State legislators from Connecticut, Maine, Massachusetts, and New Hampshire gathered at the annual Economic Perspectives on State and Local Taxes seminar last month, organized in partnership with the New England Public Policy Center of the Federal Reserve Bank of Boston. Tax, fiscal, and economic development experts from across the country discussed proposed federal changes that could impact state and local governments, revenue-raising options for local governments including value capture, and ways to improve the use of tax incentives.
Nicole Kaeding, an economist for the Tax Foundation, spoke about the potential impacts of federal tax reform on state and local governments, focusing on the House Republican tax plan released in June 2016. If the plan broadens the federal income tax base, states that link their tax policies to the federal tax code see a revenue increase, she said. However, eliminating the federal deductibility of state and local taxes would increase residents’ tax burdens and might lead to calls for state and local tax cuts. This would especially hurt revenues in New England states, which rely heavily on the property tax. Michael Leachman, Director of State Fiscal Research for the Center on Budget and Policy Priorities, spoke about potential federal budget changes, warning that reductions in Medicaid and non-defense discretionary spending could lead to billions of dollars in cuts to federal aid for state and local governments. Jenna DeAngelo of the Lincoln Institute looked at the longstanding problem of state and local governments who are unable to spend all their federal grant money. She cited Maryland as an example of a state that worked hard to make sure that grant money is fully utilized. The Maryland Governor’s Grant Office helps state agencies, local governments, and nonprofits find, win, and manage grants.
Catherine Collins of the George Washington Institute of Public Policy and co-manager of the Lincoln Institute’s Significant Features of the Property Tax database discussed property tax exemptions for nonprofits, covering recent developments including the lawsuit challenging the exemption for Princeton University. Gerald Korngold, a professor at New York Law School and visiting fellow at the Lincoln Institute, tackled the potential for value capture as a revenue raising tool in the U.S., including special assessments and impact fees, among other devices. He cautioned legislators to be mindful of both federal constitutional constraints (most importantly the takings clause of the Fifth Amendment) and the requirements of state constitutions and case law.
Robert Triest, vice president and director of the New England Public Policy Center at the Federal Reserve Bank of Boston, provided a regional economic update. He noted that Massachusetts has rebounded from the recession more quickly than the other New England states, and is the only New England state growing faster than the U.S. He also noted that manufacturing employment has grown since the Great Recession in the U.S., but not in New England.
Ellen Harpel, president of Smart Incentives, consults for state and local governments on effective use of tax incentives, among other economic development tools. She advised that tax incentives should always be connected to a larger economic development strategy. Joshua Goodman of The Pew Charitable Trusts discussed his new report How States Are Improving Tax Incentives for Jobs and Growth, which ranks states based on how well they evaluate the performance of tax incentives. Within New England, Maine is graded “leading,” Connecticut, New Hampshire and Rhode Island are graded as “making progress,” and Massachusetts and Vermont are graded as “trailing.” Building on the 2012 report Rethinking Property Tax Incentives for Business, the Lincoln Institute continues to study the costs and benefits of tax incentives and explore ways to prevent waste, ensure accountability and transparency, and produce the maximum benefit for each public dollar invested. The institute convened a panel on the subject last month at the American Planning Association’s National Planning Conference in New York City.