REALLOCATION OF RESPONSIBILITIES AND/OR FINANCING FOR SELECTED MUNICIF^L SERVICES TO THE STATE^
A MUNICIPAL FINANCE ALTERNATIVE
THE BOSTON URBAN OBSERVATORY
OCTOBER .1973
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REALLOCATION OF RESPONSIBILITIES AND/ OR FINANCING FOR SELECTED MUNICIPAL SERVICES TO THE STATE: A MUNICIPAL FINANCE ALTERNATIVE
//
THE BOSTON URBAN OBSERVATORY October, 1973
Prepared by
Joseph S. Slavet (University of Massachusetts/Boston), Katherlne Bradbury and Philip Moss (Massachusetts Institute of Technology), with the assistance of Donald R. Courtney (Administrative Services Department, City of Boston)
The research and studies forming the basis for this report were conducted pursuant to a contract between the Depart- ment of Housing and Urban Development and the National League of Cities. The substance of such research is dedicated to the public. The author and publisher are solely responsible for the accuracy of statements or Interpretations contained herein .
UI^TV. OF MASSACHUSEm
hi BOSTON - T T^-q;^BY
The Boston Urban Observatory
City of Boston Kevin H. White, Mayor
Observatory Policy Board
Thomas J. Hargadon, Acting Chairman Mayor's Office (Public Technology)
Gerald Bush
Economic and Industrial Development Commission
William L. Clarke Boston Housing Authority
Alexander Ganz Boston Redevelopment Authority
Jacob Getson University of Massachusetts at Boston
Robert R. Kiley Mayor's Office (City Services)
Walter L. Milne Massachusetts Institute of Technology
Donald Moulton Harvard University
Andrew H. Nighswander Mayor's Office (Health Services)
L. Kirk O'Donnell Office of Public Service
Andrew M. Olins Mayor's Office (Housing and Development)
Frederick Salvucci Mayor's Office (Transportation)
Robert B. Schwartz Mayor's Office (Education)
Zelpha G. Schworm Commonwealth of Massachusetts Board of Higher Education
-ill-
John H. Strange University of Massachusetts at Boston
Loring P. Thompson Northeastern University
Richard E. Wall Administrative Services Department
Joseph S. Slavet, Director Boston Urban Observatory University of Massachusetts at Boston
Observatory Technical Advisory Board
Joseph S. Slavet, University of Massachusetts at Boston; Chairman Gary Brazier, Boston College
Thomas J. Hargadon, City of Boston, Mayor's Office Richard Hogarty, University of Massachusetts at Boston Martin Levin, Brandeis University
Walter L. Milne, Massachusetts Institute of Technology
Donald Moulton, Harvard University
Robert Rutherford, Simmons College
Bradbury Seasholes, Tufts University
Loring P. Thompson, Northeastern University
Robert C. Waehler, Suffolk University
, Boston State College
, Boston University
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CONTENTS
Page
FOREWORD Txvii-
SUMMARY OF FINDINGS AND CONCLUSIONS -x-
I INTRODUCTION 1
II REALLOCATION OF RESPONSIBILITIES AND/OR FINANCING FOR
SELECTED MUNICIPAL SERVICES TO STATE: RATIONALE AND ANALYSIS... 7
A. Public Safety l6
B. Transportation 37
C. Disposal of Waste 50
D. County Courts 56
E. County Corrections 59
F. Veterans' Services 64
G. Health and Hospital Services 69
H. Regional Parks and Recreation 84
I. Vocational Education 86
J. Regional Library Services 91
K. Air Pollution Control 94
L. Summary of Impact on Governmental Expenditures of
Proposed Services/Financing Shifts 99
III TAX INCIDENCE ON RESIDENTS OP CITY OF BOSTON OF PROPOSED
MUNICIPAL SERVICES/FINANCING REALLOCATIONS 106
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PIGURES AND TABLES
Page
FIGURE III-l
LORENZ CURVE, CITY OF BOSTON, 1970 Ill
FIBURE III-2
DISTRIBUTION OF TAX BURDEN IN CITY OF
BOSTON BY INCOME CLASS, 1970 158
TABLE II-l
ESTIMATED TRANSPORTATION EXPENDITURES FOR
CITY OF BOSTON, 1970 47
TABLE II-2
ESTIMATED TRANSPORTATION EXPENDITURES FOR
ALL MUNICIPALITIES, 1970 48
TABLE I I- 3
ESTIMATED TRANSPORTATION EXPENDITURES BASED
ON ASSUMED CHANGES IN SERVICE LEVELS 49
TABLE II-4
EXPENDITURES FOR WASTE DISPOSAL, CITY OF BOSTON,
1970 54
TABLE II-5
ESTIMATED EXPENDITURES FOR WASTE DISPOSAL FOR
ALL MUNICIPALITIES EXCLUDING BOSTON, 1970 55
TABLE II-6
1970 EXPENDITURES FOR COUNTY CORRECTIONS IN MASSACHUSETTS AND ESTIMATED COSTS TO STATE OF
STATE FINANCING FOR COUNTY CORRECTIONS 63
TABLE II-7
1970 EXPENDITURES FOR VETERANS' SERVICES AND ESTIMATED COSTS OF STATE ASSUMPTION OF
VETERANS' SERVICES 68
TABLE II-8
EXPENDITURES FOR HEALTH AND HOSPITAL SERVICES
BY MAJOR HEALTH-SERVING STATE AGENCIES, 1970 72
TABLE II-9
COUNTY HOSPITAL MAINTENANCE ASSESSMENTS, 1970 74
TABLE 11-10
EXPENDITURES FOR HEALTH AND HOSPITAL SERVICES
BY MUNICIPAL AGENCIES, 1970 77
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Page
TABLE 11-11
EXPENDITURES FOR VOCATIONAL EDUCATION, 1970 AND ESTIMATED EXPENDITURES RESULTING PROM
STATE ASSUMPTION OP PINANCING 90
TABLE 11-12
1970 EXPENDITURES OP BOSTON PUBLIC LIBRARY AND ESTIMATED COSTS OP PROPOSED REVISIONS IN STATE
AID POR REGIONAL LIBRARY SERVICES 9^
TABLE 11-13
1970 AIR POLLUTION CONTROL EXPENDITURES IN MASSACHUSETTS AND ESTIMATED COST TO COMMONWEALTH OP ASSESSMENTS TRANSPER AND
PROGRAM TRANSPER PROM CITY OP BOSTON TO STATE 98
TABLE II-14
EXPENDITURES OP MUNICIPAL SERVICES RECOMMENDED
POR SHIFTING TO STATE, 1970 100
TABLE 11-15
1973 PROJECTED EXPENDITURES OP MUNICIPAL
SERVICES RECOMMENDED POR SHIFTING TO STATE 102
TABLE III-l
DISTRIBUTION OF FAMILIES AMONG INCOME CLASSES IN CITY OP BOSTON BY CENSUS AND ECONOMIC
INCOME: 1969 110
TABLE III-2
DISTRIBUTION OF ASSESSED VALUATIONS IN CITY
OF BOSTON BY TYPE OF PROPERTY: 1970 115
TABLE III-3
PROPORTION OP CITY OF BOSTON PROPERTY TAXES
PAID BY CITY OF BOSTON RESIDENTS: 1970 126
TABLE III-4A
PROPERTY TAX PAYMENTS BY RESIDENTS OF CITY OF BOSTON BY INCOME CLASS AS CONSUMERS OF
HOUSING SERVICES, 1970 13^
TABLE III-4B
PROPERTY TAX PAYMENTS BY RESIDENTS OF CITY OF BOSTON BY INCOME CLASS AND FAMILY SIZE AS
CONSUMERS OF HOUSING SERVICES, 1970 135
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/ Page
TABLE III-5
PROPERTY TAX PAYMENTS BY RESIDENTS OP CITY OF BOSTON BY INCOME CLASS AND FAMILY SIZE FOR NONRESIDENTIAL PROPERTY OR OWNERSHIP OF RENTAL
RESIDENTIAL PROPERTY, 1970 137
TABLE III-6
TOTAL PROPERTY TAX PAYMENTS BY RESIDENTS OF CITY OF BOSTON BY INCOME CLASS AND
FAMILY SIZE, 1970 138
TABLE III-7
ESTIMATE OF MASSACHUSETTS INCOME TAX
RATES, 1970 I4l
TABLE III-8
COMPARISON OF CENSUS INCOME AND ADJUSTED
GROSS INCOME (AGI), 1969 1^3
TABLE III-9A
COMMONWEALTH OP MASSACHUSETTS INCOME TAXES COLLECTED FROM RESIDENTS OF CITY OF BOSTON
BY INCOME CLASS, 1970 l46
TABLE III-9B
COMMONWEALTH OP MASSACHUSETTS INCOME TAX COLLECTED PROM RESIDENTS OF CITY OP BOSTON,
BY INCOME CLASS AND FAMILY SIZE, 1970 l47
TABLE III-lOA
COMMONWEALTH OF MASSACHUSETTS SALES TAXES COLLECTED FROM RESIDENTS OP CITY OP BOSTON
BY INCOME CLASS, 1970 150
TABLE III-lOB
COMMONWEALTH OF MASSACHUSETTS SALES TAXES COLLECTED FROM RESIDENTS OP CITY OP BOSTON
BY INCOME CLASS AND FAMILY SIZE, 1970 151
TABLE III-llA
COMMONWEALTH OF MASSACHUSETTS MOTOR FUEL EXCISE TAXES COLLECTED FROM RESIDENTS OP
CITY OP BOSTON BY INCOME CLASS 154
TABLE III-llB
COMMONWEALTH OP MASSACHUSETTS MOTOR FUEL EXCISE TAXES COLLECTED PROM RESIDENTS OF CITY OP BOSTON BY INCOME CLASS AND FAMILY
SIZE, 1970 155
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Page
TABLE III-12
DISTRIBUTION OP TAX PAYMENTS IN CITY OP BOSTON
BY INCOME CLASS, 1970 (as percent) I57
TABLE I 11-13
MEAM TAX AS A PERCENT OP MEAN INCOME IN CITY
Oi' BOSTON BY INCOME CLASS, 1970 157'
TABLE III-14
CHANGES IN TAX PAYMENTS IN CITY OP BOSTON BY INCOME CLASS AS A RESULT OP SHIPTING SELECTED PUNCTIONS PROM LOCAL PROPERTY TAX TO A COMBINATION OP STATE INCOME, SALES, AND MOTOR
PUEL EXCISE TAXES 162
TABLE I I I- 15
CHANGES IN TAX PAYMENTS IN THE CITY OP BOSTON BY INCOME CLASS AND PAMILY SIZE AS A RESULT OF SHIPTING SELECTED SERVICES PROM THE LOCAL PROPERTY TAX TO A COMBINATION OP STATE SALES,
INCOME, AND MOTOR PUEL EXCISE TAXES, 1970 l63
TABLE III-I6
CHANGES IN TAX PAYMENTS IN THE CITY OF BOSTON BY INCOME CLASS AS A RESULT OP SHIFTING SELECTED SERVICES PROM THE LOCAL PROPERTY TAX TO A COMBINATION OF STATE SALES, INCOME, AND MOTOR PUEL EXCISE TAXES— ESTIMATED 1973
EXPENDITURES WITH CHANGES IN SERVICE LEVEL I66
TABLE III-I7
CHANGES IN TAX PAYMENTS IN CITY OP BOSTON BY INCOME CLASS AS A RESULT OP SHIPTING VARIOUS FUNCTIONS PROM LOCAL PROPERTY TAX TO A COMBINATION OP STATE INCOME TAX AND MOTOR
PUEL EXCISE, 1970 167
TABLE III-I8
CHANGES IN TAX PAYMENTS IN CITY OF BOSTON BY INCOME CLASS AND FAMILY SIZE AS A RESULT OF SHIFTING SELECTED SERVICES FROM THE LOCAL PROPERTY TAX TO A COMBINATION OP STATE INCOME
TAX AND MOTOR PUEL EXCISE TAX, 1970 168
TABLE III-I9
CHANGES IN TAX PAYMENTS IN CITY OF BOSTON BY INCOME CLASS AS A RESULT OP SHIFTING SELECTED SERVICES PROM THE LOCAL PROPERTY TAX TO A COMBINATION OF STATE INCOME AND MOTOR FUEL EXCISE TAXES— ESTIMATED 1973 EXPENDITURES
WITH CHANGES IN SERVICE LEVEL 170
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Page
TABLE III-20
CHANGES IN TAX PAYMENTS IN CITY OF BOSTON BY INCOME CLASS AND FAMILY SIZE AS A RESULT OF SHIFTING SELECTED SERVICES FROM LOCAL PROPERTY TAX TO A COMBINATION OF STATE INCOME AND MOTOR FUEL EXCISE TAXES — ESTIMATED 1973
EXPENDITURES WITH CHANGES IN SERVICE LEVEL 171
TABLE A-1
METHODOLOGY SUMMARY-PROPERTY TAX BURDEN 175
TABLE A- 2
PROPERTY TAX SUMMARY I76
TABLE A- 3
PROPERTY TAX SUMMARY-ORR CASE 177
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SUMMARY OP FINDINGS AND CONCLUSIONS
Criteria For Shifting of Services
This report recommends that the administration and/or financing of a selected group of public services be shifted from municipalities to the state government in Massachusetts.
Several criteria are used to identify local functions and local fiscal responsibilities which are more suitable for state than local financing. The first criterion is the efficiency of delivery of the service: for some functions, such as solid waste disposal, technology makes it more costly per capita to provide the service separately through individual municipalities than to operate regionally-based waste disposal facilities. The second criterion is the degree to which residents of the service area are agreed as to the quantity or quality of the service to be provided. The greatest degree of consensus can always be found at the lowest jurisdictional level, but this report argues that for the services selected for shifting, state financing will not result in service levels too different from any one munici- pality's preferences. For example, there is not likely to be much dispute among municipal officials as to correctional in- stitution standards. Third, the report recommends shifting services which have significant "spill-in" or "spill-out" characteristics; that is, when municipally-financed, they benefit or adversely affect residents of other local jurisdictions which have no voice in their delivery, on the one hand; and on the
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other hand, services with these characteristics involve costs without commensurate benefits to the responsible jurisdiction and eventually generate taxpayer resistance which forces severe reductions in service levels. Vocational education and trans- portation are two good examples of this phenomenon. The fourth criterion is that the area taxed to provide any service which effects a redistribution of services or cash (e.g. health and hospitals, veterans' assistance) should include enough persons in both groups to make redistribution worthwhile: enough of those we wish to redistribute from and enough of those we wish to redistribute to. A great many municipalities in Massachusetts are somewhat internally homogeneous with respect to income; that is, the incomes of residents of any one community are likely to cluster. This tendency inhibits the provision of services with redistributive objectives which might significantly change the relative inequality of opportunity or well-being .
In addition, the report notes that over-dependence on the local property tax has both inefficient and inequitable conse- quences which can be somewhat alleviated by any kind or measure of property tax relief.
Impacts on Affected Governmental Jurisdictions
The total impact of the shift of services on affected governmental jurisdictions is elaborated in detail in Chapter II. Chapter II also summarizes the method of calculation and explains the underlying assumptions. The ."-overnmental impacts may be capsuled as follows: the total estimated savings to the City of
Boston of the proposed shifts in 1973 (using both actual 1973 figures and 1970 figures which have been corrected for Inflation) would be $90,495,000. The estimated savings to all other munici- palities In 1973 would total $190,168,000. Since local savings would be In the form of property tax relief, Boston's tax reduction would be equivalent to about 26 percent of the 1973 property tax levy; tax reductions to all other municipalities would amount to about 11 percent of their aggregate 1973 property tax levy. With the anticipated changes in service levels once the state assumes the administration and/or financing of the services, the Commonwealth's total obligation will increase by an estimated $363,182,000.
Two alternatives were explored for financing the additional state expenditures. Under the first, approximately $93}200,000 of the overall increase was allocated to the state motor fuel tax and $135jOOO,000 each to the state Income tax and the state sales tax. This proposal would mean an Increase of four cents per gallon in the motor fuel tax, and an Increase to five percent in the sales tax. As for the Income tax component, in order to make incidence calculations, the assumption was made that the additional funds would be raised by levying a surcharge on the present state Income tax bills, rather than inferring what kind of tax rate and tax base configurations might be designed to raise the additional revenues. This would mean a tax surcharge of 18 percent on present tax bills.
The tax arrangement under the second alternative is also $93,200,000 for the motor fuel tax, while the remainder of
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$270,000,000 is allocated to the income tax. This additional Income tax levy is equivalent to a surcharge of 36 percent on current state income tax bills. Tax Incidence
On the basis of a series of assumptions generally accepted by the economics profession concerning the overall patterns of incidence of property, income and sales taxes and applying these ?ir!Rumptions to data for the City of Boston, Chapter III of this study has empirically estimated the incidence on specific classes of residents. Calculations were made of the changes in total tax payments (property taxes to municipalities; income, sales, and motor fuel excise to the State) made by representative households, characterized by household size and annual income, which would emerge from the proposed shifts in service responsibilities. The results indicate that in total, Boston residents would pay less in taxes to the City and the State after the shift. Within the City of Boston they show that one of the consequences of the shifts to state financing, would be a tax burden which is less regressive i.e. more equitable across households. The tax bur- den changes from its present relatively heavy weight on low- income resident families to a greater sharing of the burden by higher Income groups. This result is due to the lesser regressivity of state taxes (notably the income tax) than the local property tax.
The incidence on residents of other municipalities of the state was not examined in this report, and would require similar detailed information and analysis of the characteristics of the
local tax bases and of their resident populations. The residents of some communities may fare as Boston residents have; others will not. Although the tax Impact on different resident groups within particular municipalities was not determined, observations can be made about the aggregate results. Because the proposed shifts in financing include some changes in service levels (bringing all municipalities up to uniform service standards, for example), th*^ shifts as outlined mean an increase in total expenditures; that is, the state government will spend more for the services after the shifts are implemented than the municipalities are currently spending for such services. This implies that some residents of the state will be paying higher total taxes once the shifts are completed. There are two potential offsets to the magnitude of such increases, however; first, state taxes (especially the income tax, because of federal deductibility) are more "exportable" to residents of other states. Second, the improvement in tax efficiency (especially the alleviation of some of the distortions caused by the property tax) should bolster the total economic activity of the state which is sub- ject to taxation. Moreover, the statewide interpersonal incidence should be similar to the impact demonstrated for Boston; that is, tax burdens would be shared to a greater degree with the state's higher income inhabitants. This report also indicates that the change in burden, both among governmental jurisdictions and among classes of households, is consonant with one of the following desired objectives, depending on the specific public service being shifted: (1) greater efficiency (those who receive the benefits of government services should pay), (2)
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greater equity (those who have the "ability to pay" should pay their fair share).
This study has attempted to advance in several ways the continuing discussion of the appropriate allocation of govern- mental responsibilities in the provision of public services. Past studies and theoretical analysis have helped to provide a framework for deciding how services should be assigned among levels of government. In addition they show the inefficiencies (caused by administrative problems or externalities) of the present patterns and arrangements. The implicit assumption in these studies is that the reallocation of governmental responsibilities along the lines of the criteria previously described, by bringing savings to local governments, will auto- matically benefit local residents.
This study also builds on previous research by adopting a similar framework for analyzing which municipal responsibilities should be shifted to the state level in Massachusetts. However, the analysis of these issues is carried one step further by detailing the actual costs involved in transferring the responsibilities and indicating the impact on central city residents. The assumption that city residents will benefit if service and financial responsibilities are altered so as to achieve governmental efficiency is supported empirically by the investigation of the incidence of the shifts from local to state taxes. Residents of the city pay taxes to the city, the state, and the federal government. The shifting policy, which decreases city taxes and increases state taxes, obviously benefits the city
-xvi-
government, and this study shows that it also benefits most of the residents of the City of Boston. The case for such a shift is made stronger by the examination of how the shift will affect the real income position of representative city residents. The study demonstrates that a move toward greater equity and efficiency in the assignment of governmental responsibilities in Massachusetts also provides the opportunity through changes in financing to bring about a more equitable distribution of total tax burdens.
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4
FOREWORD
This study is one of a series of national agenda comparative projects in policy research carried out under auspices of the Urban Observatory Program. It demonstrates the cooperative effort of a group of central cities with relatively large populations and similar problems to perform policy research within the frame- work of a general consensus concerning hypothesis, research methodology and expected output. Moreover, it experiments with the comparative research technique in an area of policy which has the highest priority on the urban agenda, municipal finance.
The basic strategy of this study, that administration and/ or financing of selected municipal services should be shifted to the state, is an underdeveloped approach to solution of the municipal finance problem. Thus its major thesis advances the growing body of literature dealing with rationale for assigning functional responsibilities to various levels of government. Moreover, the comprehensive framework which underlies the con- ceptualization of the strategy is somewhat unique, as is the detailed analysis of costs and benefits to affected governmental jurisdictions implied by the service transfers. Finally, the in-depth inquiry of the tax incidence for households of varying incomes in the City of Boston resulting from the shifts of municipal service and financial responsibilities to state taxes takes policy research in municipal finance a major step forward by pointing out precisely who gains and who benefits at the tax- payer source and by how much.
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Dr. Roy Bahl of Maxwell Graduate School, Syracuse University, is coordinating this municipal finance research project and is preparing a synthesis report drawing on findings and conclusions of the studies undertaken by urban observatories in Atlanta, Baltimore, Boston, Denver, Kansas City, Milwaukee, Nashville, and San Diego.
The project director acknowledges the conscientious, skillful contributions of his two principal colleagues, Katherine Bradbury and Philip Moss of M.I.T. We are also indebted to Donald R. Courtney, formerly of the Administrative Services Department of the City of Boston for the careful analytical work covering services in the public safety and county court categories.
