to inject capital into communities. We can also offer state-backed loans to make these business expansions happen. Figures relevant to personal exemptions increase: raise a lot of money and decrease tax burden on lower-income taxpayers, but the tax system is still regressive. Graduated income tax is the only real solution. MCH: I was involved in building the formula the Boston Fed. used for that calculation. It works very well, but it doesn't involve Chapter 70 aid, only non-education. Ch. 70 aid hasn't been examined for a long time. Now to Q&A: Q: State-level corporate taxes? Rosenberg: At this time, I see it only as a review of the taxes on Fidelity, for example. Q: What about An Act to Invest in our Communities? Will you support it? Kocot: I'm a liberal Dem. who favors raising income taxes. Out of 160 votes in the Senate, there are maybe 22 votes for this measure, including myself. We hear all the time about how fat-cat public sector employees are the problem, but that's not true. If our constituents are educated on this, we can get support. Rosenberg: The bill is currently in the Taxation Committee. If it doesn't get out, we don't vote. That needs to be the first priority. Then it has to go to the House Ways & Means committee, as does every revenue-related measure, Senate or House. That's the next target. If that doesn't work, we have to add it to a bill already going through. Two options would be a tax cut bill, and one on Fidelity and Evergreen tax expenditures. If none of these things happen, we could try to add it to the budget. The House budget debate starts in 3.5 weeks. That's not really enough time to organize, but it could be a test vote. If it gets out of the House in those ways, the Senate can vote on it. But if it doesn't get out of the House, the Senate can't raise it - it's a revenue-raising measure, which can only originate in the House. Also note that the Worcester delegation was all Dem. pre-Nov., but now there's only one Dem., the rest are GOP. Q: Stan, you're working not only for a graduated income tax, but to reduce the influence of money on elections. Speak to that? A: Companies who are registering people to vote would have to register, those registering would have to wear a badge, etc. The current requirement to get a question on the ballot is that 3% of the amount of people who voted in the last presidential or gubernatorial election (whichever is more recent) must sign. Even though the population is growing, voter turnout is dropping. So MA has the lowest amount of signatures required to get a question on the ballot in the country. This leaves us open to outside influence. I'm working to change this. MCH: We have to have a budget to the council by May 5th. Even the important ideas we've talked about tonight won't fix our current problems, we have hard questions to ask departments. Q: What can we do? Schwartz: MCH, can you clarify what happens if additional revenue comes in from the state after the budget proposal is finalized? MCH: It's hard, especially in schools, to change the budget post-July. But if we do get additional revenues, we can factor it into a calculation of the tax rate, which is done around December. Kocot: By the last day of April, the House will have concluded our budget discussion, so towns will have a pretty good idea of local aid figures. Rosenberg: The Senate may be ready to start this discussion next week. MCH: Historically, when mayors are up for election, we don't see significant changes in local aid compared to when local representatives are. Schwartz: We can go to Boston to advocate. As city councillor, I'll be working on a resolution to support the Act. Thanks to Rosenberg and Kocot for educating and participating tonight!