Editor’s note: This op-ed is by Tom Pelham, a former finance commissioner in the Dean administration, tax commissioner in the Douglas administration and a former state representative, serving on the Appropriations Committee. He is also a founder of Campaign for Vermont.
The Montpelier City Council voted ballot items last week for Town Meeting Day that raise the meals and rooms, the alcohol, and the retail sales taxes to 10 percent, 11 percent and 7 percent respectively, amounting to increases of 10 percent to 16.7 percent. The Times Argus reports the “passionate objections of Montpelier’s business community” to this proposal. The business community’s opposition is more than justified. Further, the City Council could choose a viable alternative that helps, not hurts, Montpelier’s struggling downtown.
In this era of big box shopping malls and Internet retailing, Vermont’s traditional downtowns have stiff competition. As evidence, residents need only recall the turnover and vacancies in Montpelier’s storefronts in recent years. The owner of Bear Pond Books and Rivendell Books, who expressed opposition to the council’s tax increase proposals, today must worry about Kindles and Nooks and iPads. Now, their worries include the actions of their City Council. How many sales will be lost because of higher Montpelier taxes than at competitors or on the Internet?
In addition to the council’s proposed new taxes, retailers must worry about municipal property taxes, which are on the rise if voters approve the budget, as well as school property taxes, which are also heading higher.
Local and state government need not make life more difficult for our downtown retailers. Rather than raise taxes, efforts should focus on lowering taxes so these treasured and living landmarks of Vermont’s heritage can prosper and remain the economic and social hubs of Vermont’s communities for years to come.
Take school property taxes. In 2005, property tax bills on Montpelier’s non-residential property totaled $6,280,393. By 2011, this tax had grown to $9,423,085, equaling annual tax hikes of 7 percent since 2005. It’s certain that retail traffic in Montpelier did not grow at a 7 percent annual rate.
While these taxes grew, the number of children in Montpelier’s schools declined. If over these years taxes grew at only a 3 percent rate, a rate higher than inflation, the non-residential property tax bill last year would have been $7,499,117, saving non-residential property owners $1,923,968 annually. Imagine the glee among retailers about their portion of a $1.92 million annual savings. Certainly it would enliven their bottom line and allow more support for efforts like Montpelier Alive, which glues downtown business together to act in coordination.
While the Montpelier city budget may need more revenue and Montpelier’s retailers don’t need higher taxes, spending on education in Vermont is flush with cash. Consider these facts reported this month by the $200,000 “Picus study” funded by the Legislature. Vermont spends more than all other states on K-12 education per $1,000 of personal income; Vermont has the third lowest ratio of students to school administrators; Vermont has the lowest ratio of pupils to teachers in the nation; and Vermont has the lowest number of students per school district among all states.
The bottom line, the Picus study reports, is that Vermont spends $17,447 per pupil vs. a national average of $10,820, a New England average of $15,316 and averages of $14,828 and $13,797 for our neighbors Massachusetts and New Hampshire respectively, both of which have better student outcomes than Vermont. With 85,600 pupils, if Vermont’s spending per pupil equaled that of Massachusetts, Vermont’s school taxes could be lowered by an eye-catching $224 million. Such savings could lower statewide school tax rates for both businesses and residents by 22 cents, giving the City Council capacity to accommodate municipal spending pressures. Or a $224 million savings in education spending would allow the elimination, rather than increase as the City Council proposes, of the sales tax in all Vermont’s designated downtown districts.
Think of it, no sales tax in downtown areas yet school spending equal to that of Massachusetts, the state with the best student outcomes in the nation.
Rather than increase taxes on retailers, the City Council could lead the way to lower taxes with reforms of Vermont’s expensive education finance system. The City Council is well positioned for such an effort. In the Legislature, the two leaders of the powerful House and Senate tax committees have deep Montpelier roots. Sen. Ann Cummings is the chair of the Senate Finance Committee and Rep. Janet Ancel is the chair of the House Ways and Means Committee. These two legislators have the political muscle to steer the effort for educations finance reform should they so choose.
Montpelier residents and business owners should reject the higher taxes proposed by the City Council and insist that Sen. Cummings and Rep. Ancel aggressively pursue education finance reform. This powerful duo can help downtown retailers better serve their customers without a tax ax hanging over their businesses bottom line.