The study could not have moved expeditiously without the con- tinuing wise counsel of Professor Dan Holland, Sloan School of Management, M.I.T. and without the useful guidance at critical stages of Walter Vogt and Sheldon Mann, both of the Metropolitan and Regional Research Center, Syracuse University.
The research team extends its deep gratitude to Dorothy Anderson of the Boston Urban Observatory for completing an arduous task of preparing the final text and for shepherding the manuscript to an ultimate product.
Finally the extraordinary scope and breadth of this study re- quired the cooperation of virtually hundreds of employees working at all levels of state and municipal government. This report is a tribute to their patience, insights and assistance.
Joseph S. Slavet, Director Boston Urban Observatory
I. INTRODUCTION
Background of Study
This report picks up where the initial Boston Urban
Observatory (BUO) report on municipal finance leaves off."*" The
latter study found that "the chronic crisis in municipal finance
2
in Massachusetts is essentially an over-worked property tax." By 1972 property taxes per capita in this state had reached $353 ■nd are now estimated to rank highest among the 50 states of the nation. Moreover, the BUO report attributed an important cause of this over-dependence on property taxes to:
1. ^ Failure to reallocate traditional patterns
of functional responsibility as between local and state governments, and
2. Failure to shift the financing of certain costly services — health and hospitals, veterans' benefits, courts, corrections, mass transit, regional parks and recreation, regional sewage treatment and disposal, etc. — away from property taxes to broad-based, statewide sources of revenues... 3
Thus, this follow-up study of municipal finance adopts the above conclusions and settles on a services shift/financing re- allocation strategy as a relatively untried variant for coping with a local fiscal problem which continues to be serious notwith- standing a series of steps taken during the past few years to ease municipal fiscal pressures.
A summary of the magnitude of the local fiscal problem, drawn from the first BUO study, may be useful in setting the stage for the detailed discussion of the rationale and the implications of a reallocation strategy for state-local governments and residents.
-2-
By 1972, only five years after having surpassed the one-blllion dollar mark, property taxes in Massachusetts had climbed above the $2 billion level (to $2,050 billion). While it had taken 10 years from 196O for property taxes to double (from $698 million in i960 to $1,401 billion in I969), particularly heavy pressures on local finances since 196? effected almost a further doubling of property taxes within half a decade (from $1,076 billion in 1967 to $2,050 billion in 1972).
During the 1967-72 period the annual rates of increase for municipalities in the state as a group ranged from 10.6 percent to 16.3 percent, the average yearly increase for the six-year period being in excess of 13 percent. However, the annual rates of increase in property taxes have declined somewhat during the past two years. Thus, if the average annual rate of increase during the 1973-75 period is conservatively predicted to be at the 10 percent level, total property taxes will reach $2.7 billion by 1975.
The BUO report also concluded that the scale of general revenue sharing Initiated by the federal government late in 1972 (scheduled for gradual but modest expansion over the next five years) and the upward trend in state financial assistance to cities and towns (mainly distributions for general school purposes and special categories of school program reimbursements) are not likely to counteract to any significant degree the continuing financial pressures on municipal government in the state.
Recent infusions of general re^'-enue sharing funds from the federal government and modest increases in state financial
-3-
assistance to cities and towns through state aid formula changes, the state lottery, and additional highway aid at best will mean a short-lived, temporary respite from escalating property taxes. Moreover, the prospect for major expansion of federal revenue sharing In the near future is not bright and major proposals by the State Master Tax Plan Commission to limit property taxes to 40 percent of total state-local revenues was based on assumptions wb-)ch proved to be tenuous. During the 1970-72 period alone, total property taxes in Massachusetts increased by $420 million, thereby completely wiping out the $300 million in property tax reduction estimated by the Master Tax Plan Commission as the out- come from implementing its major recommendations. To make property taxes in Massachusetts competitive with those of neighboring states would require a shift of at least $600 million away from local taxes. Alternative Strategies
There are four general approaches available which individually or in combination could be considered in conceptualizing an all- out attack on the municipal finance problem in Massachusetts.
One strategy might be called a do-it-yourself strategy, under which additional funds are raised from existing and/or new local sources of revenue. This has limited potential in a state where the legislature has restricted cities and towns by and large to property taxes and where uniformity provisions in the state con- stitution and tax policy tradition mitigate against giving municipalities wide discretion in levying taxes. Thus, except for taking full advantage of opportunities to keep user charges
-4-
current with costs and for adopting additional user charges where politically, administratively and economically feasible, munici- palities would find only limited potential in this strategy for raising large amounts of revenue. Even in a city the size of Boston, it is doubtful that new user charges, revised user charges and improved collection of present charges for services could in- crease total revenues (about $500 million in 1972) by more than two or three percent .
A second strategy, which is another aspect of the do-it- yourself approach, applies to the expenditure side. This covers decisions designed to effect cost reduction, program reduction and program elimination, which are generally adopted as last- ditch measures when all other options have failed. But this, too, has limited utility for large-scale alleviation of property tax pressures. At best, such a strategy can help curb the rising tide of expenditures and/or hold the tax line for a limited period of time but can hardly be applied as a major weapon for bringing property taxes back to competitive levels. The City of Boston resorted to this strategy in 1972 to effect about a two percent reduction in appropriations for operating agencies over the prior year through a variety of program decisions, including eliminating the Department of Civil Defense, restricting total appropriations of the Health and Hospitals Department to an amount which would keep the City's subsidy from going beyond its current level of $12 million, and terminating the harbor patrol activity of the Police Department.
State and federal aid, a third optional strategy, has been on
the steady rise In Massachusetts in recent years, but shifting aid formulas, erratic annual distributions, earmarking of assistance for discrete functional purposes, and levels of financial relief too low to offset rising expenditures to any appreciable degree have limited the relative effectiveness of this selective approach. Most state aid measures have been piecemeal and sporadic rather than comprehensive in scope. State aid has focused primarily on education; a minimum of attention has been given to the state aid requirements of non- school functions. As for federal aid, general revenue sharing, amounting to $122.3 million for local governments in 1973* is not destined for significant expansion in future years. At the present scale of assistance, federal revenue sharing is equiva- lent to only about half the total average annual increase in property taxes. The state aid approach should not be discounted, however. It can be coupled, mainly as a financing mechanism, to cover the costs of the fourth strategy, chosen as the major focus of this report.
Basic reallocation of municipal responsibilities, by shifting the administration and/or financing of a selected group of functions to state government, is the feasible comprehensive strategy for re-shaping the role of municipal government in Massachusetts to one which is consistent with the realities of local tax resources and municipal capabilities.
FOOTNOTES TO
CHAPTER I
Boston Urban Observatory, Impact of the State-Local Tax Services Mix on Municipal Finances In the Boston Metropolitan Area: A Preliminary Evaluation (Prepared by the Bureau of Public Affairs, Boston College, December, 1972).
Ibid. , p . 9 .
Ibid.
For a similar analytical framework, see Dick Netzer, "The Budget: Trends and Prospects", in Lyle C. Fitch and Annmarie H. Walsh (eds). Agenda for a Clt^ . Issues Confronting New York (1970, Institute of Public Administration, N.Y., Sage Publications, Beverly Hills, ualif.)
II. REALLOCATION OP RESPONSIBILITIES AND/OR FINANCING FOR SELECTED MUNICIPAL SERVICES TO STATE: RATIONALE AND ANALYSIS
Introduction
For the last fifty years the federal and state proportions of total public expenditures in the nation have been rising, re- flecting two important trends: (1) the shift of the direct responsibility for some functions or parts of functions from municipal to federal and state l'='vels of government, and (2) greater financial participation by federal and state governments in functions which municipal governments continue to administer. This movement has been affecting Massachusetts to a lesser degree than other states, however, because the range of services performed at the local level in this state is greater, and by and large, the prevailing service standards are higher than in most states. The long history of most municipal services in Massachusetts (municipal functions ante-date their counterparts in state government), the pioneering and experimental traditions in selected services and other factors help to explain the relatively generous standards of municipal services in the large metropolitan areas of Massachusetts. Thus, except for two major events during recent years in state- local service/fiscal relationships — transfer of the welfare function from cities and towns to the Commonwealth of Massachusetts and a steady increase in the state proportion for local school financing — the general pattern of service responsibilities and financing as between state and local government has not changed significantly during the past half-century.
Before reviewing the application of certain principles derived
-8-
froin economic theory that are relevant to the question of which levels of government should provide which services, it should be pointed out that while economic theory is only one way of looking at the question of the most effective jurisdictional and financing arrangements for providing services, its utility derives from the fact that two of the most important general considerations for determining the assignment of functions are: (1) efficiency in the allocation of public resources (this is interpreted to mean either trying to improve quality or decrease costs in a general sense), and (2) equity in the distribution of benefits and burdens from the delivery of public services. On both of these counts, economic theory has something to contribute in con- sidering public sector options. Specific Economic Criteria"^
Economic theory suggests that the responsibility of the public sector is to carry out functions that private markets cannot perform adequately. To alleviate the inefficiencies of external- ities, to stimulate competitive behavior and monitor the operation of markets, and to modify the distribution of income are three of the most important goals of public sector activity. Additional consideration must be given, however, to the question of which public functions should be provided by which levels of government. Some goals for public sector action which may be used as guidelines for ■ determining the appropriate level of government are:
(1) Efficient provision of collective action. This includes administrative considerations as to which level can best manage the function as well as technological considerations as to
-9-
what service area represents the optimum Jurisdiction from the point of view of minimizing private and social costs.
(2) Minimization of political externalities. When governments act, external costs will be imposed on those residents whose needs or desires differ from the government's actions, unless the area is homogeneous with respect to its particular service re- quirements or desires. For example, since smaller governmental jurisdictions generally have more homogeneous populations, this criterion emphasizes home rule at the most local level.
(3) . Avoidance of inter-Jurisdictional externalities. Many services provided by an agency of one jurisdiction either benefit or harm members of other jurisdictions although this external effect is neither priced nor fed back into the decision- making process of the decision-making jurisdiction. This external effect might be a particular physical externality such as pollution or highway noise and congestion created in one jurisdiction which affects the residents of other jurisdictions. Or it might be the availability to residents of outlying jurisdictions of some city- provided and financed services. This criterion suggests the desirability of assigning the administration and financing of
services to that level of government which is large enough to en-
3
compass all persons affected by the provision of the service,
(4) Redistribution of income. Governmental action redistributes income directly by programs such as income supple- ments and welfare payments, but also indirectly in many of its other programs by taking resources disproportionately from some people and distributing the services financed thereby to others. If the intent of a service is to redistribute income and/or well-
-10-
being, then the governmental jurisdiction providing the service should be large enough to cover a population characterized by adquate wealth and heterogeneity to make this possible.
For each of the specific services in the service package proposed to be shifted to the state described in the following section of this chapter, one or more of the above criteria is applicable. In some cases technological relationships have changed which make inappropriate the assignment of particular services to the municipal level, an assignment which is rooted historically in an emphasis on local home rule and services to property. This applies, for example, to the case of solid waste disposal in Massachusetts, where experience indicates that it may take the ultimate power of state intervention to intercede among the jurisdictions in order for each local governmental en- tity to consider total system costs and benefits rather than only local needs and costs. The hoped-for consequence of statewide intercession is that all affected municipalities end up with access to better disposal facilities with little or no increase in costs. Veterans' benefits provide an example of a function the intent of which is to redistribute income, and the financial responsibility should be shifted to higher levels of government of adequate scope and resources to achieve this objective. A similar argument holds for health and hospital services. As for corrections, this is an example of a service which, it may be argued, should be shifted on grounds of better quality service and administrative capacity at the higher state level of govern- ment. These considerations are discussed in detail for each
-11-
service later in this chapter. Longer Run Considerations
All of the above considerations are static in nature. That is to say, they apply at a particular point in time to suggest which services most appropriately belong at which governmental level. However, there is also a longer-run issue that should be considered which affects the relative effectiveness and costs of municipal services. The external effects, interdependencies and technological and administrative inefficiencies illustrated above probably contribute over time to wide variations in qualitative levels of local services and disparities in tax burdens across jurisdictions. These variations enter into the location de- cisions of industry and residents which again over time affect the distribution of tax bases and service needs (concentrations of lower-income residents may require more publicly-supported income transfers and services). This contributes in the longer run to the deterioration of the financial position of most central cities and of some outlying working class communities. It also helps to perpetuate distributions of well-being and opportunities which are more unequal than society might prefer or at least be able to tolerate under arrangements where higher levels of government finance and/or administer certain functions.
Two other general considerations relevant to the shift of services to higher levels of government should be identified. They are general in the sense that they do not distinguish among particular services. The first issue relates to local finance by property taxation, which as the first BUO study indicates is a
crucial matter in Massachusetts. It is suggested that any reduction of dependence on local property taxes is beneficial. The second con- sideration relates to the fact that the public sector is an institu- tion which is only partly economic in nature and therefore some of the above four criteria must be applied in light of this assumption. It implies that if service financing is to be moved from the local level, the state is a logical prospect for assuming the services. Th'= question of which services will be shifted in accordance with these suggestions is largely determined by application of the principles discussed in the section on specific economic criteria. Property Tax Reduction: Major Rationale for Service Shifting
An important justification for shifting many municipal functions from cities and towns to the state is based on the fact that the major revenue source available to municipalities in the Commonwealth is the local property tax. Preceding arguments in this chapter have focused on what the characteristics of the areas served and the areas taxed should be; the following discussion concentrates on the problems inherent in using the property tax as the local source of financing, even when the areas exhibit the desired "fiscal equivalence." Although these services might be supported by other local revenue sources, historical precedent and state limitations on local taxing powers force the near- identity, in practice, of local financing with local property taxation. Reasons of both equity and efficiency dictate the un- deslrability of further (and, some would argue, current levels of) dependence on the local property tax.
There are two types of economic inefficiency generated by
-13-
heavy local dependence on the property tax. First, because the property tax falls on structures and improvements as well as on land itself, it acts as an excise tax on housing consumption and thus raises the price of housing relative to other (untaxed) goods. This tends to discourage investment in residential (and commercial) structures, both new construction and upgrading, to raise the quality of existing buildings. Secondly, because municipal juris- dictions within a metropolitan area are relatively small geographically and are likely to have widely varying effective property tax rates, if a firm or household decides to locate within the metropolitan area, its choice among the jurisdictions may be distorted by con- sideration of property tax differentials. This is currently of particular concern to central city areas which bear the further loss of business activity because of their generally higher full- value property tax rates.
There have been, historically, two basic approaches to the concept of taxation equity : taxation according to benefits re- ceived, and taxation according to ability to pay. As the more detailed discussion for particular services later in this chapter will indicate, a person's ownership of or use of property does not reflect the receipt of services financed through the property tax, even within a jurisdiction. Among jurisdictions, the location of need for services financed through the property tax may not coincide with the location of the property tax base.
If one adopts the "ability to pay" criterion, the property
5
tax must be criticized for its regressivity on several levels: First, within a jurisdiction, because housing is a necessity, and
-14-
hence demand for it is income inelastic, taxes proportional to housing consumption will fall more heavily on low income families. This phenomenon is documented for the City of Boston in the next chapter. Second, in some jurisdictions, assessment practices result in properties occupied by low income residents being taxed at effectively higher rates than high income properties. In the City of Boston, infrequent reassessment results in effective tax rates being considerably heavier on properties the market values of which are rising more slowly than the city average: properties with market values which rise rapidly and which have unchanged assessments face falling true value tax rates. ^ Third, because of the deductibility of local property taxes from the federal personal income tax, two additional aspects of regressivity emerge. Because the federal tax has a progressive rate struc- ture, tax savings from a given property tax deduction are greater the higher the income bracket of the taxpayer. Also, only the statutory taxpayer may claim a deduction. Thus, owners of property recoup the entire deduction, while tenants pay part of the tax in their rent, but are allowed no tax credit. Finally, the local property tax is regressive across Jurisdictions since individual jurisdictions are more income-homogeneous than the state as a whole. This local homogeneity with respect to income means that poorer jurisdictions must tax themselves at a higher rate to obtain a given level of local service.
State Government in Massachusetts: Appropriate Jurisdiction for Financing/Administration of Certain Municipal Services
Economists tend to make recommendations about where public
-15-
intervention should take place on the basis of knowledge about where the market systems fails, not on the basis of system characteristics of the public sector; yet the public sector and its actors should be evaluated as an institution in the same way as the private sector. Such evaluation starts from the premise that perfect efficiency of delivery cannot be expected. The existing pattern of institutions or organizations serves as a constraint on the nature of future decision-making; thus once the public sector has reached a reasonable point of maturity, it may be possible for it to take on additional functions which it would not have been profitable to undertake initially. Organization itself represents a productive and unique kind of resource. There are certainly scale economies intrinsic in the institution of government; hence, if there are many levels of government, each with administrative and enforcement machinery, they probably have excess capacity. This is one reason for choosing to shift a select group of functions from the municipal to the state level — the state government already has the apparatus to administer other functions — rather than setting up a new jurisdiction specifically appropriate to the function being shifted. An obvious example of the existence of ready administrative machinery is the air pollution case: the state already has facilities and personnel to monitor air pollution which is duplicated by Boston's agency. To promote more rational decision-making, it is also desirable to give consumers the opportunity to examine the trade-offs as be- tween expenditures for various functions before settling on the allocation of each function, since the quantity and quality of
-16-
each service desired may depend on service levels for other activities. If the decisions as to quantity and quality of offerings of different services are made by different (even if overlapping) groups of constituents, such trade-offs are considered explicitly. A prime example of this problem is the present allocation of transportation responsibility in Massachusetts: because of the segmentation of authority, residents cannot make an explicit choice among alternatives (public transit, road improvement) if they desire to enrich the transport net between two areas.
The remainder of this chapter consists of separate dis- cussions of the rationale for, and costs involved in, shifting administrative and/or financial responsibility for each specific service from local to state government.
A. PUBLIC SAFETY
Police Services - Overview
Police protection and law enforcement services in Massachu- setts, which have traditionally been the primary responsibility of municipal government, have expanded considerably in scope and variety, particularly since I96O. Changes in patterns of urbanization throughout the state have not only generated dramatic increases in reported and unreported serious crimes against persons and property and prompted growing public fears and concerns, but have also produced unprecedented extensions in the volume of non-criminal activities of local police de- partments — for order maintenance, traffic control and mis- cellaneous services — which account for the bulk of police
-17-
work loads and expenditure requirements. The results have been steady increases in the uniformed strength of local police de- partments, a reduction in the number of municipalities without full-time police departments and the assignment of high priority to the local police function.
Municipal police expenditures in the Boston metropolitan area, for example, have reached significant levels--particularly in the region's central city and its nearest 12 neighbors, the larger communities, and the resort towns — and the trends indicate an acceleration of police costs into the future. Police expenditures of the 78 cities and towns in the Boston SMSA in- creased from $37.4 million to $65.7 million, or by 76 percent during the eight-year period between I960 and I968. By 1975, they are expected to reach $l4l.3 million, a rise of 115 percent during the seven-year period from 1968 through 1975. Police expenditures for the central city, which increased by 50 percent between 196O and I968, are expected to rise by 129 percent during the 1968-75 period. (By 1972, they had reached $75 per capita and will approach $100 per capita by 1975.) Police costs for the remaining 77 cities and towns, which increased by 99 percent be- tween i960 and 1968, will probably rise by 105 percent during the 1968-75 period. Hardest hit of this latter group in 1975 will be municipalities experiencing sharp upward trends in police costs since I968, some of which are now in excess of $40 per capita: such close-in municipalities to Boston as Cambridge, Chelsea, Dedham, Everett, Needham, Newton, Quincy, Revere and Watertown; other larger municipalities in the area with similar recent trends
-18-
(e.g. Framlngham , Lynn, Medford, Watertown); and so-called resort communities (Hull, Marblehead, Swampscott) with seasonal peaks of workload for police departments which explain large disparities in police expenditure levels.
Cities and towns in Massachusetts are almost entirely dependent upon local revenue sources, mainly the property tax, to finance their police departments. Neither state reimbursements nor federal aid are significant sources of financial assistance to the police function. Moreover, although a major aspect of the expansion in the police workload is attributable to the automobile, the State Highway Fund is not used to finance traffic control activities of local police departments although the Highway Fund is used to cover 85 percent of the expenditures of the State Police and 60 percent of the expenditures of the MDC parks district, including the MDC Police.
Disparities in police costs among municipalities of the state are largely explained by physical, economic and social factors which generate demands for above average police services: high population densities, relatively high number of jobs relative to resident population, concentrations of poor populations, relatively large daytime populations, relatively large volumes of traffic and concentrations of high-value property. The central city of the Boston SMSA not only has all of these characteristics, but unlike its municipal neighbors, is completely self-sufficient in support- ive police services (crime laboratory, training, general and special investigation, harbor patr'ol) which are provided mainly to other local police departments by the State and MDC Police. Police
-19-
services to non-residents of the central city of the Boston SMSA account for at least 20 percent of its current police costs, about $12 million of the estimated $55 million for 1972. The bulk of this covers non-criminal activities of the Boston Police Department: order maintenance, traffic control, and emergency ambulance services.
Despite the continuing tradition of strong local control over law enforcement in Massachusetts, which follows the national pattern, there is growing awareness of the areawide nature of modern crime. This has prompted greater sharing of responsibilities among levels of government for all aspects of criminal justice, but particularly in police services. Thus, annual expenditures for the State Police in Massachusetts almost tripled during the 1960-72 period, reaching $12.5 million, reflecting expansion of services in highway patrol, criminal investigation and back-up technical services to local police departments and other law enforcement agencies. Uniformed strength of the State Police is now over 900.
Moreover, the Metropolitan District Commission (MDC) Police, once limited to safeguarding MDC property and protecting and regulating people using MDC facilities, has similarly emerged as a major arm of highway law enforcement in the Boston metropolitan area and has been gradually expanding the 'scope and variety of special assistance in law enforcement to cities and towns of the metropolitan parks district. Its uniformed strength exceeds 600.
Although the federal role in law enforcement has been limited mainly to services of the Federal Bureau of Investigation, enact-
-20-
ment of the Omnibus Crime Control Act of I968 expanded the catalytic change-agent function of the federal government, gave special encouragement to developing state and local planning capability In all areas of criminal justice and supported efforts to Improve the effectiveness of police services and other aspects of the criminal justice system.
Despite the fact that law enforcement Is gradually assuming more and more Intergovernmental characteristics, responding to the spread of crime and other law enforcement factors across jurisdictional lines, and that Informal and formal regional cooperation arrangements in police services is expanding (parti- cularly in communications, crime information and other technical 7
areas), a cursory analysis of the state-local system of police services suggests that it is far from adequate when measured against structural, administrative, fiscal and geographical criteria. However, if the desirability of maintaining easy access of people to their local police forces and of giving adequate con- sideration to the importance of community values in local law enforcement are given proper consideration, these factors tend to outweigh structural criteria.
Nevertheless, the debate continues as to whether local govern- ments in most metropolitan areas provide efficient structures for delivering police services. On one side are those who doubt that communities of less than 50,000 population can provide adequate police protection. Are police resources wasted by the highly- fragmented local organizational system through which they are provided? On the other side are those who conclude that police
-21-
service is mainly a local service, with only minor spillovers of benefits. Somewhere in between the polar positions of this debate is the argument that certain aspects of police services, mainly the supportive technically-oriented services, would be improved by area-wide reorganization while leaving basic police services to local government .
A recent study on the economies of scale in the police function concludes that a fragmented police system increases the total level of police manpower in the metropolitan area but not overall police costs. According to this study, "too large and too small police systems combine to retard the overall efficiency of metropolitan police protection. Some restructuring of this system then is in order to provide high-quality basic and supportive police services
Q
to all residents of metropolitan areas."
If the most valid current evidence does not support full- scale regional consolidation of local police forces, the focus of ■ this section of the report is on major opportunities for shifting the responsibilities and/or financing for selective categories of police services from municipal to state government: (1) services being financed from local property taxes which are pri- marily benefitting the motor vehicle owner/user; (2) activities which are so specialized in nature as to be amenable to substantial economies of scale; and (3) services which clearly provide benefits to large numbers of persons and groups not resident in the service- providing municipality. In some cases, particular services have inore than one of the above characteristics.
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Police Traffic Regulation
As the motor vehicle's domination of American life continues largely unabated, municipal police departments have been forced to adjust their traffic regulation activities to this reality. For example, the number of registered motor vehicles in Massachu- setts more than doubled during the 1950-70 period and the total now exceeds 2.7 million. Greater local traffic, some of it exacerbated by regional traffic demands, has been one of the major factors in the overall increase in the number of police officers and in the emergence of specialized traffic units in larger police departments for handling accident investigation, the recording and analysis of accident data, centralized traffic enforcement patrols, the regula- tion and enforcement of off-street and on-street parking, the supervision of traffic movement and the control of traffic inter- sections. In most police departments, particularly the smaller ones, patrol activities are blurred with traffic control activities, thereby making difficult the identification of traffic regulation costs.
Nevertheless, a conservative estimate is that from 5-10 percent of the expenditures of a local police department goes toward traffic regulation and enforcement, the proportion increasing for smaller departments. The Boston Police Department, for example, expended $2.5 million in 1970 for a separate Traffic Division which had a complement of about l80 police officers. For the entire state, it is estimated that expenditures for traffic regulation by municipal police departments in 1970 totalled $7-3 million.
There are several justifications which may be used to support the position that the cost of police traffic regulation and enforce-
-23-
ment should be shifted away from property taxes.
(1) This police activity primarily benefits the owners and operators of motor vehicles. Highway user taxes and fees go
into a separate State Highway Fund, the proceeds of which are used for state highway planning, design, reconstruction and maintenance, including the cost of traffic regulation and enforcement thereon, but with limited distributions to cities and towns for local high- way purposes. Moreover, the legal provisions for state assistance to local highways do not include the cost of traffic regulation and enforcement, and motor vehicle excise taxes collected by cities and towns are not large enough to cover expenditures incurred for all highway-related purposes, including police traffic control activities. Thus, if the motor vehicle owner is to be responsible for all costs which he generates, expenses incurred by local police departments for traffic enforcement and regulation should be fi- nanced from the State Highway Fund. It is under this rationale that 85 percent of the budget of the State Police and 60 percent of the budget of the MDC Police is charged to the Highway Fund.
(2) Financing of police traffic regulation from the State
Highway Fund will help to offset some of the disparities in
police expenditures among municipal police departments attributable
to the spillover of benefits to non-residents. For example,
although Boston's resident population is only 23 percent of the
total population of the Boston SMSA, over 900,000 persons enter
9
the downtown area of the central city on an average weekday, of whom some 72 percent come in bj/ automobile. Almost half of this daily in-migration consists of suburbanites (some 300,000)
-24-
who fill about 60 percent of all jobs in the central city. Although the impact of interstate and regional traffic is particularly severe on all central cities of metropolitan area, particularly those in the larger areas, one of the results of the outward movement of major employers is that more and more municipalities are being adversely affected by the spillover effects of police traffic regulation. "...as the metropolitan area becomes more and more specialized and there is greater separation between jurisdictions of residence, work, or entertainment, the central-city exploitation effect ... becomes extended to more and more localities . "'^'^ To the extent that a growing number of cities and towns are carrying varying shares of cost spill-ins caused by increased traffic, they are providing service benefits to non-residents, the cost of which should be counteracted through the financing arrangements for police traffic enforcement and regulation. Specialized Police Services
Several categories of municipal police services in Massachusetts either have sizeable benefits which spill over to the residents of communities beyond those of the financing jurisdiction and/or lend themselves to a shift from municipal to area-wide responsibility for administration to achieve lower unit costs.
1 . Harbor Patrol
For example, municipalities located on the Atlantic coast generally extend their police patrol services to harbors within their jurisdictions through a harbor master. With few exceptions this is a summer seasonal activity, geared to the needs of boating enthu- siasts, the costs of which may be recouped from docking fees. How-
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ever, it does not represent a major service activity. In the city of Boston, however, since 1854, when the harbor police was in- corporated into the newly-organized Boston Police Department, and until 1973j when the harbor police was terminated, the City operated full-fledged patrol services in Boston Harbor, including those of the harbor master. By I878 the Harbor Police had become a separate police division and during the past two decades, a variety of emerging duties had been added to the division's patrol responsibilities. In 1970, Division 8, encompassing the Harbor Police and Emergency Service Unit, consisted of 60 men, three boats and three vehicles and an operating budget of $783,000.
The jurisdiction of the Boston Harbor Police has long been territorially complicated. Of the 58.7 square miles of water under its control, eight square miles belonged to the municipalities of Hingham, Hull, Quincy, Weymouth, Winthrop. In the latter areas, the Boston Harbor Police had only harbor master powers; in the re-, maining 50.7 square miles of water, it possessed full police powers in addition to harbor master authority.
As for its range of responsibilities outside of harbor master work and enforcement of the state's criminal laws, the marine activities of the Boston Harbor Police could be divided into two categories: (1) those tasks shared with other agencies; and (2) tasks which are the primary responsibility of other agencies, but which the Harbor Police supplements.
A good example of a shared task performed by the Boston Harbor Police is the rescue work carried out jointly with the U. S. Coast Guard, the Boston Fire Department and other units of the Police
-26-
Department . An illustration of work supplementing the primary activities of another agency is the removal of obstructions in the harbor, handled mainly by the U. S. Corps of Army Engineers.
The Boston Harbor Patrol also responded to a wide range of emergency calls in the city through a subordinate emergency service unit: to major accidents, fires of three or more alarms, suicide attempts, bomb reports, riots, etc. The emergency service unit consisted largely of (1) day maintenance details (averaging eight police officers) to handle routine erection of wooden barriers and other maintenance chores related to public safety, and (2) the back-up boat crews for the two late watches, to which a four-officer nucleus was assigned.
The focus of patrol provided by the Boston Harbor Police, ex- cept for several relatively unimportant islands, was the water. Docks, shoreline and similar policing responsibilities belong to the law enforcement units of the MDC, the Massachusetts Port Authority, the U. S. Army and the U. S. Navy. Moreover, the policing of harbor waters was not the exclusive mission of the Boston Harbor Police. The U. S. Coast Guard performs similar duties although with respect to federal rather than state law.
In developing the City of Boston budget for 1973, the Mayor came to the conclusion that the City's fiscal situation no longer justified police protection in Boston Harbor, a service benefitting the entire region. Although he did not include an economy of scale argument since his decision was service termination rather than service transfer to an areawide jurisdiction, the Mayor might also have pointed to the fact that the harbor patrol was a specialized
-27-
service requiring expensive capital equipment and specialized personnel, the costs of which might have been reduced through administration under a higher level of government. As a result of the Mayor's budget decision, the Police Department's harbor patrol ceased operations and its emergency service unit was trans- ferred to other police divisions. The Mayor's decision prompted MDC officials to begin serious consideration for taking over the harbor patrol function abandoned by the City of Boston. MDC opera- of the harbor patrol would be a logical extension of that regional agency's law enforcement activities, particularly since the MDC is already responsible for major coastal areas of the harbor. This report adopts the assumption that the MDC will restore the level of harbor operation to what it was when under control of the Boston Police Department. If the City's total cost of the harbor patrol in 1970 was about $245,000, the City would gain a net reduction of $213,000 from MDC resumption of the service. This estimate of net gain incorporates the fact that the 37 cities and towns in the metropolitan parks district would assume 39 percent of harbor patrol expenses, the remainder being charged to the State Highway Fund — 60 percent — and to the State General Fund — one percent. The City of Boston would assume 32.95 percent of that proportion of the total cost assessed against member cities and towns. 2 . Crime Laboratories
Crime laboratory services, like harbor patrol services, are another important area of public safety operations that should be analyzed from the point of view of potential economies from 'Consolidation. Crime laboratories require large amounts of
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specialized equipment and facilities, as well as skilled technicians and support personnel. One of the major conclusions drawn from an evaluation of existing crime laboratories is their relative under- utillzation; that is, actual operations seldom reflect the potential back-up support which crime laboratories could provide to the solu- tion of crimes. It is estimated that on a national basis crime laboratories are involved in less than two percent of the investi- gations of all reported crimes. With such a high degree of fixed costs, successful efforts to increase utilization will result in substantial cost savings.
The actual demand level experienced by crime laboratories is primarily generated by: (1) the amount of crime reported to the police; (2) the amount of physical evidence collected by the police as part of crime investigation; and (3) the amount of the collected evidence that is transmitted to the crime laboratory under conditions that make its examination possible under legal and scientific criteria. Many factors influence the above three determinants of crime laboratory demand. Two important and readily observable factors affecting demand are: (1) the density of uniformed police officers; and (2) the distance of the laboratory from the respec- tive police jurisdictions it is supposed to serve."''"'"
There are only two fully-equipped crime laboratories in Massachusetts: one operated by the State Police and the other by the Boston Police Department. In addition, state law enforcement agencies operate two partially-equipped crime laboratories. The two complete laboratories are located in the City of Boston.
Boston is the acknowledged focal point of crime in Massachusetts.
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Wlth only 11 percent of the state's population, it is the site of over one-fourth of the state's index crimes and its police depart- ment accounts for almost one-fourth of the total number of uniform- ed police officers in the state.
According to the most recent independent evaluation of crime
i
laboratories in Massachusetts, the potential or latent demand for
such services in Boston is estimated at some 4,000 cases per year.
However, this is almost 10 times the total number of cases in which
the crime laboratory of the Boston Police Department was even
12
superficially involved. It is likely that the State Police crime laboratory, which serves all municipal police departments other than Boston's, displays similar characteristics of actual utilization, particularly since the density of uniform police officers and distance are even more critical factors determining the rate of crime laboratory investigation outside the central city.
The fact that the state has only one fully equipped crime laboratory, and that it is located in Boston, suggests that the state has attempted to concentrate its laboratory services. It is argued here that the state laboratory and the Boston labora- tory, as well as the two more limited crime laboratories under the administration of the Department of Public Safety, should be consolidated into a regional laboratory financed by state funds. The primary justification for this consolidation would be to permit a greater centralization and utilization of technical skills and specialized equipment. There are additional advantages of this proposal. At the federal level, an emphasis in the criminal justice area is toward increased use of scientific and technical facilities
-so-
on a regional basis. Funds to help implement these developments
1 3
are coming "from the LEAA" . A consolidated regional crime laboratory would be consistent with the federal thrust, and would allow for the implementation of an overall plan for laboratory services, the emphasis of which is on upgrading the two major facilities in Massachusetts by strengthening their staff and equipment .
Although consolidation will increase utilization and reduce costs, a crime laboratory does not necessarily become more effective through increased size, and the quality of service can be impaired by over-centralization of services and by over- specialization of technical staff. To reap the benefits of crime laboratory consolidation without sacrificing quality of service, a method of joint state-city supervision of the centralized labora- tories should be worked out so that Boston's particular crime laboratory requirements, a major component of the workload in a centralized criminalistic operation, would be given adequate attention.
3 . Police Training
Finally, there is a growing trend toward the centralization of police training activities, particularly as the state increases its concern for the quality of local police work and assumes greater leadership in developing strategies to upgrade the skills of police officers. "Central training facilities, for both initial orienta- tion and training, tend to eliminate wasteful duplication, provide more adequate programs, and introduce higher quality of instruc- tion . "
-31-
As the role of the police officer grows in complexity and
sensitivity, the importance of adequate training increases
commensurately . As noted by one specialist:
There is a trend today for courts to hold municipalities legally responsible for the torts of police of f icers . . . In many cases the employing municipalities have been held liable for substantial money judgments as damages to injured plaintiffs. The quality of a police- man's training is no longer simply a social or political question; it is also a matter with, ^. important legal and financial consequences.
In a recent court decision (Circuit Court of Appeals, Carter v. Carlson) , the court carried the above concept further by con- cluding that superior police officers were responsible for the supervision, control and training of their subordinates. If a police officer performed a negligent act causing civil injuries, the superior officer would be a party defendant in civil pro- ceedings under a claim of negligence in carrying out responsi- bilities for supervision, control and training.
Responsibility for police training in Massachusetts is highly fragmented, fragmentation coinciding with the highly decentralized system of police services. However, the state makes an effort to coordinate and integrate police training efforts through the Massachusetts Police Training Council (MPTC), a mechanism established in 196^ to sanction municipal police training schools and to make rules and regulations governing the operation of such schools --courses of study, attendance requirements, equipment and facilities, and qualifications of instructors. According to the statute creating the Police Training Council, every municipality over 5,000 in population which appoints a regular police officer
i
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on a full-time, permanent basis must insure that such person attend a police training school within nine months. Effective July 1, 1972, ten weeks of training (an increase from the original standard of four weeks) was required for police recruits. The Council also prescribes that each member of a local police force receive one week of in-service training annually.
The Massachusetts Police Training Council has accredited I8 police training academies within the state. Nine of the approved training facilities, including the Boston Police Academy, are located within the Boston SMSA. Of these nine, six are operated by municipal police departments, the others by the State Police, the MDC Police, and the State Registry of Motor Vehicles. The nine police academies in the Boston SMSA incurred operating expendi tures in 1970 estimated at $655,000. The Boston Police Academy operated at a cost of $286,000; the State Police Academy had total expenditures estimated at $l8l,000. All of the municipal police academies in the Boston SMSA excluding the central city spent $30,000 or less for police training. The nine police training academies outside the Boston SMSA incurred operating expenditures totalling $168,000 in 1970. The Massachusetts Police Training Council itself operated at a cost of $5^,000 in 1970.
An independent evaluation of the impact and relative effective- ness of the Massachusetts Police Training Council came to the following conclusions:
1. Training standards established by the MPTC are not being adhered to, resulting in uneven recruit and in-service police train ing throughout the state.
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2. Training requirements of the MPTC are not universally applied throughout the state, resulting in local police forces receiving no formal training whatsoever.
3. Training requirements mandated by the MPTC impose fiscal burdens on municipalities which must comply.
4. Under the present system of 18 separate MPTC -approved training facilities, potential economies of scale are not being realized . '^^
With the encouragement and financial assistance of the Governor Committee on Lav; Enforcement and Administration of Criminal Justice recent efforts are underway to strengthen police recruit and in- service training programs including the establishment of a state- wide network of training facilities to absorb scattered training activities now being financed with LEAA funds.
A major step that should be taken to achieve high statewide standards in police training is to transfer all responsibility for this activity to the State Department of Public Safety and to shift the financing of police training from cities and towns to the state. Not only would substantial economies of scale result from centralization of police training services, but the state would be assured greater uniformity in the scope and quality of such training.
Although higher quality police training under a centralized statewide system will mean higher costs, the assumption of this report is that they will be offset by savings generated by consoli- dation of training facilities and services.
I
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Fire Services
The strong local tradition found in police services is also apparent in fire protection and prevention activities. Similarly, the costs and benefits of basic fire services do not significantly "spill over" to the residents of other localities. Moreover, fire department resources are deployed so as to be close to potential fire grounds, thereby reducing the possibilities of "economies of scale." And local fire departments have entered into mutual aid arrangements designed to pool manpower and equipment required for fires and emergencies beyond their normal capacities.
However, there are two major categories of fire protection —
arson investigation and fire boats — in which historical and other
factors explain services provided by the central city which duplicate
those provided through state agencies. To put the analysis of these
specialized service areas into perspective, it should be pointed out
that Boston's 3} 500 fires and explosions account for over 15 percent
of all fires and explosions in the state and its fire losses amount
1 8
to almost 25 percent of fire losses incurred in the state. 1 . Arson Investigation
Boston is the only municipality in the Commonwealth which carries out the investigation of fires of suspicious origin with its own arson inspection squad. A component of the Fire Prevention Division of the Boston Fire Department, the arson inspection squad is charged with the responsibility for investigating the causes and circumstances of every fire and explosion within the city limits, despite the fact that a 19^5 amendment of the applicable general law gave the State Fire Marshall the authority to investigate all fires
-35-
of suspicious origin throughout the state, thereby eliminating
previous provisions of law which excluded the State Fire Marshall
1 Q
from investigating fires in the City of Boston.
Under existing procedures, therefore, the arson squad of the Boston Fire Department carries on its investigations in order to assist the department in removing the causes of fires and ex- plosions, in apprehending persons responsible for fires, and in turning over all the facts and evidence uncovered in such investi- gations to the office of the State Fire Marshall.
If the State Fire Marshall is to comply fully with the statute delineating his responsibilities within the city of Boston in addition to all other parts of the state, the staff and resources of the city's arson squad must be transferred to the State Depart- ment of Public Safety to supplement existing state fire inspectors and supportive staff. The expenditures of the Boston arson squad were estimated to be $146,000 in 1970.
2 . Fireboat Service
The City of Boston has been providing fireboat service to waterfront property in Boston Harbor since 1873- In addition to responding to alarms in Boston's pier area, the Fire Department has extended its fireboat service to the adjoining municipalities of Revere, Everett, Quincy, and other surrounding communities that have waterfronts but do not maintain fireboats. The City does not receive payments from any municipality that benefits from Boston's fireboat service.
In addition to the several municipalities that have an interest and investment in the harbor, the Massachusetts Port Authority
-36-
(Massport), which is responsible for the general development of the port of Boston, owns considerable property on the waterfront.
In 1970, the Boston Fire Department operated two fireboats, 30-year old converted minesweepers with wooden hulls. Approxi- mately 9^ feet long, the boats travel at about 10 1/2 knots. Their large size and slow speed hinder their effectiveness in fighting fires on pleasure craft and in commercial harbor marinas. One of them, considered mechanically unreliable and used as a back- up craft in 1970, has since been replaced by a new vessel. The City's cost of fireboat services in 1970 was estimated at $476,000.
The fireboats are berthed in the upper harbor, the area of greatest potential fire hazard in the harbor because of the pre- sence of fuel farms. The majority of their runs , however, are to the lower harbor, the area of greatest investment and business activity on the waterfront .
Existing legislation authorizes the City and the Port Authority to enter into a mutually satisfactory agreement for fire service, and for some time both parties tried to reach such an agreement.
On its part, the City wanted the Port Authority to buy a new fireboat for the Boston Fire Department. It argued that Massport owned a large amount of tax-exempt waterfront property, maintained potentially hazardous facilities in the harbor area and shared a responsibility with the City to protect shipping in the harbor.
Massport rejected the City's proposal, concluding that the City's demands were excessive and that it could operate its own fireboat at lower cost by using a different crew configuration and by not having to pay supplementary wages to men because of
-37-
thelr special marine licenses. Massport has stated that Its fire- boat will be available to all waterfront property In the harbor, regardless of ownership.
The continuing controversy over responsibility and control for fireboat services In Boston harbor Is a self-serving bureau- cratic feud. The logical solution would be to negotiate a satis- factory agreement as authorized by law under which Boston's two flreboats would be transferred along with their crews to the Massachusetts Port Authority in exchange for the completion and assumption by Massport of fire boat services to Boston Harbor. Although the three large craft to be operated by Massport through this proposed transfer would not represent an ideal fire boat fleet — it has been suggested that Boston's harbor can be adequately served by two larger flreboats (one for regular duty and one for reserve) and a small draft vessel to handle marine
fires) — the consolidation would represent a good first step
20
toward achieving effective fireboat service at less cost.
B. TRANSPORTATION General Rationale for State Assumption of Transportation Financing
There are several general reasons which may be offered to justify state financing of all transportation services. More- over, arguments based on the characteristics of specific trans- portation modes may also be used as further substantiation for the proposed shift from municipal to state financing. Transporta- tion is necessary for the effective functioning of the state's economy. No single transport mode serves all residents of the state; nor does any one transport decision resound to the direct
-38-
benefit of a majority of the people. Transportation, by its nature, consists of a network of interconnected services and modes. A proper balance within this network would provide maximum service to most residents of the state. Thus the pre- sent system of earmarking highway funds required by the Massachusetts Constitution is inefficient in an economic sense, as is any earmarking of revenues, because it prevents rational consideration of trade-offs in the allocation of funds for transportation purposes. Since balancing these trade-offs is necessary to bring about the desired network, any investment in transportation must be weighed against three criteria: its effects on substitution within the mode across routes, sub- stitution across modes, and induced increased demand for trans- port services as a whole. Separately planned, administered, and financed arrangements for different links within each mode and across the modes cannot carry out a consistent set of transporta- tion priorities even if they have been decided upon.
As pointed out by the current Massachusetts Secretary of Transportation in a discussion of the piecemeal growth of transportation functions at the state level, there is "virtually no capacity for overall transportation planning and coordination ...Little attention has been paid to welding the multiple units into a smoothly functioning team, in which the parts contribute to the objectives of the whole (as determined by the governor and the
General Court) with maximal effectiveness and minimal waste 21
motion." Thus, the new (1973) Massachusetts transportation assistance proposal submitted by the Governor recognizes the
existence of trade-offs between services, in offering municipal- ities outside the Massachusetts Bay Transportation Authority (MBTA) greater highway aid ($30 million) as part of a package in which the state would assume a higher proportion (50 percent) of MBTA costs.
Thus the recommendation in this report is that the state take over complete responsibility for highway, highway-related, and public transit expenditures and finance them from the Highway Fund and the more generally-based income tax and/or sales tax. 1 . Public Transportation
The traditional argument for centralized control of transit is that of maximum returns to scale: the efficient size of area for supply of transit services is larger than any one jurisdiction. This is even more true when one considers that people use transit to travel from one local jurisdiction to^ another. Continuing benefit spillovers tends to cause under-financing by each locality involved and may also lead to an inefficient network across regions, since one community's decision to finance or not finance a given route affects the transportation available to other communities.
For the MBTA, central administration already exists, although most of the costs in excess of operating revenues are assessed upon member cities and towns of the metropolitan transit district. For the rest of the state, transit is a patchwork operation, largely carried out by the private sector. However, as more and more private carriers go out of business, cities and towns have found themselves unable to muster the financial and technical expertise to assure the continuation of adequate transit services to their residents, mainly because of the interdependence of the
-40-
interests of various jurisdictions with respect to a given route or carrier.
Given that some sort of centralized authority is needed to promote coordination, why should the costs of public transporta- tion be absorbed by the higher governmental level? One lesson being learned from the MBTA experience is that administration and planning at the state level are incompatible with locally assessed costs, regardless of the "fairness" of the assessment formula. Decision-making cannot be separated from ultimate fiscal account- ability without producing dire controversy. The present situation has been characterized in the following terms: "...a self- defeating tax structure for the support of transit in the Boston
region, combined with total inattention to the problem of transit
22
survival in the Commonwealth's other urban regions." Secondly, as discussed previously, local financing is likely to result in under-provision of services. The entire state certainly benefits • from the existence of the MBTA, one of the key factors in the functioning of the Boston area economy, an economy which generates more than half of the Commonwealth's tax revenues. The whole state depends heavily on the economic well-being of the Boston area and on other urban areas as well, and thus subsidizes only itself by financing urban transportation. Only through centralized assump- tion of administration and costs can coordination of local operations and plans be achieved while overcoming inter-iocal fiscal disparities.
2 . Highways
Many jurisdictions, each with responsibility for rights-of way through their own territory, are not likely to set up a trans- portation system so that people can move efficiently from one jurisdiction, through several others, to a second jurisdiction. What is desired is that resources for the construction and main- tenance of highways be allocated in accord with tllie overall pattern of origins and destinations. This can only happen over a set of local jurisdictions by one higher authority imposing its priorities and standards upon several lower-level jurisdictions. The results of the present Massachusetts system op highway admini- stration — "an uncontrolled division of responsibilities without planned objectives" demonstrate the validity of this thesis. The 1968 report on the Massachusetts highway "non" system docu- ments cases of many towns which have responsibility for statewide arterials within their borders on which significantly lower im- provement and service levels are maintained than on adjacent state-run highways. In addition to the urgent need for central coordination, there are the usual spillover, spill-in arguments which may be used in support of central financing. In almost all cities and towns, especially in the larger centers of economic activity, highways and highway-related activities (e.g., snow removal, street lighting) benefit out-of-town residents who work or shop in such centers as well as local residents. Spill-ins, of course, weigh on the other side of the fiscal equation to the degree that out-of-town workers and shoppers add to the local economy and its tax base. Although not every motor vehicle owner
-42-
benefits from each local access road, each probably benefits from some local roads.
Another basic argument for state assumption of all highway expenditures is the simple dictum of letting the user pay. The state maintains a separate pool of funds collected from road-and vehicle-related sources. As William Vickrey has argued, and as the figures in the accompanying tables for Massachusetts bear out, although road-related expenditures on the average equal motor fuel taxes and license fees (in the case of Massachusetts, we take this to refer to the dedicated revenues in the Highway Fund plus the motor vehicle excise tax revenues collected locally), the motorist is not paying his way. What is true on average is not true of the users of congested urban streets. First, expenditures from city funds exceed road-related receipts. Second, much of the true cost of providing space for city streets and highways does not appear in the expenditure accounts because it takes the form of land and buildings withdrawn from the tax rolls. Thus local highway financing penalizes cities in two special ways: (1) on average, more non-residents "consume" urban road services; (2) it is in the cities that highway-related costs exceed road-related revenues. This second factor is the product of two phenomena: although the state aid system in Massachusetts has until very recently discriminated against larger cities (Chapter 8l aid), the new (1971) Chapter 497 aid is somewhat closing the gap. Moreover, temporarily at least, administrative interpretation of the Chapter 497 aid formula has effected distributions to the larger cities whicli have been in excess of original estimates. It should also
-43-
be noted that the history of highway development has left the cities with a lower total mileage of state highways (state highways com- prise 9.3 percent of public road mileage in the state as a whole, but only 1.6 percent of public road mileage in the City of Boston). On the expenditure side, urbanization itself generates greater highway needs: where rural roads have shoulders, urban roads must be built with curbs, sidewalks, drainage, traffic control devices and lights. The Governor's 1973 highway aid package proposal suggests that these differences in transportation needs be recognized at least to the degree of liberalizing Chapter 90 (matching) highway aid so that it may be used for construction and reconstruction of highways, "including resurfacing and other work incidental to that such as shoulders, side road approaches, landscaping and tree plant- ing, roadside drainage, structure including bridges, sidewalks, bicycle paths, traffic control and service facilities, street- lighting, intersection construction..."
Finally, there is an argument that non-users as well as users benefit from roads and therefore should share in some of the costs. For example, it can be demonstrated that property owners receive benefits from access to their land. This is true when a road is first built: there is a once and for all increase in tlie value of land which is made more accessible. For this reason, street betterments are charged to owners or a developer agrees to bear some of the cost of a new or improved road. When the land is subsequently sold, however, the increased value will have been capitalized into the purchase price of the land, and there is no argument for making subsequent owners continue to pay
-44-
for the "access" through the property tax.
The underlying assumption used in costing out the highway function is to recommend that those highway-related expenditures presently supported by the property tax (not by users) be shifted to the s.tate with financing from the State Highway Fund, and to urge at the same time that the present arbitrary classification of roads as state, MDC , or municipal be corrected to reflect actual interest in usage. If full state financing were adopted, classification would determine the jurisdiction of administrative responsibility and thus an up-to-date classification of highways in the state would transfer the administration of almost 2,000 municipal highway miles to the state or MDC.
Impact of Shift of Financing on Transportation Service Levels
It is expected that the state assumption of all street and road financing would be carried out within the context of a pro- gram of functional reclassification of roadways as outlined in the 1968-69 "Statewide Highway Transportation Plan" prepared for the Massachusetts Department of Public Works. The cost figures in that report (annual for 25 years) are based on what it would cost (at 1968 prices) to modernize (construct, reconstruct, main- tain, administer) all streets and roads in the Commonwealth to bring them to the service levels consistent with their traffic loads and priority listings in the statewide system. The figures in Table II -3 reflect such costs for roads in all classification levels which are presently administered by cities and towns. For example, one item in the total i^ the percentage of road-miles in the reclassified state secondary system presently administered by cities and towns multiplied by the modernization costs of the
-45-
entlre secondary system. The cost figure thus obtained was then reduced by the amount of 1970 state highway aid and 1970 local motor vehicle excise tax liabilities to produce the net cost of state assumption of financing. It should be noted that this figure does not include all highway-related activities such as snow removal which were included in the 1970 transportation cost figure, and thus is understated to this degree. It should also be noted that such a plan involves additional expenditures by the state on roads they presently administer and maintain as well, and these costs are not reflected here.
Since the MBTA deficit is so grudgingly absorbed by most of the member cities and towns of the transit district the representa- tives of which feel it is an additional pressure on their already- overburdened property tax, the budget constraint on the MBTA is a binding one and probably does not reflect the level of service that might result from a true opportunity cost analysis of, for example, making use of the Highway Fund for transit purposes. However, given the constitutional limitation and politics of transit finance in the Commonwealth at present, it is not expected that a shift to state financing (through diversion of the Highway Fund) would loosen this constraint. It is probable that only the avail- ability of federal funds for transit operating expenses, if enacted, would allow a more balanced service offering as between transit and highways.
The transit situation in the rest of the Commonwealth is less well-documented. However, it is reported that carrier operations are folding in many parts of the state. Subsidies to date have
-46-
mostly taken the form of generous (though to the low bidder) school bus contracts which provide the margin on which regular routes can be operated. As these school bus contracts are lost, bus companies expire. In a recent case, the Union Street Railway (USRVi) requested subsidies from New Bedford ($125,000), Fall River ($75,000), and Brockton ($112,000). Brockton has subsidized in the past and agreed to this request; Pall River had not made a decision as of October, 1972 and was considering such alternatives as a fare increase or awarding the school bus contract to the USRW even though it was not the low bidder; New Bedford has refused the subsidy request. The USRW claims it cannot continue operating any of its routes unless it receives all three subsidies. This example points up two facts: (1) the decisions made by individual municipalities are interdependent, and (2) the transit problem in Massachusetts is wider than just the MBTA.
The transit figure contained in Table II -3 includes: the MBTA total assessments on cities and towns raised in 1971 pro- perty taxes and attributable to 1970 MBTA operations; contribu- tions by non-member municipalities; 1970 subsidies to other transit systems in the state; and 1970 operating losses on regular routes reported to the State Department of Public Utilities (DPU). There were 23 carrier operations which showed such losses in their 1970 reports to the DPU Accounting Office. The actual cost of providing operating subsidies to operations presently experiencing losses might be greater than the reported sum because the losses do not include any return to equity capital. It should also be noted that state assumption would expedite channeling of available federal transit funds to localities.
TABLE II - 1
ESTIMATED TRANSPORTATION EXPENDITURES FOR CITY OF BOSTON, 1970 Streets and Related Functions (Net of State Aid)
1. Traffic and Parking Department (gross) $2,152,388i
2. Street maintenance (Public Works)* 7,209,388^
3. Snow removal 1,327,799
4. Debt service (1970 principal and interest payments on loans for public ways, bridge construction, sidewalks,
automatic traffic control signals, ^ parking facilities) 5,321,625**
Subtotal Gross Expenditures $16,011,200
5. Traffic and parking receipts (1,011,5^8)5
6. Motor vehicle excise tax collections (9,965,807)^
7. Off-street parking facilities, rents (1,277,055)'
Subtotal Receipts (■|_2 254 410)
3,756,790
Net expenditures paid from road-unrelated Boston funds
Public Transit MBTA 1971 assessment
24,939,965
Net Transportation Expenditures From Local City of a^o cr^c n^r-
Rn^f.nn RnnH<, $28,696,755
* Including street lighting.
** Debt service figure is understated because it does not include principal and interest payments on those proportions of Urban Renewal bonds used for streets, sidewalks, and other road-related items.
1 . Annual Report of the Boston Traffic and Parking Department for the Year Ending December 31, 1970 (Document 21-1971).
2. 1972 Program Budget, City of Boston, County of Suffolk, "Public Works - Transportation, 1970 Expenditure", p. 401.
3. Ibid., "Public Works - Snow Removal, 1970 Expenditure", p. 581.
4. Records at Boston City Auditor's Department.
5. 1972 Program Budget, op. cit., "Traffic and Parking, 1970 Actual Income", p. 378.
6 . City of Boston, County of Suffolk, Auditing Department, Annual Report for Fiscal Year Ending December 31, 1970, Schedule B-1, "Summary of Receipts", sum of current and prior years' levies of motor vehicle excise tax, p. 34.
7. Ibid. , Schedule B-1, p. 37.
TABLE 11 - ^
ESTIMATED TRANSPORTATION EXPENDITURES FOR ALL MUNICIPALITIES, 1970
.. Direct Highway Expenditures (Net of State Aid)
1. 129 rural towns $ 9 925 214
2. 183 urban towns and 39 cities (including Boston) 108,575,577
Subtotal Highway Expenditures including Boston $118,500,791 3. Highway-Related Functions"'"
|
1 ± • |
1 arKing |
|
|
Rural |
19,649 |
|
|
Iji'ban |
6,620,329 |
|
|
2 . |
||
|
Rural |
9,148 |
|
|
Urban |
3,137,078 |
|
|
3. |
Street Lighting- |
|
|
Rural |
520,442 |
|
|
Urban |
15,103,845 |
|
|
k . |
Sidewalks |
|
|
Rural |
50,941 |
|
|
Urban |
3,877,780 |
|
|
5. |
Storm Sewers and Drainage |
|
|
Rural |
299,413 |
|
|
Urban |
5,530,371 |
Subtotal Highway-Related Expenditures Including Boston (35,168,996)
^ess Boston's Expenditures for Highways and Highway-Related Functions (13,722,597)
Less Motor Vehicle Excise Tax Collections by
All Municipalities Excluding Boston 127 , 85I , 110*
Net Cost of Highways and Highway-Related
Functions to Cities and Towns Excluding Boston 12,096,080
C. Public Transit
1. Brockton - to Union St. Railway 114,022^
2. New Bedford - to Union St. Railway 79,851
3. Springfield - to Springfield St. ^ Railway 80,000-^ ■
4. MBTA Assessments on Cities and Towns excluding Boston 704,705
5. MBTA Reimbursements from Outside Communities l8l,232'
Total Non-Boston Public Transit Expenditures 27,195,609
Net Transportation Expenditures From Municipal Funds $39,291,689
,4
* Actual collections estimated at 90 percent of levies.
1. These figures all taken from reports available at the Fiscal Division of the Bureau of Transportation Planning and Development of the Massachu- setts Department of Public Works. Because of the way these are reported, it was impossible to obtain the same functional breakdown of expenditures for Boston. For this reason, Boston is included in the subtotals, and then subtracted from the highway and highway-related total.
2. Contract for intra-city service, reported to DPU Accounting Office.
3. School fare subsidies, reported to DPU Accounting Office.
4. 1970 Annual Report, MBTA, p. 2
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TABLE II - 3
ESTIMATED TRANSPORTATION EXPENDITURES BASED ON ASSUMED CHANGES IN SERVICE LEVELS
A. Highways and Highway-Related Functions
1. Costs of stopgap maintenance and Identified construction needs as
estimated by DPW study $239,890,000
2. Motor Vehicle Excise Tax
Collections, 1970 (137,820,000)^
3. 1970 State Aid for Local Highways (25,850,000)^
Net Cost to State of assumption of high- way and highway-related costs if motor vehlcl" excise tax is turned over to
state $76,220,000
B. Public Transit ' u
1. MBTA - 1970 total assessments 51,644,670
2. Deficits of other public carriers c- in the state 462,087
3. Present subsidies to carriers
,6
outside MBTA 273,873
Net cost of transit financing- take-over by State 52,380,630
Total Estimated Cost To State Of Assuming Financing Of Transportation With Attendant Changes In
Service Levels (See Text) 128,601,000
1. See text.
2. Actual Boston collections 1970 plus estimated collections by other cities and towns (estimated collections: 90^ of levies).
3. Chapters 81/90 G.L.,C. 679, Acts of 1965, C. 6l9, Acts of 1967, C. 768, Acts of .1969. Totals from Fiscal Division of Bureau of Transportation Planning and Development, Mass. Department of Public Works. State aid authorized under Chapter 497, in 1971, would add $21 million to this figure.
4. 1970 Annual Report MBTA, p. 1.
5. "Losses on regular routes" reported to DPU Accounting Office.
6. From Table II - 2, items Cl-3.
C. DISPOSAL OP WASTES
Why State Financing
The collection of solid and liquid wastes from the point of their production (mostly households and business) clearly benefits the property-owners (or renters) to whom the service is rendered and their neighbors. Minimum amounts of uncollected wastes will inflict their unpleasant effects only upon a fairly small area. Improper disposal of the growing volume of collected wastes, on the other hand, can impose negative externalities on a much wider region. Down-wind or down-stream cities and towns can suffer con- siderably from the disposal choices made by other cities and towns. State financing of such disposal activities, however, would facili- tate the imposition of certain minimum standards to eliminate these negative spillover effects. State Financing and Minimum Standards
Such minimum standards can also be imposed simply by flat, but as the recent Raytheon report on solid waste disposal points out, this action can impose undue financial hardship on individual Juris- dictions when no action is simultaneously taken to take advantage of the economies of scale that exist for the provision of such services: "...the implementation of even the most modest solid waste disposal system fully complying with the existing regulations and statutes will usually be too expensive for the individual communities."'^^ The efficient size unit for waste disposal is usually larger than one city or town, and the State Bureau of Solid Waste Disposal estimates that regional Izatlon of such services can
51-
reduce the expenditures to one-half or one-third the per ton costs of a comparable standards-compliant town-by-town system. One would expect that passage of stiffer pollution-control laws would thus pjve cities and towns the incentives to cooperate, but no community wnnts the (larger) regional disposal facility located on its own territory. As a result, "permissive" legislation with respect to the estabD.ishment of regional disposal districts has resulted in t)v^ f-'rmation of only two functioning districts within the Common- we-T 1th.
An example of the cost impact of the stiffer regulations is
th" following excerpt from the 1970 Fairhaven town report (Board of
Public Works): "Disposal increase is attributable mainly to the
State of Massachusetts' 'no outside buring' regulation requiring
all burnables to be buried. .The increased scope of the above
oppratinn is supported by the following: in the year 1969, seven
m-^n w^re assigned this function for three days per week. In the
year 1970 it has been necessary to assign ten to eleven men for
2 6
this operation five days per week."
Similar evidence drawn from cities and towns throughout the Cummonwealth explain the doubling of solid waste disposal expenditures for mumVipal itles from $10,960,801 in 1967 to an estimated
n o
.t'?0,91^,nnn in lQ7n. Moreover, future increases in expenditures for spwf-ige treatment facilities operation can be expected when the growing numb^-r of plants under construction (largely with federal and state funds) become operational.
State financing can be part of a centrally-planned regionalized operation of solid and liquid waste treatment and disposal to avoid tbn prob-lom of individual disincentives against joining In a regional
-52-
effort. A bill before the General Court in 1973 (Senate 815, House 6643) proposes mandatory regional solid waste disposal districts, but assesses costs on participating municipalities. This suffers from the same criticisms as all such regional programs financed by local property taxes and has been opposed by the Metropolitan Area Planning Agency. Thus state financing should insure compliance of all disposal operations in the state with current regulations to minimize negative externalities. Some cities and towns presently impose user charges for sewers. This report suggests that these revenues be retained by the cities and towns, under the shift of disposal financing to the state, to offset waste collection costs incurred by cities and towns.
Impact of Service Level Changes
The costs shown in the accompanying tables indicate no change from 1970 costs attributable to anticipated changes in service levels, although it is assumed that under state takeover of financing, all sewage and solid waste systems will be in compliance with existing pollution abatement regulations.
For solid waste disposal, costs will not be significantly affected by expected improvements in service because it is assumed that the establishment of regional facilities will accompany the state financial takeover. Bringing all solid waste operations into compliance will double the 1970 per ton operating costs for sanitary landfill (replacing dumping) facilities and will require increases over 1970 expenditures for incineration for all but one of the operating incinerators within the state. This compliance will probably not occur without state takeover since, as previously
-53-
noted, unilateral efforts by Individual cities and towns impose heavy financial burdens. The Director of the State Bureau of Solid Waste resigned in November 1972 on the ground that there was no firm state commitment to implementation of the regional plans. His analysis, therefore, assumes that state takeover means regional systems along with compliance. Since regionalizat ion of operations should halve the cost per ton of processing city and town wastes, the net effect should be very little change in total disposal costs. It must also be noted, however, that with regional disposal facili- ties, individual cities and towns will be faced with higher costs of waste collection in conveying the refuse to the regional disposal site, a cost they will continue to bear under this proposal.
A different approach is appropriate for sewage treatment and disposal because compliance is currently being achieved without state takeover. The State Department of Natural Resources reports that over ten new treatment plants have been completed since 1970, ten are under construction, and five are in the planning stage. This construction is being undertaken primarily with federal state funds: the matching provisions until October 1972 were 55 per- cent fedpral, 25 percent state; the new federal law provides for 75 percent federal grants, the effect of which is to reduce the state' share to zer- until new legislation is passed. Most of these grants are allocated to towns which previously had no sewage treatment; a f-w are for alterations to existing plants. Because compliance is oooornng without state takeover, the increase in costs resulting from such compliance is not attributed, in this analysis, to the proposed financial takeover.
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TABLE
EXPENDITURES FOR WASTE DISPOSAL, CITY OP BOSTON, 1970
Solid Waste Disposal (Public Works)
1. Incinerator Operating costs |1 272 597"'" Amortization of plant
(principal and interest) 331,631^
2. Gardner Street sanitary landfill . 415,578^
3. Garbage disposal (by contract- Victory Road, Gardner Street) 31,200
Total Solid Waste Disposal $2,051,006
Sewage Treatment and Disposal
1. Pumping - Calf Pasture (Public Works) 306,739*5
2. MDC sewerage assessment 4,106,880
Total Sewage Disposal 4 , ^13 , 619
Total Sewage And Solid Waste Treatment and Disposal $6, 464, 625
•Understates true cost because the figure excludes the amortization of plant.
1 . Annual Report of the Public Works Department of the City of Boston for Year Ending December 3I> 1970, p.llBT
2 . Ibid.
3. Ibid.
4. Ibid. , p. 116.
5. Ibid. , Table 8 p. 123 (product of pumping cost per million gallon times sewage pumped).
6. Public Document 92, 1970, p. 22.
-55-
TABLE II - 5
ESTIMATED EXPENDITURES FOR WASTE DISPOSAL FOR ALL MUNICIPALITIES EXCLUDING BOSTON, 1970
Solid Waste Disposal (Estimate for all cities and towns
excluding Boston) $18,857,000
Sewage Disposal and Treatment MDC assessment on cities and towns
excluding Boston 8 311 011^
Other cities and towns in state (estimate) 3'520*000^
Subtotal sewage 11,831,000
Total Sewage And Solid Waste Treatment And Disposal $30,688,000
1. See text, and footnote 22.
2. Public Document 92, 1970, p. 22.
3. Estimate based on average sewage treatment costs per million gallon flow calculated from selected available town data and actual sewage flows reported in "Municipal Wastewater Treat- ment Plants January 1971," Massachusetts Department of Natural Resources, Division of Water Pollution Control.
f
i
D. COUNTY COURTS
Rationale for State Financing of Court System
The costs of operating courts in Massachusetts are shared by the state, the City of Boston, and the thirteen counties outside of Suffolk County. The approximate proportions of this sharing arrange- ment are as follows: the state — 20 percent; the City of Boston — 20 percent; and the outside counties — 60 percent. It should be pointed out, however, that the net costs of courts allocated to counties other than Suffolk are assessed against cities and towns within such counties.
The logic Involved in having the state assume the entire costs of operating the courts may be found in Article XI of the Declaration
of Rights in the Constitution of the Commonwealth of Massachusetts.
Every subject of the commonwealth ought to find a certain remedy, by having recourse to the laws, for all injuries or wrongs which he may receive in his person, property, or character. He ought to obtain right and justice freely, and without being oblip;ed to purchase it; completely, and without any denial; promptly, and without delay; conformably to the laws.
Certainly a liberal interpretation of the above provisions would conclude that the administration of justice is a function of the sovereli?:n power of the state. It is the concern of the commorweai th as a whole and not of any of its political subdivisions. Inequities and Inefficiencies of Present System
The inequity and inefficiency of the present system of frag- mented r'esponsibil j ty as between county and state government for court ptdmTni stration would also support this proposal for state assumption of the entire costs of operating the courts.
-57-
The present arrangement of divided financial responsibility is both illogical and inconsistent. The following are glaring examples of such inconsistency. The probate courts serve the counties in which they are located. Yet their justices and registers are paid by the commonwealth. The clerks of court who serve the state-wide supreme judicial and superior courts for their respective counties are paid by such counties, but the judges of these two courts are paid by the state, and auditors and masters appointed to help them carry out their judicial functions are paid by the counties.
Probation is now recognized as a state system. The commissioner of probation, his deputy, probation officers attached to superior courts are paid by the state, while the probation officers assigned to district courts continue to be paid by the counties.
The distribution of court fines and penalties is also illogical. Pines imposed by district courts are paid to the cities and towns in which the offenses occurred; but if a case is appealed to the superior court and a fine is imposed by such court, the county re- ceives the fines. But there is a major exception: fines imposed under the motor vehicle law (Chapter 90 of the General Laws) are paid to the counties no matter which court levies them.
There are sixteen major governmental units dealing financially with the courts. These include the Commonwealth of Massachusetts, the City of Boston acting on behalf of Suffolk County, the thirteen counties outside Suffolk, and the Suffolk County Court House Commission, the latter agency serving as a special board to operate the Pemberton Square Court House in Boston. Thus, sixteen court Jurisdictions maintain sixteen sets of books, and independently
-58-
purchase supplies, hire employees, let contracts ~ all to accomplish a single major goal, to make justice accessible to all residents.
The dynamic governmental entities within this court non- system which have legislative power are the state and the munici- palities. The county has degenerated into a kind of convenient middle administrative echelon for handling state responsibilities which in earlier days were thought to be too wide in scope for scattered towns and too local to be operated by the state.
If the administration of justice is a matter of state-wide concern, it follows that the present arrangement under which 80 percent of the costs are borne by one limited class of taxpayers, the property owners, is inequitable. The state as a whole benefits from effective administration of justice. The present complicated system of multiple bookkeeping by sixteen independent units and the voluminous auditing requirement would be reduced considerably if it were concentrated under a single authority. It is also reasonable to expect that consolidated purchasing and contracting would result in economies.
Recent court legislation seems to be equivocal on the issue of restoring logic and equity to fiscal arrangements governing the state's judicial system. For example, an act of 1972 establishing the Intermediate Appelate Court provides for direct State financing of the salaries of justices, clerks, miscellaneous office expenses, quarters and facilities. Although this legislation requires the counties to pay the salaries of sheriff-appointed court officers (chief deputy sheriff, assistant deputy sheriff and six court officers) amounting to over $100,000 a year, it also provides for
-59-
state reimbursement of such court officer salaries, except for $850. ^
On the other hand, the legislature exhibited a reverse trend in
authorizing a separate Housing Court of the City of Boston. This
gives Boston city-wide jurisdiction over "any general or special law,
ordinance, rule or regulation as is concerned with the health,
safety or welfare of any occupancy of any place used or intended
for use as a place of human habitation." This court also has
equity jurisdiction concurrent with the district, probate, superior
and supreme judicial court in all housing cases or matters within its 30
purview. All expenditures of the court are financed by the City of Boston through Suffolk County. Authorized appropriations in 1973 amounted to over $233,000. Impact of Future Service Level Changes
Net expenditures for county courts in Massachusetts totalled $30,566,000 in 1970 — $7,515,000 for Suffolk County (assumed entirely by the City of Boston) and $23,051,000 for the remaining 13 counties of the Commonwealth. If the state assumes all of the net costs of county courts, its total financial obligation would increase slightly to cover county court activities added since 1970. If a separate housing court is authorized for the cities of Springfield and Worcester (following the precedent with juvenile courts), a shift of net court costs to the state should also include expenses for these separate courts, the expenditures of which would approximate $100,000 a year, in addition to the $233,000 for the Boston Housing Court.
E. COUNTY CORRECTIONS
Introduction
Proposals to shift the administration and financing of correctional
-61-
generate disparities in the quality of correctional services pro- vided. The financial case against local training schools was even more clear. Several counties tended to send children to such schools, as was the case with Boston, but other counties remanded problem children to the State Youth Service Board. For these cases the counties avoided direct expense. Problem children are now the sole responsibility of the State Department of Youth Services, financed entirely with state funds.
In addition to considerations of inequitable fiscal burdens are the strong arguments that administration and the quality of facilities at the county level are inadequate, that rehabilitative programs are available only at a few county institutions, and that new, hopefully more effective correctional policies can be carried out under a unified state program.
The Deer Island House of Correction and the Suffolk County Jail have been criticized consistently for lack of rehabilitation programs, lack of adequate living facilities, lack of segregation of inmates by severity of crimes, and on other grounds.
The state, on the other hand, has embarked on an ambitious program of correctional reform which emphasizes the importance of more extensive and better rehabilitation and greater communitlza- tion of inmates convicted or charged with less severe crimes. The inmates of county facilities fall into this latter category, although they are subject to the most primitive kind of institutional incarceration .
Impact of Service Level Changes
The current system of county jails and houses of correction
-62-
costs about $10 million a year for services which focus by and large on simple incarceration. If the state took over this system, it can be expected that total costs assumed by the state would increase as the traditional system is reorganized and inmates are transferred either to state correctional institutions or to community-based treatment centers. State officials in the Office of Human Services have prepared rough estimates of the costs of such a transfer. The transfer plan provides for a four-year phasing-in schedule which requires additional expenditures linked to continuing fixed costs of the old system as it is being phased out. Their estimate of final cost is fixed at $8,000 per inmate, based on the experience with residential treatment centers for youth. This yields a total cost of $l4.4 million, some $4.4 million over present costs. The opera- ting expenditures for inmate institutionalization vary considerably, depending on the size of the facility and the service rendered. The average cost of incarceration for the county correctional system is about $5,000 per inmate in institutions providing minimum rehabili- tation services. The average cost per inmate in state correctional institutions varies between $5,500 and $8,500 in cost per inmate. Smaller treatment centers range in average cost between $5,000 and $10,000, depending on the size of population. Halfway houses cost about $1,500 per inmate for a 3-month stay or $6,000 per inmate year WJthout knowing the precise kind of services that will be instituted it is difficult to predict a total cost, except to emphasize the assumption that the greater the use of community-based treatment centers, the lower the cost to the state.
What is predictable is that the shift to state financing will
-63-
bring some increases in cost because the county correctional system is crowded and understaffed. However, it is probable that the state will not provide community-based treatment for all inmates who would benefit from it; therefore a sizable proportion of county inmates will be transferred to existing state institutions as new short- term facilities are developed.
It is assumed in this report that an integrated state system of corrections will cost on the average between $8,000 per inmate for ideal community-based treatment and the incarceration cost of $5,500 per inmate. Thus an average cost of $6,500 per inmate for the 2,000 inmates of county jails and houses of correction, assuming some incarceration and some short-term treatment will cost #13 million,
about $3 million in excess of 1970 total expenditures.
TABLE II-6
1970 EXPENDITURES FOR COUNTY CORRECTIONS IN MASSACHUSETTS AND ESTIMATED COSTS TO STATE OF STATE FINANCING FOR COUNTY CORRECTIONS
Suffolk County:
Jail $1,317,839 Less Departmental Receipts ( 66 , 3l6)
Net Expenditures for Jail $1,251,523
Penal Institutions Department 1,842,316 Less Departmental Receipts (8,293)
Net Expenditures for Penal Institutions Department 1 ,83^ , 023
Total Net Expenditures for Corrections, City of Boston $3,085,5^6
Counties Other than Suffolk:
Net Expenditures for Jails and Houses of Correction 6,811,1^4 Cost to Commonwealth for County Corrections, 1970 9,896,690 Estimated Cost to Commonwealth for County Corrections
Based on Assumptions re Service Level Changes $13,000,000
Sources: City of Boston and County of Suffolk, Annual Report, Auditing Department for the Year, 1970; Commonwealth of Massachusetts, Statistlcir Reports of the Commissioner of Correction for Year Ending December 31, 1970 (Public Document No. 115) •
p. VETERANS' SERVICES
Overview of Program «
Laws of the Commonwealth of Massachusetts require that cities and towns extend benefits to needy veterans residing within their local jurisdictions. Providing income maintenance and social ser- vices, this program is separate from public welfare. The costs are shared by municipalities and the Commonwealth. Each city or town operates a veterans' office, and the local veterans' service agent is an employee of the respective municipality. Benefit levels and eligibility requirements are set by the state. The state, through its Office of Veterans' Services, reimburses the localities for 50 percent of .the costs of assistance they pro- vide to veterans. However, the state does not reimburse munlcl- paJitles for the administrative expenses Incurred by veterans' service agents or veterans' service offices.
In 1970, the Commonwealth and its political subdivisions spent approximately $33 million for veterans' services. Boston spent about $7.5 million for this program and received reimburse- ments from the state totalling $3-8 million. Currently, Massachusetts is the only state which operates an assistance pro- gram of this magnitude for veterans. In most other states, a few services are provided by either state or local veterans' officer, and the major portion of aid and rehabilitative services are p^'ovided under state and federal categorical welfare programs for which most indigent persons, including veterans, qualify.
Another aspect of this issue is the legal requirement that
-65-
the state must operate a separate administrative structure for this independent program of income maintenance and social ser- vices which is similar to that of the Department of Public Welfare, the administrative agency for state and federal cate- gorical assistance programs. Rationale for State Financing
Human services in general are becoming increasingly recognized as a state-federal as opposed to a local responsi- bility. For veterans' services the case for state-federal assumption of fiscal responsibility and for state assumption of administrative responsibility is a strong one. Localities do not have discretion concerning veterans' assistance because Massachusetts law mandates that they be carried out. Localities certainly have no control over the numbers of veterans that will require aid within their jurisdiction. While in the armed forces, veterans serve the country as a whole which reinforces the argument that the federal government should share the responsibilities for providing for needy veterans.
If the present machinery of veterans' benefits disburse- ments were maintained, the financial burden of its operation could only be removed from cities and towns if the state assumed the full costs thereof. This is due to the fact that the present system of veterans' assistance does not qualify for federal funds to any significant extent. Aside from the issue that veterans' benefits involve no federal sharing of costs, the existence of this system means a duplication of administrative operations with those in public welfare.
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Proposed Reorganization
The Governor and his Executive Office of the Secretary of Human Services recently proposed a major overhaul of veterans' services. Under these recommendations the state would no longer reimburse cities and towns for the disbursement of veterans' benefits. Cities and towns would have the choice of whether or not to maintain the veterans' offices and agents, for which they currently pay the full costs, and to perform whatever advocacy services the locality deemed necessary. The costs of Income maintenance and rehabilitative services would be borne by the state and federal governments by transferring eligible veterans to appropriate state and federal categorical assistance programs. A new state Office for Veterans would be established to assist veterans in obtaining benefits to which they are presently entitled under state and federal statutes. Certain specialized services, such as aid to permanently dis- abled veterans, would be administered by the Office for Veterans. This office would also carry out such activities as the main- tenance of graves. Memorial Day functions, and other veterans- oriented advocacy roles. Veterans qualifying for particular welfare programs would receive their benefits through the disbursal mechanisms of categorized programs such as General
Relief, Aid to Families with Dependent Children (AFDC), or Old
32
Age and Disability Assistance.
The total costs of this proposed new system and the state's share of such costs are difficult to predict. The difficulty is that it is not clear which veterans now receiving veterans'
-67-
benefits would qualify for which state and federal programs. State- financed General Relief benefits are somewhat lower than current
eterans' benefits, which in turn are less than federally-assisted AFDC payments. Moreover, the individual categorical welfare pro- grams have varying provisions for recipient retention of a portion of earnings while remaining eligible for benefits. State officials are considering some supplementary aid for veterans who would qualify for General Relief so that they would not suffer a dimi- nution of assistance. The Executive Office of the Secretary of Human Services has prepared some tentative estimates which indicate that under the reorganization proposal, the state itself would face a relatively modest net increase in cost of about $1.5 million a year over the present system; most of the present local share of veterans' assistance would be shifted to the federal government. This arrangement represents an equitable means of achieving state-federal sharing of veterans' welfare benefits.
The implications of this proposal for Boston and other localities would bring an end to direct local expenditures for veterans' benefits. The cost estimates in the accompanying table are based on figures provided by staff of the Executive Office of the Secretary of Human Services. These figures incorporate assumptions about the distribution of veterans into existing state and federal categorical welfare programs. In addition, the cost estimates allow for maintaining existing levels of benefits and services to veterans, increased administrative allotments for the offices handling larger case loads, and the establishment
-68-
of a new Office for Veterans. The estimates in the table are also based on the assumption that municipal expenditures for veterans' services other than those covering direct benefits to recipients will remain the same. For Boston, this amounts to about $500,000.
TABLE I 1-7
1970 EXPENDITURES FOR VETERANS' SERVICES AND ESTIMATED COSTS OF STATE ASSUMPTION OP VETERANS ' SERVICES
Expenditures of City of Boston, 1970
Expenditures of City of Boston for Direct Benefits, 1970
Direct Income, Department of Veterans' Services,
City of Boston, 1970 State Reimbursements to City of Boston for
Direct Benefits, 1970
Net Expenditures, City of Boston, 1970
State Reimbursements to Cities and Towns other than Boston for Veterans' Benefits, 1970
Estimated Net Expenditures by Cities and Towns other than Boston for Veterans' Benefits, 1970
Total Net Local Expenditures for Veterans' Benefits, 1970
Cost to State of 100^ Financing of Veterans' Programs and Benefits by State and Federal Governments
Estimated Net Increase in State Costs Attributable to Transfer of Veterans' Programs to State and Federal Categorical Programs
Total Estimated Cost to State of Proposed Change
$ 7,524,537 6,939,033
(85,081)
(3,802,524) $ 3,636,932
$12,851,775
13,017,000* $16,654,000
$33,309,000
1,500,000 $18,200,000
*This is an estimate derived from the state reimbursement figures. Sources : Annual Report of Commissioner of Veterans' Services 1970-71
P.D. 68; Boston Program Budget 1972.
G. HEALTH AND HOSPITAL SERVICES Public Heal,th->Bb-spltal Service Patterns: An Overview
The state-local pattern for the allocation of responsibilities in public health. and public medical care facilities In Massachusetts and the. arrangement for financing these services in this state have remained sub$tantlally unchanged during the century since the establish- ment of the' State Department of Public Health (I869). Cities and towns in Massachusetts, many of which have local boards of health ante-dating the state health agency by a half-century (Boston' s health department goes back to 1799), continue to serve as the primary jurisdiction for providing varying bundles of services aimed at preventing and con- trolling dl%i»swii>«, prolonging life and improving environmental and health conditions in their communities. For the most part, partic- ularly in preventive and treatment services designed for individuals and the family, as contrasted with programs for upgrading the envl- . ronment, public health and medical care activities provided by state and local governments have been directed mainly at those financially unable to care for themselves. This emphasis on serving the personal health needs of the poor and the disadvantaged and on meeting the environmental health needs of the total community char- acterizes the client groups of both state and municipal programs.
The state's role and program in public health and mental health, and to a lesser extent the nature and scope of municipal health activities, have generally reflected major trends in disease patterns, social concerns and values, advances in medical knowledge and medical technolo*gy which have taken place during the past several decades. Forces and changes which are having deep Impact on both state and
-70-
municipal health policies and programs include: rising concern for spiraling costs, especially those for in-patient and institutionally- based services; maldistribution of health services and resources which leaves major gaps and pockets of unserved communities, neigh- borhoods and population groups; shifting emphasis from in-patient care to comprehensive primary care and preventative approaches; experimentation with alternative arrangements for delivery of primary care and in-patient care; the increasing role of the con- sumer In the governance of health delivery systems and mechanisms; major threats to the integrity of the environment resulting from drastically-changing consumption attitudes and behavior and relative neglect of environmental protection and conservation measures; in- creases in longevity and the implications thereof for chronic diseases and degenerative disorders affecting a growing proportion of the population. Roles of State Agencies
Public JTfealth and medical care programs of the Commonwealth of Massachusetts — conducted mainly through its Department of Public Health, the Department of Mental Health and the Department of Public Welfare — have attempted to keep pace with the explosive health and medical trends of the past quarter-century as indicated by the sub- stantial increases in investment over the past decade. This is evident in the 1970 expenditure levels shown in Table II-8. For example, total expenditures of the state's two major health agencies and expenditures for medical services provided to clients of the State Department of Public Welfare totalled about $450 million in 1970. The State Department of Public Health spent $^19- 3 million
-71-
operating purposes during the 1970 fiscal year from both state i federal sources of funding. State funds Increased by $23.3 Illon or 127 percent over i960. About two-thirds of the depart- nt's expenditures are allocated to operating requirements of its 'jen institutions. In 1970 operating expenditures of these facil- Les exceeded receipts from patient fees and other income by over 4 million.
Expenditures of the State Department of Mental Health for 1970 om all sources amounted to $135-9 million. Expenditures from ate funds for this department increased by $75 . 4 million, or a milar 127 percent during the 196O-7O period.
The bulk of expenditures, by the State Department of Public Ifare shown in Table II-8 is for the federally-assisted Medicaid ogram shared on a 55-^5 percentage basis by the state and federal vernments. Total expenditures for Medicaid in Massachusetts now ceed $400 million a year.
In Massachusetts all public mental health services are inte- •ated within the State Department of Mental Health. Mental health ■rvices are provided through a decentralized administrative system
seven regions, including state-operated mental health centers id state hospitals, and through contractual arrangements with 'Ivate and public agencies. Thus, the mental health function has 'ng been consolidated within a single state agency and financed itirely out of state funds. Municipal health and hospital agencies ly deliver mental health services under contract with the state, It all funds for mental health sei-vices come from state funds, scleral grants, or patient fees.
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The State Department of Public Health, in addition to its key .eadershlp role in public health (a role which includes serving as :he major channel for federally-assisted categorical grant programs) ["inances and monitors health programs carried out by other public md private agencies; provides a variety of direct services to iiscrete areas or client groups throughout the state; carries out responsibilities in standard setting, inspection, licensing and regulation of health facilities; has exclusive responsibilities in environmental health and protection of the consumer against health hazards; and extends general assistance, consultation and backup to municipal health departments, boards of health and other health delivery agencies. One of the critical current conflicts is the growing complaints of local health departments and boards of health that the state's supportive and technical assistance services are inadequate to meet the needs of cities and towns. Roles of County Agencies
There are still remnants of a once viable county tuberculosis institution system in Massachusetts, which reached its peak during the height of concern over this disease during the 1910-19^0 period. Of the nine counties which operated such facilities, only six (Barnstable, Hampshire, Middlesex, Norfolk, Plymouth and Worcester) are currently in operation. Barnstable County has converted its institution to a general hospital in support of a county health de- partment established under a special act of 1926 to serve communities of this county. The other five counties took advantage of I96I legislation authorizing transformation of their dwindling institu- tions into chronic disease facilities while retaining a proportion of beds for TB purposes. All county institutions are financed by a
-74-
mblnation of patient charges and assessments levied on cities and wns in such counties to make up the difference between expenses
id available receipts. In 1970 the Barnstable County Hospital
.nanced all of its requirements from hospital sources of Income.
16 others incurred deficits made up by assessments, as indicated in
ible II-9.
County hospital assessments are financed from locally-raised operty taxes. As the treatment of tuberculosis has shifted from 1 in-patient to an out-patient approach, there has been a steady ;cline in assessments for county hospital purposes. By 1970, 3sessments had decreased to $3-8 million. Dies of Municipal Agencies *
Cities and towns in Massachusetts expended $106.9 million for ealth and hospital services in 1970, the details of which are hewn in Table 11-10. Excluded from this total are county assess- ents on cities and towns for county hospitils and relatively minor xpenditures from federal grants for health and hospital purposes, ver 75 percent of the total is attributable to the expenditures f 17 municipally-owned hospitals (10 general and 7 chronic disease) ocated in 10 cities and 4 towns of the state. The remaining
TABLE II-9
COUNTY HOSPITAL MAINTENANCE ASSESSMENTS, 1970 ounty Maintenance Assessment
ampshire $ 23,843
iddlesex 1,802,283 lorfolk 466,270 lymouth 650,423 forcester 810,695
Source: Comm. of Mass., Bureau of Accounts, Annual Report on the Statistics of County Finances for the Year Ending
December 31, 1970 (Pub. Doc. No. 29), Table No. 10.
-75-
proportion — about $2^ million — is for services rendered by local health departments and local boards of health for health clinics (well child, immunization, dental, etc.), other personal health services, and environmental health services (animal inspection, plumbing inspection, nuisance control, etc.).
The relatively small and steadily-declining number of munici- pally-operated hospitals indicates that most in-patient hospital services in Massachusetts are provided by voluntary and proprietary hospitals rather than municipal institutions. The 10 cities which still operate hospitals are those having long and proud traditions with such facilities, many of which competed effectively in the past with hospital institutions under private sponsorship. In re- cent years, however, a combination of escalating costs, aging facilities, a contracting service radius, professional staff short- ages and declining patient loads resulting from widening patient choices for low income people under publicly-aided medical programs have cut deeply into the viability of both general and chronic disease hospitals operated by cities and towns.
For example, the City of Lawrence is under state orders to close its Burke Memorial Hospital used mainly for elderly, chronic disease patients, because of failure to meet state standards, reluctance of the state to issue the certificate of need for making physical renovations and declining patient load and staffing difficulties.
Of the 17 municipal hospitals, 11 incurred operating deficits in 1970 and most of them have been plagued by chronic deficits despite remarkable and steady improvement in hospital receipts
-76-
during recent years from third-party payments. Municipal institution with deficits in 1970 included the 3 hospitals in Boston, 2 in Cambridge, and the hospitals in Danvers, Fall River, Haverhill, Lawrence, Salem and Worcester. Their total operating deficits in 1970 exceeded $11 million, of which about $8 million was attributable to the in-patient services of the municipal hospitals in Boston and $1.3 million to the hospitals in Cambridge.
It should be pointed out, however, that even in Boston and Cambridge, the municipal hospitals in 1970 and subsequent years fiave been covering 75-80 percent of institutional expenses from hospital receipts. In fact, *to keep the gap between hospital receipts and expenditures from widening. City officials in Boston book drastic budgetary action in 1973, including a major reduction in the number of in-patient beds and commensurate reductions in related services. j
The remaining hospitals — all general, except for Springfield — 2ither broke even or experienced varying operating surpluses in 1970. By and large municipal institutions which operate in the Dlack have many of the characteristics of a community-wide, broadly- 3ased and supported non-profit facility. With the steady growth of third-party payments (particularly those provided under Medicare and 'Medicaid), they have been able to achieve healthy levels of self- support and have not become additional burdens to local taxpayers.
In addition to the operating deficits totalling some $11 million for municipal hospitals, net expenditures for all other municipal health services (receipts from clinic fees, health license and per- mit fees, etc. were deducted from gross expenditures) amounted to
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-78-
another $l6 million. Of this total, about $5.8 million was spent by the 312 towns in the state; the remaining $10.2 million by the 39 cities in the state, almost one-third of which was spent by the City of Boston.
As shown in Table 11-10 the school departments of the state also incur significantly large expenditures for health services, mainly for school physician and nursing services. In a few cases, e.g., the town of Brookline, expenditures for the local health department include the cost of providing health services to the public schools, since all health services have been consolidated under municipal auspices. By and large, however, school departments maintain their own health service programs, the total cost of which was estimated at $6.7 million in 1970. Since general school aid distributed to cities and towns by the Commonwealth is applied to all school expenditures, including expenditures for health services, a reduction by 30 percent in this total (representing an average for school aid) brings the overall figure down to $4.7 million. About $3.9 million of this net total was spent by all school departments excluding Boston and a net amount of $821,000 by the Boston School Department .
Municipal Disparities
Excluding the costs of municipal hospitals, the average per capita expenditure by all municipalities in the state for health and hospitals is about $3- However, expenditure levels range widely from almost nothing in small towns, which depend largely on services provided by district offices of the State Department of Public Health
ind on private health services, to municipal commitments reaching 55-$8 per capita in the larger cities and the more affluent ;ommunities of the Boston metropolitan area. There are only 20 lealth departments as distinct from boards of health in the state, vhich serve about one-third of the state's population; only 10 of :hem have full-time physicians on their staffs. There are probably inder 2, 000 persons (in full-time equivalents) employed by local wealth departments and local boards of health. Wide differences )f response to local health responsibilities and programs reflect vide differences in public health traditions, wide differences in concentrations of low income and elderly populations (who represent ligh priorities for public health services), and wide differences in financial capacity from which to draw resources for public health 3xpenditures .
State Leadership and Financial Assistance
State initiatives to bolster local public health programs have been weak and spasmodic. State laws and regulations provide only broad guidelines for cities and towns to follow in carrying out public health responsibilities. Except for small categorical-type state grants for discrete health activities, state financial assist- ance is not generally available to help and encourage local health [departments and boards of health. In the 1972 fiscal year, state reimbursements for health services amounted to less than $100,000. Although municipal health and and hospital Institutions serve as delivery agencies under state-supervised, federally-assisted activities (maternity and infant care, children and youth, crippled children services, cancer control, chronically ill and aged services,
-80-
sart disease control, venereal disease control, TB control, etc.),
nere are no basic state aid programs to strengthen and provide in-
entives to local health and hospital services. The last major
ffort to initiate financial assistance came in 1948 with the report
f a Special Commission which concluded that Massachusetts lagged
ehind many other sections of the country in providing local health
ervices, especially in the state's small communities. Not only did
he Special Commission recommend a regular state subsidy to assist
ocal health departments in achieving minimum standards of performance
nd personnel, but it proposed incentives to encourage cities and
owns to enter into union health districts. Legislation subsequently
•nacted authorized the establishment of union health departments but
imitted any references to financial assistance. The prevailing
;entiments of local autonomy mitigated against passage of legislation
/hich tied financial assistance to minimum standards. Only one union
33
lealth district has emerged from this legislation.
Not until 1961 did the Legislature implement a version of the L948 Special Commission's specific recommendation to reorganize and consolidate responsibilities for tuberculosis control by using a state subsidy device. Under this legislation, counties and certain cities ^ere relieved of statutory responsibilities to operate tuberculosis sanatoria and all responsibility for the care of TB patients was transferred to the State Department of Public Health. Counties and cities were authorized to close their sanatoria or to convert them into chronic disease hospitals or homes for the aged. The state subsidy for the costs of treating TB patients was increased from $5 per week to half the per diem costs of care for permanent residents.
-81-
he state assuming the full costs of all non-resident persons. The tate Department of Public Health has entered into contractual arrange- ents with the TB sanatorium in Boston and institutions maintained by everal counties to provide care under these jointly-financed arrange- lents .
The major conclusion to be drawn from the preceding discussion 3 that public health and medical care facilities represent a non- ystem of state-local health services. The original rationale for Dinplete local autonomy and local financing has proved to be dys- unctional. There are wide gaps in local service, extreme variations n scope and quality of service and a general atmosphere of apathy n most municipalities, with the exception of a handful of cities and owns with solid local commitments and deep traditions of public health ervices .
Although the temptation is strong to recommend the complete trans- er of both the administration and financing of local health and ospital services to the state, using the same arguments which prompted he Legislature to eliminate welfare as a local function, a preferable trategy would be to shift only the net costs of public health and lospital services to the Commonwealth while retaining local admini- tration. This alternative to complete consolidation under state urisdiction is recommended because the state is not conceptually, idministratively or operationally prepared to absorb the local health md hospitals function, and to blend it into ideal social service lechanisms— decentralized interdisciplinary centers meeting compre- hensive human resource needs throughout the state. Moreover, several of the hospitals (mainly the chronic disease institutions in cities)
-82-
lich had their origins in publicly-financed poor farms are in serious ates of flux and their continuing viability remains in doubt. Before le state assumes the net cost of such institutions, the decision as ) their retention as permanent facilities must be resolved.
Among the major arguments which support state financing for inicipal health and hospital services are those bearing on benefits id costs. The benefits of many health services, particularly those Lrected at individual and family care, are not consumed entirely by jsidents of municipal jurisdictions providing and financing them, itsiders, mainly those of low income, are likely to be attracted to micipalities with high quality and readily accessible municipal ?alth and hospital facilities. Alternatively, where municipalities lil to provide such adequate service, the social costs of this ne- .ect spill over into those cities and towns which do. Moreover, micipalities such as Boston and Cambridge, which operate fully- ?veloped medical care facilities, include within their scope of ?rvices activities such as nurses training programs and similar 'ograms which may ultimately accrue to the benefit of hospitals in :her jurisdictions. Experience indicates, for example, that a ijority of nurses trained at the Boston City Hospital continue at le hospital for only two or three years following their City- Lnanced training.
Hospital deficits incurred by state, county and municipal istitutions are attributable mainly to their responsibility for )pulation without medical insurance protection or with inadequate lird-party medical coverage and with income which is higher than 18 eligibility limits of publicly-subsidized programs. The deficits
-83-
state hospitals are financed by the state as a whole, however, ile the deficits of municipal hospitals represent charges against cal property taxes.
To the extent that some municipalities inadequately support ograms for communicable disease control, these deficiencies reaten the well-being of communities making the required effort, though the State Department of Public Health plays a major role in vlronmental health services, the laws give local boards of health gnificant responsibilities in this functional area and service flciencies can spill over into adjoining communities.
Transfer of the net costs of municipal, school and county health id hospital services to the state has been estimated at $35.5 million.
cannot be concluded with any certainty that this shift of responsi- llty to the state would not eventually generate higher costs for le Commonwealth. Surely, improvements in service levels to hieve a uniform higher standard would increase total costs. But if itional health service legislation is enacted, this dramatic step Duld conceivably eliminate operating deficits for municipal and ounty hospitals. Such legislation, moreover, would provide federal mancing for out-patient services, primary care, and preventative ervlces, personal health services now financed entirely from munici- al and state revenues. As for environmental health control, much of his responsibility has gradually been reallocated to regional and tate agencies. Once the financing of such activities has been trans- erred to the state, a serious review of municipal environmental ontrol responsibilities will be warranted. If jurisdictional changes ollow from such study, subsequent reorganization could conceivably
.educe the present level of expenses for this segment of public health, hus, this report assumes that if the state takes over financial re- ponsibility for municipal, school and county health and hospital ervices, the 1970 level of expenditures updated to account for cost- f-living changes is a reasonable estimate of the state's obligation.
H.- REGIONAL PARKS AND RECREATION Many parks and recreational facilities are operated and maintained n Boston and surrounding cities and towns by the Metropolitan District Commission on behalf of the 37 municipalities constituting the Metropol- tan Parks District. Principal and interest payments on bonds issued 0 finance capital expenditures of the District as well as 39 percent )f the maintenance and operating expenditures of the District are issessed back on the 37 member cities and towns under a combined 'ormula of population and equalized valuations. Types of MDC recreation ind park facilities which are located either in Boston or within five ailes of Boston's city limits include playgrounds (38), athletic fields ;28), skating rinks (27), swimming pools (15), boating areas (l6), fishing areas (l6), picnic areas (l8), beaches (15), and a variety other facilities and parks.
The historical perspective on the MDC included in the Boston ■Jrban Observatory report. Impact of the State-Local Tax Services Mix 3n Municipal Finances in the Boston Metropolitan Area: A Preliminary Evaluation, pointed out that the "MDC and its Parks Division are creatures of the state government, completely dependent upon final iecisions of the Governor and legislature.""' This arrangement, for example, has encouraged State legislators to exercise control over the location of facilities at the expense of sound regional planning.
-85-
re recently, the MDC has been cooperating with the Metropolitan {ea Planning Council and the State Department of Natural Resources L moving toward Its goal of providing more effective regional ser- fces .
Experience of more than three-quarters of a century with the : litlcal-f Inanclal arrangement for regional park and recreation irvices In metropolitan Boston brings Into question the policy of I ate assessments on cities and towns to finance such services, !-peclally In light of the fact that the MDC Is primarily under state ifluence and control. In this case, cities and towns are being ssessed for services when all basic decisions governing service )llcles are made by state rather than local officials. Moreover, It 3 not clear whether the distribution of benefits among the towns and Ities of the Metropolitan Parks District Is commensurate with assess- =nt proportions. In addition, the argument that the localities should nare In the financing of services In order to benefit from the econo- les of scale Inherent In regional operations (as In solid waste Isposal and treatment) does not apply to regional land use.
The concept of regional and statewide land use and planning upports the concept of a higher-level of government making the service nd development decisions, and also supports the concept of such ilgher-level government financing the operation.
In his budget message to the General Court of January, 1971, the Jovernor proposed that MDC assessments levied on members of the Metropolitan Parks District and state assessments on all other munici- palities which support the so-called State Recreation Areas Fund be terminated. He suggested that the Commonwealth assume the costs of regional park and recreation services covered by such assessments.
-86-
Implementation of the Governor's recommendation would shift '.8 million in regional park and recreation assessments to state lancing. Of this total, about $12.6 million would be lifted from iber municipalities of the Metropolitan Parks District, including ,155,000 from the City of Boston. The remaining $5.2 million presents assessments imposed in 1970 upon cities and towns outside ? Metropolitan Parks District and responsible for sharing in the lual requirements of the State Recreation Areas Fund.
I. VOCATIONAL EDUCATION
troduction
Like all primary and secondary education in Massachusetts, cational education is a locally-administered service, except where verned by regional school districts. However, the state financial sistance provisions for vocational education differ from those for her public education in providing for 50 percent reimbursement for 1 "approved" vocational expenditures. There is a noticeable versity across the state in the quality and scope of vocational educa- on available to local students, a wide range of service which may ; caused much more by disparities in revenues available locally than 1 differences in tastes for vocational education. The matching for- ila is not "equalizing" as is the matching for other educational <penditures, and hence does nothing to offset this fiscal constraint. ipporting Arguments for State Financing
There are several arguments that may be used for shifting all of ^e financing of vocational education from the city or town to the tate. First, of course, is the usual spillover justification: a ommunity pays for the education of its young residents who may then
-87-
ve to another area, so that the town or city which makes this invest-
nt in human resource development gets no return and feels justified
being prudent about educational investment. This effect is particu-
rly visible for specific job training aspects of vocational education
•ograms which prepare students for jobs not available in the munici-
.llty supporting them. Those receiving the training and residents
id businesses elsewhere in the state where the trainee goes to work
;ceive the benefits. State financing can overcome any tendency to
iderinvest because of a cost-benefit concern.
Vocational education is also characterized by greater economies
scale than general primary and secondary education. Because not
Ll students take vocational courses, and the training requires a more
)ecialized physical plant than that for general schooling, a larger
;gion is required to provide enough students to make full use of the
lysical plant, equipment and special instructional staff. Complete
:ate financing as contrasted with the current bonuses for construct-
ig and operating areawide schools (of all types, including vocational)
Duld provide greater incentive for the planning and operation of
egional schools by removing more of the present handicap of inter-
ocal fiscal disparities.
In addition (as pointed up by recent court decisions beginning
ith Serrano v. Priest in 1972 in California), "the accident of the
esidence of a child or youth should not prevent him from receiving
35
learly defined minimum education opportunities and services." 'he available options and quality of vocational as well as other ducational offerings should not depend on the viability of the property ■ax base of the city or town. Relying on local financial resources
-88-
for support has a particularly perverse effect on vocational education because children of higher income parents (who tend to congregate in separate tax jurisdictions) usually prepare for jobs through higher education, whereas those of lower income rely on the public secondary educational system to give them marketable skills; yet low income cities and towns are less able to finance the specialized vocational education activities which can equip students with relevant job train- ing.
A final argument can be made on entirely administrative grounds, given the present laws regarding educational aid from the state of Massachusetts: state financial takeover of vocational education, by eliminating the fiscal disparities issue, could be a key step in the regionalization of Boston's (and other areas') vocational schools. The formation of a regional school district brings to all member cities and towns a 15 percent increase in Chapter 70 school aid (which applies to non-vocational school expenditures as well). For Boston, regionalization of vocational schools would generate a $6 million increase in state assistance for school purposes.
Special post-secondary vocational programs pose a special prob- lem for Boston. The Boston Vocational Technical Institute has been, closed. The Boston Business School still serves an important job
preparation function for Boston residents and tuition-paying non- residents in office skills (secretarial, bookkeeping, accounting). However, similar course offerings are available in Boston area community colleges (Roxbury, Massachusetts Bay, Charlestown, Middlesex, and North Shore), which are entirely state-financed, although such courses are generally part of Associate Degree programs. It is suggested that the Boston Business School be terminated and Its
-89-
students accommodated in the existing community college system. Since the Boston Business School, like the rest of the public school system, is free to Boston residents, however, and community colleges charge tuition to all who attend, needy students from Boston should be thoroughly oriented to available scholarship resources, particularly those under auspices of the Commonwealth of Massachusetts. Impact of State Financing on Service Level Changes
Because financing of half the costs of vocational education through the local property tax serves as a constraint on different cities and towns, it is anticipated that shifting to statewide financing would cause an increase in vocational education offerings and higher costs for vocational education, especially in the more burdened property-tax arena. The increase in expenditures resulting from a shift to 100 percent state financing has been estimated on the basis of experience under partial (50%) state support, the markup factor being the percentage increase in local vocational education expenditures resulting from regionalizat ion of vocational education high schools. Because of the financial incentives offered by the state to cities and towns to regionalize their schools, joining a regional district in essence lowers the marginal cost faced by cities and towns in making vocational education decisions and encourages an increase in regional school expenditures. On the average, a doubling of operating expenditures for vocational education has occurred for member municipalities which had vocational school offerings prior to the opening of the regional facility. This factor of two has been applied to the 1970 -approved" (i.e., reimbursable) vocational education expenditures not in regional vocational schools, and added to the
-90-
"approved" expenditures of regional vocational schools to yield a state estimate of $21,288,000 for the total additional cost expected to result from changes in service levels when the state assumes 100 percent financing.
TABLE II - 11
EXPENDITURES FOR VOCATIONAL EDUCATION, 1970 AND ESTIMATED EXPENDITURES RESULTING PROM STATE ASSUMPTION OP
FINANCING
Boston
A. Boston Business School - Expenditures
net of tuition received from patrons $ 484,063
B. Boston Vocational Technical^Institute"'"
Expenditures net of tuition 164,177
C. Boston Trade |Jigh School Expenditures'^ $1,365,050 Direct income and tuition (695,672)
Net Expenditures 669,378
D. Trade High School For Girls
Expenditures h 2 569,545
Direct income and tuition (253,991)
Net Expenditures 315,554
E. Boston Evening Trade School Expenditures including administration m^*?r^^ n-ir'Pr't-. nnrnmp and tuition (15,7odJ
Direct income and tuition
Net Expenditures
F. Apprentice and Journeymen Classes
Expenditures cQn\ Tuition (65,689)
Net Expenditures
37,119
88,025
Net Vocational Education Expenditures, City Of Boston $1,758,316
1. Closed as of July 1, 1972.
2. Tuition received from other school districts in the state Such payments by municipalities are 50 percent reimbursed by the state.
-91-
TABLE II - 11 (cont.)
3. Including administrative costs apportioned on the basis of average daily membership.
l\. Direct income includes state vocational education reimbursement (Chapter 7^) as well as coop sales and the like.
Source: All figures derived from the Annual Report of the Business Manager to the School Committee of the City of Boston for the calendar year 1970. School Document No. 7-1971.
Rest of State
Because the vocational expenditures to be shifted to the state (as outlined in the text) for the City of Boston closely approximate 50 percent of "approved" reimbursable vocational expenditures ($1,751,232 in 1970), 50 percent of the "approved" expenditures for all other municipalities in the state are used as an approximation of the amount spent from municipal funds for current vocational operating expenses. This figure is the same as the state (50 percent) reimbursement: $8,886,500.
J. REGIONAL LIBRARY SERVICES
Introduction
The Library Department of Boston operates a library network of central and branch facilities which provide general circulating services and research and reference services to users. The state extends financial support to the Boston Public Library under three separate programs. The first is a direct per capita grant arrange- ment under which financial assistance goes to all cities and towns in the Commonwealth with libraries that satisfy minimum requirements. Under the second aid program, also calculated on a per capita basis, support is granted to designated regional libraries, and the Boston Public Library serves as the central unit of the Eastern Regional Library System. The third program provides financial support to the Boston Public Library as the library of last recourse for the entire state. Although the direct grant program has no expenditure guide- lines, the regional program and the library of last recourse program
-92-
contain spending restrictions.
Non-Residential Use of Boston Public Library Services
It has been estimated by library officials from periodic spot- checking of the addresses of persons served by the Boston Public Library that 50 percent of the Library's general circulating services and 50 percent of its research services represent use by non-city residents. It should be noted, however, that City of Boston residents do benefit from the expanded services made available through the regional library system program.
The above data must be analyzed within the frame of reference of the goals of the state support program. The goals of the regional library assistance program are to strengthen regional libraries by developing new services which become available to the entire region, and to share present specialized resources on a regional basis. The program is not intended to compensate the Boston Public Library for its use by the rest of the stata However, non-resident fees for the use of the Boston Public Library were abolished when the regional program was instituted. Therefore, it can be argued that the regional program does not either in concept or in magnitude of state assist- ance address the issue of general and specialized library services being provided and financed by the City of Boston for use by the metropolitan area. For example, in 1970 City appropriations for the Boston Public Library amounted to about $6 million and grants avail- able from the two programs of state assistance which recognize the regional and statewide characteristics of the library totalled about $1.5 million.
Under a fair formula for financing non-resident services of the
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contaln spending restrictions.
Non-Residential Use of Boston Public Library Services
It has been estimated by library officials from periodic spot- checking of the addresses of persons served by the Boston Public Library that 50 percent of the Library's general circulating services and 50 percent of its research services represent use by non-city residents. It should be noted, however, that City of Boston residents do benefit from the expanded services made available through the regional library system program.
The above data must be analyzed within the frame of reference of the goals of the state support program. The goals of the regional library assistance program are to strengthen regional libraries by developing new services which become available to the entire region, and to share present specialized resources on a regional basis. The program is not intended to compensate the Boston Public Library for its use by the rest of the state. However, non-resident fees for the use of the Boston Public Library were abolished when the regional program was instituted. Therefore, it can be argued that the regional program does not either in concept or in magnitude of state assist- ance address the issue of general and specialized library services being provided and financed by the City of Boston for use by the metropolitan area. For example, in 1970 City appropriations for the Boston Public Library amounted to about $6 million and grants avail- able from the two programs of state assistance which recognize the regional and statewide characteristics of the library totalled about
$1.5 million. '
Under a fair formula for financing non-resident services of the
Boston Public Library, state aid should be increased to 50 percent of the total expenses incurred by the library. Several implications of this argument should be noted. First, it implies that the general and research services of the library can be lumped together with the regional programs to get a single dollar amount representing the total cost of library service. This may not be entirely equitable because they represent two different kinds of services, regional services being specialized and earmarked for all users of the region. However, the aggregate dollar cost is the only feasible basis for calculating the proportionate estimated cost of non-resident use. Secondly, the Boston Public Library is the only municipal library in the Commonwealth which has provided regional services as part of its overall operation long before state assistance was available for this purpose. Other designated regional libraries did not provide regional library services of any scale until state aid permitted them to make such specialized services available to an areawlde juris- diction. Therefore, the Boston Public Library can justify additional state support which matches the 50 percent use by non-residents.
Although state financing of 50 percent of the expenditures of the Boston Public Library will not likely generate any significant increases in service levels, the fact that the Boston Public Library opened a major addition to its central facility suggests that state assumption of half its expenses will cost the state more than the $2,200,000 estimated for 1970 as the shortfall in state financial assistance. By 1973 the impact of the central library addition had increased City appropriations for the Library Department to $7.1 million. Thus, if the state pays for 50 percent of the expenditures of the Boston Public
Llbrary, as recommended, the additional cost to the Commonwealth will rise from $2,200,000 to $2,700,000.
TABLE II - 12
1970 EXPENDITURES OP BOSTON PUBLIC LIBRARY AND ESTIMATED COSTS OF PROPOSED REVISIONS IN STATE AID FOR REGIONAL LIBRARY SERVICES
Library Expenditures, City of Boston, 1970 From City Appropriations:
General Services $4,636,468
Research Services 1,438,713 $6,075,l8l
Debt Service 52,000
6,127,181
Less Departmental Income ( 95,687)
Net Expenditures from City of Boston Funds $6,031,494
State Aid Allocations to City of Boston:
Direct Grants to Libraries 174,000
Regional Library Program. 1,300,000
Library of Last Recourse Program l40,000 l,6l4,000*
Total Expenditures and State Aid $7,645,494
Proposed State Aid Reimbursement of 50^ of
Total Library Expenditures 3,822,997
Net Estimated Additional Cost to Commonwealth 2,200,000
Net Estimated Additional Cost to Commonwealth Attributable to Service Impact Assumptions
(see text) 2,700,000
* State grants are available for expenditure without municipal appropriation and represent funding sources in addition to City appropriations .
Sources: Boston City Budget 1973> and Director of Eastern Regional Library Program.
K. AIR POLLUTION CONTROL Jurisdiction for Air Pollution Control
Air pollution control in the City of Boston is presently the responsibility of both the city and state governments. The city gove
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ment has a municipal Air and Noise Pollution Control Commission funded entirely from Its general fund. The Commonwealth operates six regional programs which cover the entire state and which are designed to Implement the requirements of the federal 1970 Clean Air Act. The state program Is financed 75 percent by the federal government and 25 percent by the state; the state's 25 percent share of each regional program Is assessed back to member cities and towns of the regional districts on the basis of valuations and popula- tion. At the state level, the federal program Is Implemented by the Department of Public Health, Office of Environmental Sanitation. Rationale for State Financing
There are two aspects of the recommendation that all of the administration and financing of air pollution control be shifted to the Commonwealth: the activities of the City's own program should be assumed by the Metropolitan Boston regional program of the state, and the local share of this consolidated program should be financed from the state's general fund. Air pollution is perhaps a classic Illustration of externality, and the arguments against local operation of air pollution programs are manifest. A city may have no juris- dictional control over the major sources of pollution affecting its popula- tion, nor can it be sensitive to the full costs and consequences im- posed on its neighbors of sources of pollution which are within the geographical boundaries of municipal Jurisdictional control. Boston and Pitchburg are now the only localities in Massachusetts which operate local pollution control programs. However, the Pitchburg program is being discontinued and in 1973 will become the responsibility of the state regional control district in which it is located by mutual
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administrative agreement. Therefore, Boston will be left as the only local government in Massachusetts with its own pollution control pro- gram. The gradual disappearance of local responsibility for air pollution control has been matched by an increasing state and federal Involvement. Added to this trend in the specific case of Boston is the argument that to some degree the local program duplicates or competes with the activities of the state program, and therefore re- presents an inefficient use of public resources. Because the state has been legally charged with implementing the federal statute, its expenditures are matched by the federal government, while the local expenditures are not. Therefore, any additional expenditures incurred by the state after assuming total responsibility for Boston's air pollution control activities will have the added benefit of being matched three for one by federal dollars, in accordance with the mandated state-federal pattern of shared responsibility for pollution control.
»
The second aspect of the recommendation for shifting the admini- stration and financing of air pollution control to the state is that the state-local share does not have any convincing rationale. Assess- ments have long been a politically expedient way of raising prescribed local shares of service responsibilities in Massachusetts and have been used for other service financing, notably the MDC and MBTA . In the discussion concerning the shifting of the financing of such services to the Commonwealth, it is argued that the program is con- trolled by the state and decisions are almost entirely out of local hands. The very nature of these regional services belies an argument for local financing. This is true in the case of pollution assess-
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mentn as well. Air pollution control is a state operated and con- trolled program, and yet local funds are required for financing. One cannot argue for assessments in this case on the basis of incidence of benefits or incidence of needs for pollution abatement, because there is no necessary connection between incidence and the relative ability to pay as determined by property valuations. An argument for financing on the basis of municipal ability to pay certainly suggests state taxes rather than local property taxes, which are confused by Issues of jurisdictional fiscal and wealth disparities and municipal overburden problems.
Pollution does create benefits indirectly, however, to the degree that pollution is attributable to greater economic growth and affluence. The benefits, such as greater industrial production and economies of contiguous location, of activities which cause pollution do not necessarily accrue to the residents in whose jurisdictions these activities are located, but rather contribute to the growth of jobs and income of the larger economy. Therefore, these benefits would be more effectively captured through statewide taxes than local property taxes.
The regional nature of the problem both on the program operation side and the incidence side suggests state operation and financing as more efficient and more equitable than the present practice.
While the Commonwealth would offset part of its additional obliga- tions for taking over the cost of air pollution control assessments and the Air Pollution Control Commission of the City of Boston by making the latter' s activities eligible for federal assistance, it is also likely that the elimination of the overlapping and duplicating central city program of air pollution will further reduce the
Commonwealth's Increased costs.
TABLE II - 13
1970 AIR POLLUTION CONTROL EXPENDITURES IN MASSACHUSETTS AND ESTIMATED COST TO COMMONWEALTH OP ASSESSMENTS TRANSFER AND PROGRAM TRANSFER FROM CITY OF BOSTON TO STATE
City of Boston Expenditures
Air Pollution Control Commission $56,624 Assessment for Boston Metropolitan
Air Pollution Control District 29,184 $ 85,808
Expenditures of All Other Municipalities:
Assessments for Metropolitan Air Pollution Control Districts (5) Outside Metropolitan Boston 80,074
Assessments for Boston Metropolitan Air Pollution Control District,
Excluding City of Boston Assessment 98,117 178,191
Cost to Commonwealth of Assuming Assessment Expenditures for all
Municipalities in the State 207,375
Cost to Commonwealth of Assuming
Administration/Financing of City of _ Boston Air Pollution Control Program 14,156
Total Estimated Cost to Commonwealth $221,531
* This is the difference between 1970 total expenditures and anticipated federal matching of 75 percent.
Sources: Boston Program Budget 1972; Massachusetts Budget 1973, Metropolitan Boston Air Pollution Control District - listing of assessments, mimeographed.
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L. SUMMARY OF IMPACT ON GOVERNMENTAL EXPENDITURES OF PROPOSED
SERVICES/FINANCING SHIFTS
The expenditure consequences of the analysis in the preceding sections on specific functions are summarized in Table II - IH . This table shows that the total 1970 cost to municipalities of pro- viding the mix of services which this report recommends be shifted to the state amounts to about $236,686,000. Although the total of these costs would represent equivalent savings to local governments of such shifts of financial responsibility, it should be pointed out that in many cases the shifts are likely to result in changes in the levels of service. The impacts of these changes have been discussed and costed out on a 1970 base for each function in sections A-K of this chapter;' they are further adjusted to reflect additional changes expected through 1973, and these are summarized in column 4 of Table II - 15. The figures for Boston and other munici- palities shown in this table (columns 1, 2 and 3) are simply 1970 costs adjusted to expected costs for 1973- The 1973 adjustments for columns 2 through 4_ were made as follows: for certain services, where explanatory data are readily available, actual Boston and other municipal or state appropriations or assessments for 1973 have been used; for other services, the 1970 figures were inflated by the 1973 Boston Consumer Price Index. At 1973 levels, the savings to cities and towns amount to $280,663,999, which represents about 13 percent of estimated total property tax levies for the current year. Assuming that expected service level changes occur, total state expenditures for shifted services would require $363,182,000 in state taxes. The tax incidence on Boston residents resulting from the shifts in local property taxes to state tax sources is examined
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EXPENDITURES OF MUNICIPAL SERVICES RECOMMENDED FOR SHIFTING
TO STATE, 1970
— — ; Net Expenditures for lQ7n
Function and City of All Municipalities All
1 Boston Excluding Boston Nhminipal i tiPs
'ublic Safety: $ 2,500,000 $ 4,800,000 $ 7,300,000
Police traffic enforce- ment
Harbor patrol 213,000 213,000
Crime laboratory 83,000 83,000
Police training 286,000 292,000 578,000
Arson investigation 146,000 146,000
Fire boats 476.000 476,000
Sub-total $ 3,704,000 $ 5,092,000 $ 8,796,000 Transportation :
Street maintenance and
related street services $ 3,757,000 $12,096,000 $15,853,000
Public transit 24,9^0,000 26,705,000 51,645,000
Sub-total $28,697,000 $38,801,000 $67,498,000
^aste Disposal:
Solid waste $ 2,051,000 $18,857,000 $20,908,000
Sewage • 4,4l4,000 11,831,000 16,245,000
Sub-total $ 6,465,000 $30,688,000 $37,153,000
County Courts and Corrections:
Courts $ 7,515,000 $23,051,000 $30,566,000
Corrections 3,086,000 6,811,000 9,897,000
Sub-total $10,601,000 $29,862,000 $40,463,000
\^eterans Assistance $ 3,637, 000 $12,852,000 $16,489,000
Health and Hospitals:
Municipal health and
hospital services $11,869,000 $15,101,000 $26,970,000
School health services 821,000 3,889,000 4,710,000
County hospital
assessments 3,85^.000 3,85^,000
Sub-total $12,690,000 $22,844,000 $35,53^,000
TABLE II - 14 (cont.)
Function and City of All Municipalities All
Service Boston Excluding Boston Municipalities
Regional Parks and Recreation $ 4,155,000 $ 13,654,000 $ 17,807,000
Vocational Education 1,594,000 8,886,000 10,480,000
Regional Library Services 2,200,000 2,200,000
Air Pollution Control:
City air pollution control 57,000 $ 57,000"^
Regional assessments 29, OOP 178,000 207,000
Sub-total $ 86, 000 $ 178,000 $ 264, OOO-*-
Grand Total $73,829,000 $162,857,000 $236,686,000^
1. Although Boston spent $57,000 on air pollution control, if the state assumed financial responsibility, it would spend only $14,000 to deliver exactly the same services because of federal 3-for-l matching provisions. Thus, state assumption of air pollution control costs would save municipalities $264,000 and would cost the state only $221,000.
2. Because of the air pollution control item (see footnote 1), this figure, which represents the total savings to municipalities resulting from shifting to the state, is not equal to the cost to the state of such a shift. The cost to the state is $236,643,000.
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TABLE II - 15
1973 PROJECTED EXPENDITURES OP MUNICIPAL SERVICES RECOMMENDED FOR SHIFTING TO STATE
nction and Service
City of All Municipalities All Boston Excluding Boston Municipalities
State Totals with changes in service levels
bUc Safety:
ansportation :
Street Maintenance Public Transit
ste Disposal:
Solid Waste Sewage
unty Courts & orrections :
Courts orrections
terans Assistance
alth and Hospitals:
Municipal School
County Hospital assessments
gional Parks and ecreation
national Education
gional Library ervices
r Pollution Control Grand Total
$ 4,124,000 $ 5,669,000
$ 9,793,000 $ 9,793,000
* * »
$34,601,000 $41,566,000 $76,167,000
2,398,000 22,043,000 7,509,000 10,848,000
8,626,000 3,435,000
23,051,000 7,583,000
24,441,000 18,357,000
31,677,000 11,018,000
93,289,000 $76,376,000
24,441,000 18,357,000
31,877,000 14,470,000
4,344,000 14,680,000
19,024,000 1,670,000
13,214,000 914,000
6,984,000 1,800,000
2,450,000 96.000
16,812,000 4,330,000
2,354,000
22,834,000 18,200,000
30, 026,000 5,244,000
30,026,000 5,244,000
2,354,000 2,354,000
198.000
29,818,000 20,000,000
2,450,000
294 . 000
29,818,000 22,270,000
2,950,000
247.000
$90,495,000 $190,168,000 $280,663,000 $363,182,000
» Municipal highway and highway-related expenditures from local funds are covered by Chapter 497 state aid enacted in 1971.
1
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FOOTNOTES TO
CHAPTER II
1. For a complete discussion of the four criteria, see Jerome Rothenberg, "Local Decentralization and the Theory of Optimal Government", M.I.T. Department of Economics, Working Paper No. 35, December, 1968.
2. A detailed discussion of this criterion appears in James C. Charlesworth' s "Allocation of Responsibilities and Resources Among the Three Levels of Government", Henry W. Reynolds, Jr. (sp.ed.) in Intergovernmental Relations in the United States (Phila. 1965), The Annals of the American Academy of Political and Social Science, pp. 7I-8O.
3. This criterion is discussed in detail in Mancur Olson, Jr., "Strategic Theory and its Applications, The Principle of 'Fiscal Equivalence': The Division of Responsibilities among Different Levels of Government", in American Economic Association, Papers and Proceedings, vol. 59 (May, 1969),
pp. 479-487.
k. This type of effect is suggested in Jerome Rothenberg, "The Impact of Local Government on Intra-Metropolitan Location", M.I.T. , Department of Economics, Working Paper No. 45, March, 1971.
5. Arthur P. Solomon and George E. Peterson, "Property Taxes and Populist Reform", The Public Interest, No. 30, Winter, 1973-
6. Robert Engle, "De Facto Discrimination in Boston Residential Assessments", unpublished paper, M.I.T., 1973-
7. It is estimated that about half the local police departments in Massachusetts share their resources; some three-fourths of all police forces have plans for cooperative strategies in emergency situations. Among the important formal cooperative agreements providing for the sharing of resources and criminal information are such associations as the Greater Boston Police, the Northern Middlesex Chiefs Association, the South Metropol District and the Springfield Mutual Aid Group. From Mass. Committee on Law Enforcement and Administration of Criminal Justice, 1972 Comprehensive Criminal Justice Flan
pp. A-7-8.
8.
"The Economics of Urban Police Protection: A Research Note", ADDend^xTin Advisory Commission on Intergovernmental Relations, State-LocL Llat^ons!i^^ System (Washington,
D. C, August, 1971), P- 304.
9. Based on 1971 cordon count which lllil^ltlir entered the downtown area by automobile and 211.610 by public
transportation .
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1'-^. Op- clt., "The Economics of Urban Police Protection: A Research Note" .
11. Midwest Research Institute, A Joint Study of Crime Laboratories for Commonwealth of Massachusetts (December. 1971^. n. ik .
12. Ibid. , p. 5.
13. Op- cit., 1972 Comprehensive Criminal Justice Plan, p. B-20.
14. Advisory Commission on Intergovernmental Relations, Performance of Urban Functions: Local and Areawide (September, 1963) ,
pp. 126-127.
15. James P. Murphy, Is the Municipality Liable for Insufficiently Trained Police? (Orono, Maine: Bureau of Public Administration, University of Maine, 1968), p. 1.
16. Section 96 (B), C. 4l, Mass. G.L.
17. Donald R. Courtney, "A Critique of the Massachusetts Police Training Council" (March, 1973), unpublished manuscript.
18. See Division of Fire Prevention, Department of Public Safety, Report of Fires and Explosions for the Year Ending December 31, 1969":
19. Amendment of Section 3, C. l48, Mass. G.L., effective July 24, 1945.
20. Boston Municipal Research Bureau, "Costs of Flreboat Service Can Be Lower" (February, 1971).
21. "Phase II Reorganization, Secretariat of Trar:sportatlon and Construction," Statement by Secretary Alan A. Altshuler, January 12, 1973, P- 1-
22. Ibid, p. 2.
23. Massachusetts Department of Public Works, A Statewide Highway Transportation Plan, Volume I: Road and Street Responsibilities, A Functional Classification (1968) p. 33.
24. MBTA Recess Commission Report to Governor Francis W. Sargent, The Financing and Organization of the Massachusetts Bay Transportation Authority, (January, 1973), p. 26.
25. Raytheon Service Company, Solid Waste Management Study Report, Vol. I, p. 4.
26. Annual Report, 1970, Town of Pairhaven, Massachusetts , p. 70.
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27. U.S. Department of Public Health, National Survey of Ccmmunity Solid Waste Practices, Inventory of Community Solid Waste Practices In the Commonwealth of Massachusetts, computer printouts available at Mass. Dept. of Public Health, Comm.unity Sanitation Division.
28. Estimates derived from conversations with staff at DPW Bureau of Solid Waste Disposal and regression results from Raytheon Solid Waste Management Study Report, Vol. II, Section 3.
29. C. 7^0, Acts and Resolves of 1972.
30. C. 843, Acts and Resolves of 1971.
31. Senate Doc. No. 1077 (1965).
32. From two papers prepared by staff of the Office of the Secretary of Human Services: "Reorganization of Human Services" (January 8, 1973); and "Veterans' Legislative Fact Sheet" (Undated) .
33 • Report of the Special Commission to Study and Investigate
Certain Public Health Matters (House No. 2100), Dec. l7 19^8.
34. December, 1972, p. 110.
35. Massachusetts Advisory Council on Education, Occupational Education for Massachusetts, Report of the Advisory Committee on the Schaef fer-Kaufman Recommendations, April 1970, p. 23.
III. TAX INCIDENCE ON RESIDENTS OP CITY OP BOSTON OP PROPOSED
SERVICES/FINANCING REALLOCATION
Introduction
T)' -^cwssion in the preceding chapter developed the rationale for shifting the administration and/or financing of selected ser- vices from cities and towns in Massachusetts to the state govern- ment. For each service, the 1970 expenditures for the City of Boston, all other municipalities, and municipalities as a whole in the state were computed. In addition, estimates were made of service level changes that might be expected as a result of the shifts in administration/financing, and the impacts thereof on expenditures that these service changes implied.
This chapter outlines the fiscal consequences for residents of the City of Boston of the proposed service shifts. The fiscal implications fall out of three stages of the analysis: (1) the City of Boston would receive direct budget relief (property tax reduction) equivalent to the city's current expenditures for the shifted services; similar budget and property tax relief would be realized by all cities and towns in the Commonwealth; (2) the residents of cities and towns are also the taxpayers for state taxes. In the aggregate, residents of Boston (or of any municipality) would pay a different share of total state revenues to cover a given service than they do currently when their municipality finances the services through property taxes or when their municipality uses property tax revenues to pay their proportionate shares of assessments levied by metropolitan agencies such as the MDC or MBTA. Thus the aggregate amount of taxes paid by Boston residents for the given total of ex-
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penditures for shifted services will be affected by the shift in financing. (3) Finally, within Boston (or any municipal jurisdic- tion) the taxes fall differentially on households, depending on household size and income level.
The remainder of this chapter is divided into two sections. First, the methodology for analyzing the tax impact on resident households is discussed; this includes setting up an income defini- tion and examining the preoent burden of the local property tax and the state taxes which are potentially available for raising the additional state revenues required. The final section will estimate the change in family tax burdens caused by selecting various combina- tions of state taxes as substitutes for property tax financing.
2
A. ESTIMATION OF TAX BURDEN DISTRIBUTION There are three separate steps which must be taken in the analysis for estimating the tax burden distribution resulting from proposed shifts of the administration and/or financing of services from local to state government: (1) the development of an appropriate Income distribution against which to allocate resultant tax liabilities ;( 2 ) clarificationof the assumptions with respect to shifting of the taxes under consideration; and (3) preparation of an empirical series of tax payment and tax burden consequences by size of household and class of income.
The section below is a detailed analysis of the first step. The four following sections deal with steps (2) and (3) for the property, income, sales and gasoline taxes, respectively. An Appropriate Income Distribution
In order to calculate the tax burden by income class it Is
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necessary to identify the number of family units in each income class. Although the Census of Population for 1970 might be con- sidered a primary source for such data, intensive examination discloses serious gaps and errors in the information. Major defi- ciencies in the data include the omission of capital gains income and the understating of certain sources of income, particularly income from sources other than wages and salaries. In particular, the income statistics from the U. S. Census seem to under-report income, especially for taxpayers in the higher income brackets. The result of this for the analysis in this report would be to under- state the degree of tax regressivity .
An elaborate procedure must be used to adjust the Census income distribution data, drawing on information from the U. S. Census, the U. S. Department of Commerce, and the U. S. Internal Revenue Service. The adjustment process may be summarized as follows: (1) Total capital gains income in the Boston Standard Metropolitan Statistical Area (SMSA) for the I969 fiscal year was extracted from Internal Revenue Service data and allocated across income classes in the Boston SMSA according to the national distribution of capital gains for income groups. (2) Data from the U. S. Department of Commerce made it possible to estimate that percentage of income under-reported in Census data for wages and salaries, property income, proprietors' income, and transfer payments, after adjustment of the data to a common area definition. Included in such data were such components as imputed rents and interest, and food stamps.. (3) These two adjust- ments were applied to the reported Census income data for the SMSA and the City of Boston. The result was a new distribution which may
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be called "economic" Income. (For example, a family with an income of $12,000 according to the U. S. Census would have an "economic" income that included the reported $12,000 plus income from capital gains and other under-reported items.) (4) The number of families in any given income class were adjusted. Using the above example, the family with an income of $12,000 may actually have an economic income that would take it out of the $10, 000-$li| , 999 income class as reported by the Census. (5) The economic income distribution is cross-classified by family size.
Table III-l compares the original Census income distribution and the "economic" income distribution which resulted from the adjust- ments in the procedure summarized above. Figure III-l shows the same data graphically in a Lorenz curve. The diagonal line passing through the origin in Figure III-l defines perfect equality, e.g., 20 percent of the family units would earn 20 percent of the income, 50 percent of the family units would earn 50 percent of the income, etc. The dotted curve indicates the Census distribution of income while the solid curve represents the distribution of "economic" income. Since the area between either curve and the main diagonal measures the extent of inequality, the graphic display permits an evaluation of the relative equality of the two distributions. As might be expected, the data show a reduction in the number of family units (families and unrelated individuals) in the lower-income classes and a large increase in the highest Income class. By and large, the overall inequality of the income distribution Is slightly reduced .
It will be noticed that both the economic and census Income dls-
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TABLE III - 1
DISTRIBUTION OP FAMILIES AMONG INCOME CLASSES IN CITY OP BOSTON BY CENSUS AND ECONOMIC INCOME: I969
Number of Pamily Units* As Percent By Economic Income
By Census
|
Income Class |
Income |
Of Total |
|
$ 0- 999 |
31865 |
11.8 |
|
1,000- 1,999 |
26995 |
10 . 0 |
|
2,000- 2,999 |
22406 |
8.3 |
|
3,000- 3,999 |
18791 |
7.0 |
|
4,000- 4,999 |
17S47 |
D . |
|
5,000- 5,999 |
18469 |
6.9 |
|
0 , u u u- 0 , y y y |
17257 |
6 . 4 |
|
7,000- 7,999 |
16614 |
6.2 |
|
8,000- 8,999 |
15250 |
5.7 |
|
9,000- 9,999 |
12879 |
4.8 |
|
10,000-11,999 |
21325 |
7.9 |
|
12,000-14,999 |
21135 |
7.9 |
|
15,000-24,999 |
22938 |
8.5 |
|
25,000 and over |
5749 |
2.1 |
|
Ibtal |
269220 |
100. 0 |
As Percent Of Total
31206
4175 14892 16011 15015 15345 20677 22189 19468 17717 27918 24164
26203 14204
269220
* Family units include families and unrelated Individuals.
11.6 1.6 5.5 5.9
5 5 7 8
7
,6 7 7 2
.2
6.6 10.4 9.0 9.7 5.3
100.0
tributions for the City of Boston show a heavy concentration of family units in the lowest income class. This heavy concentration at the . bottom is almost entirely unrelated individuals (27,303 out of the total of 31,206 family units), and probably reflects the heavy con- centration of student population in Boston. This hypothesis is further reinforced by noting that the mean economic income in the lowest class is $57, strong evidence that dissaving or external (e.g., non-resident family) support is present. In the tax incidence tables which follow, the burden of the lowest class appears to be particularly heavy because of this unusual concentration of household units and low mean income.
The Shifting Methodology
All of the municipal activities and expenditures recommended for shifting are presently financed out of the general revenues of the City of Boston and those of other cities and towns, about two-thirds of
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PIGURE III - 1
LORENZ CURVE CITY OP BOSTON, I970
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whlch consist of local property taxes. Hence the local tax decrease treated in the following discussion is always the property tax. All the public services in the analysis are treated as a package, except for the transportation functions chargeable to the motor fuel excise.
The four major taxes in Massachusetts are discussed in turn, in- cluding a description of the structure of each and the estimated local burdens. Two alternatives for shifting the functions to the state level are considered: (1) Some of the transportation costs (highway services) to be shifted would be financed out of the motor fuel excise tax and the remaining functions would be financed out of the State's General Fund, half through the income tax and half through the sales tax. (2) Transportation costs would be financed out of the motor fuel excise, the remaining services from the General Fund, entirely through an increase in the income tax. Federal Tax Offsets
One issue which will not be treated in this analysis is tax exporting through federal tax offsets. When state and local taxes are deductible from income taxable by the federal government, the state or local tax liability is offset by a reduction in the federal tax liability. All the state and local taxes under analysis in this report (income, sales, gasoline and property) are deductible for both individuals and businesses in computing taxable income. However, several points must be made with respect to the distribution among taxpayers of such offsets. First, the deduction is available only to the statutory taxpayer, not necessarily the one who actually bears the final burden after shifting occurs. Thus in the case of property taxes on residential property, owners can claim the deduction but renters cannot, in spite of the fact that it is commonly claimed that
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0
one-fourth of rent goes for taxes. Similarly, for property taxes on commercial property, the business owner deducts these taxes as a cost f doing business, but consumers can claim no deduction for their share of such offsets. Secondly, these tax deductions benefit only those who itemize their deductions. For the corporation income tax, all businesses itemize their schedule of expenses. For the personal income tax, it tends to be higher income taxpayers who itemize their deductions and receive credit for the offsets. Finally, federal tax offsets are based on a progressive rate structure and hence are re- gressive as between individuals since the actual tax amount saved depends on the tax brackets and applicable tax rates.
If federal offsets in the cases under discussion were accounted for, then the estimated property tax reductions and concomitant income, sales, or gasoline tax increase benefits would accrue to renters more than to owners and relatively more than the results indicate since the Income, sales, and gasoline taxes are deductible Tor all groups while the property tax is not deductible for renters. Local Property Taxes
The purpose of this stage of the analysis is to determine how mch of the property tax is paid by Boston residents, characterized 5y income class and family size, both directly as consumers of housing ind indirectly as consumers of goods and services or as (non-occupy- 'ng) owners of property.
The first part of the analysis is the estimation of how the )urden is divided as between different kinds of properties; then ssumptions are made about who the final taxpayers are for each kind >^ property. Finally, the burden on each type of taxpayer is Ustributed across families (by family size and income class) and
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indlviduals (by income class), and aggregated across all types of taxpayers in order to get the total property tax burden.
According to the most recent available data,^ the distribution of gross assessed valuations for the City of Boston for major land use classifications is as follows:
Commercial and industrial 55.5%
Vacant lots ^.i
Non-farm residential hl.l Single-family residential only 9.5 These proportions of total assessed valuations give approximate indica- tions of the relative shares of total property taxes coming from each of these sources. Other sources outlined below may then be used to further divide this base property tax into its more detailed categories of land uses as shown in Table III-2.
The residential portion of the tax base has been divided into three parts because the Census of Housing reports housing consumption separately for owner-occupiers in single-unit structures, renters, and owner-occupiers in multi-unit structures. The Census of Housing reports that 85 percent of Boston's single-family units are owner- occupied. This figure is used to adjust the Census of Government's "single family" percent of base. The remaining 15 percent of the single-family unit category is included in the renter total, as is 83 percent of the multi-family category, since the Housing Census reports that fraction of multi-family units as renter-occupied. Finally, the remaining 17 percent of the units in multi-family structures are occupied by the owners of the structure. It should be noted that the above procedure assumes that for single-dwelling structures, rental and owner-occupied units have the same mean assessed
-up- value. Similarly, it assumes that for units within mulfi-unlt structures, the mean assessed value (per unit) is the same for owndrs and renters. These assumptions are implicit in the use of Housing Census data on number of units (regardless of value) to adjust the Census of Government's data on proportions of aggregated assessed valuations. For non-residential property the distribution among uses is derived from figures on acreage and employment in each use in the City of Boston. Table III-2 summarizes these results.
TABLE III - 2
DISTRIBUTION OP ASSESSED VALUATIONS IN CITY OF BOSTON BY TYPE OP PROPERTY: I97O
Percent of Total Assessed Value
inn
Residential 13.^ Owner-occupied units , in single family structures 8.1, in multi-fmaily structures 5-3
Renter-occupied units 27.7
* 55.4 Non-Residential
Retail 27.7 Wholesale 7.7 Manufacturing 8.9 Finance, Insurance, Real .Estate,
and Business Services 11.1
'acant Lots 3.1 )ther 0 . H
1. Derived from U.S. Housing Census and Census of Governments. See text.
'Sources : Derived by the following method from 1963 acreage and current ayroll data: Of acreage used for all four types of activity in the City f Boston, the percentage of total in each use is as follows: (1) Retail - 60%; (2) Wholesale - U%; (3) Manufacturing - 16$; (4) Finance, nsurance. Real Estate (FIR) and Business Services - 10%. For establishments n Boston performing these functions, the percent of total payroll and percent f total employment, respectively, in each use is as follows: (1) Retail - 36%/ Wo; (2) Wholesale - iH. 11%; (3) Manufacturing - 19J. H; (4) FIR and Business Services - 307., 30%. For wholesale and manufacturing he two measures agree fairly well. For retail and FIR they do not, and
nee
tapes ,
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For both the direct (residential) and the indirect impact of property taxation, an assumption must be made about where the burden falls. The standard case adopted in most such discussions revolves around the theoretical proposition that taxes on land are borne by consumers of whatever goods and services are produced or sold on the land in the form of higher prices for these goods and services. Thus for residential property, some share of property taxes is borne by the occupiers and the rest is borne by the owners. For owner- occupied dwellings, the tenant bears part of the tax and the landlord the remainder. Dick Netzer suggests that for rental housing, 80
percent of taxes are passed on to tenants in rents and 20 percent
4
are paid from the owner's profits. Although rent control in the City of Boston allows for a full pass-on to tenants of any tax in- creases (e.g., 100 percent shifting of the burden), it cannot be assumed that the same would hold true for a tax decrease: since rent control is imposed in a situation of excess demand, this situation makes possible (makes the market "able to bear") a pass-through of all tax increases but discourages a similar pass-through of tax decreases, and it is unlikely that rent control authorities could enforce a full reduction in rents if a tax decrease ensues. There- fore, the results shown in the tables that follow are based on an assumption of 80 percent shifting, but modifications in the results under the assumption of 100 percent shifting will also be discussed in the text.
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For property taxes on non-residential property the assumptions about shifting depend upon use: businesses which operate in strictly local markets can pass more of the tax on to their consumers because other firms with which they compete are obligated for the same taxes. There are three potential final bearers of the burden: stockholders of Boston corporations, proprietors of Boston companies, and consumers of goods and services made and/or sold in Boston. The distribution across these three groups depends on assumptions about exporting of the burden to non-residents as well as the shifting assumptions.
Based on the division among uses shown in Table III-2, Dick
5
Netzer's two shifting cases may be examined:
(1) Retail Case 1 Case 2
75^ shifted to consumers, 25% borne by owners 100^ shifted to consumers
(2) Wholesale:
75% shifted to consumers, 25% borne by owners
(3) Manufacturing:
Case 1: 50% shifted to consumers, 50% borne by owners Case 2: 90% shifted to consumers, 10% borne by owners (h) Finance, Insurance, Real Estate and Business Services: 75% shifted to consumers, 25% borne by owners In Case 1, 39-3 percent of the total property tax burden is borne by consumers and l6.1 percent by owners of non-residential property. In Case 2, 49.8 percent is borne by consumers and 5-6 percent by owners. As with the residential cases, the case Involving less shifting (case 1) will be incorporated in the subsequent tables, with both cases being discussed in the text.
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Exporting is possible, both of the share of -the tax passed on to consumers (through sales of goods and services to final consumers residing outside the City of Boston) and the share borne by owners (when non-Boston residents own proprietorships or corporate ^i^l'^s in Boston enterprises). Similarly, importing of taxes is possible iJ Boston residents buy goods produced or sold by firms subject to property taxation elsewhere or if Boston residents own enterprises subject to property taxation elsewhere. The context of this dis- cussion is consideration of the situation in which certain public services will be shifted from cities and towns in Massachusetts to the state government, and as a consequence, that property taxes levied by all cities and towns would be affected. Therefore, it is important to look at the net exporting of property taxes from Boston, which is net importing of property taxes levied by other Massachusetts cities and towns. The objective is to determine the net effect on indirect and direct payment of property taxes by Boston residents of a statewide reduction in property taxes, expressed in terms of Boston's taxes. If total property tax payments by Boston residents to all Massachu- setts municipalities are equal to r times total property taxes collected in Boston, then the fraction (1 - r) is the net exporting rate. Exporting through consumers is discussed immediately below, followed by a discussion of exporting through owners.
Wholesale, finance, insurance, real estate and business services are generally carried on by large central cities serving the many smaller communities surrounding them. Hence it is assumed that there is no importing from other Massachusetts jurisdictions of taxes being passed on to consumers through wholesale, finance, insurance, real
I
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estate, and business services. Only gross exporting must be considered, since it is equivalent to net exporting.
For wholesale activities, the excess of wholesale over retail sales in Boston is analyzed to estimate the fraction of Boston whole- saling destined for final consumption outside Boston. The Census of Business (1967) reports $4,555 million in wholesale sales and $1,470 million in retail sales for the City of Boston. According to the Internal Revenue Service, 'cost of goods sold' comprises 73 percent of retail receipts. This figure is used to adjust the retail figure downward to $1,082 million in order to make it comparable to wholesale sales. This means that $3,473 million of the $4,555 million in wholesale sales may be allocated to non-Boston retailers, which amounts to a 76 percent exporting rate.
Finance, insurance, real estate (FIR) and business services are even more concentrated functions in central places but cannot be 'shipped' geographically as manufacturing — they are simply not avail- able in lower level cities. This is supported by figures from the U.S. Census of Business on "selected services": the City of Boston provides almost half the miscellaneous business services for
7
Massachusetts (the SMSA provides five-sixths). Business services and FIR serve manufacturing and wholesaling which export considerably, serve each other, and serve retail still to be discussed. A rate of 70 percent net exporting is assumed for taxes passed on to consumers |of finance, insurance, real estate and business services.
For manufacturing, some importing as well as exporting may be expected; that is. Boston consumers buy some goods manufactured else- iwhere in Massachusetts. It is known, for example, that 45 percent
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of total manufacturing tons of Massachusetts are shipped less than g
100 miles. The City of Boston produces one-seventh of the state's value-added in manufacturing; the SMSA produces almost one-half.^ Since the potential final market for manufacturing is wider than that for wholesaling, higher gross exporting may be expected. Be- cause of some importing, however, an offset occurs. Thus 75 percent exporting of taxes passed on to manufacturing consumers is assumed.
Finally, for retail consumers it is anticipated that the import- ing aspect will be even stronger: Boston residents shop outside Boston as well as inside and hence pay (passed-on) property taxes to other jurisdictions in Massachusetts. As outlined in the preliminary discussion, the critical data item is r, where r is the ratio of pro- perty taxes paid by Boston residents as retail consumers to taxes paid in Boston by all purchasers of retail goods. If it is assumed that property taxes passed on are proportional to the price of the goods, then Boston residents pay in taxes on retail sales
B B t R + t R
B B N N
where t,-, is the tax rate in Boston, t,, the average tax rate in the rest of the state, R^^ is retail purchases in Boston by Boston residents,
hi
Rj^ retail purchases by Boston residents from retailers in the rest of the state. Total taxes collected from consumers of retail goods sold in Boston are
tgR^ + tgR^
where R^ is retail sales in Boston to non-Boston residents. Thus
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with Rg defined as all retail sales in Boston (=r| + R^) and R^ as all retail purchases by Boston residents (=R^ + n^)
Suppose Boston residents make the fraction c of all Boston retail purchases, and that this represents the fraction d of all retail pur- chases made by Boston residents. That is,
c = Rg /Rg and d = R^ /R^
then r can be expresssed as
- = (^B^B ^ ^N^n) / ^B^^ ^ 4^ = eI /R3 + (t^^/tg) * (rB/ r^)
= C + (t/tj^) ((R^ - R^) /Rg) = C + (tj^/tg) ((c/d) - C)
= c + (tj^/tp) c (1 - d)/d and this formulation may be used to estimate r.
Based on data for total property tax levies by cities and towns (and special districts) in Massachusetts in 1970 and similar data on total 1970 equalized values in each city and town (from "Financial Statistics of Massachusetts," 1971), an estimate may be derived of an average tj^ (=total non-Boston tax levies/total non-Boston equal- ized value) to compare with tg (= total Boston tax levy/total Boston equalized value). These are .05226 and .12701 respectively, which gives / tg = .4115.
Similarly, c/d = R^/Rg may be estimated by analysis of retail sales figures. The M.I.T. Urban Project has estimated retail pur- chases by resident • of Jurisdictions as a function of population and median family income, assuming, as a rough approximation, that for
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the Boston SMSA as a whole retail sales in the S>ISA are equal to retail purchases by the SMSA's residents. Using the M.I.T. estimates of retail purchases by Boston residents (R^) and comparing this with published data on retail sales in Boston (Rg), c/d = .62. That is, Boston residents purchase (inside or outside the city) an amount just over sixty percent of retail sales in the city..
These two calculations permit placing a limitation on the possible values of r. r ' s maximum value is .62, which is the case when d = 1,
i.e., all retail purchases by Boston residents are made within Boston. If d is .9, r falls to .59; exporting (1 - r) rises to .41.
Because residents of the City of Boston in fact probably do most of their retail shopping in Boston, we shall assume a 40 percent exporting rate for property taxes passed on to consumers by Boston retailers .
In summary, the net burden on Boston residents as consumers is calculated to be 17.5 percent of property taxes in case 1 and 22.5 percent in case 2; non-residents of Boston as consumers pay 22 percent and 27 percent respectively of Boston property taxes in the two cases.
In the following discussion of exporting of taxes borne by owners, it is important to distinguish two kinds of owners — corporate and non- corporate. The distribution of dividend;s maybe used as a proxy for the former, and proprietorship income to measure the latter.
Charles E. McLure, Jr. suggests that the corporate income tax is borne by profits in the short run, and on this assumption con- cludes that Massachusetts exports 73 percent of its corporate income tax in the short run.^° This implies that 73 percent of the owners of Massachusetts corporations live outside Massachusetts and the figure
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I
can thus be used for property taxes borne by corporate owners (out of profits). It will be adjusted upward, as discussed below, to reflect the position of Boston residents relative to the rest of the state.
For property taxes borne by non-corporate landowners, much less exporting out-of-state may be anticipated since local ownership is more prevalent. Exporting within the state is calculated on the basis of property ownership in Boston relative to the rest of the state, as indicated below. An initial step, however, is to make the division between corporate and non-corporate ownership for each of the four non-residential sectors, and for owners of rental resi- dential units and vacant land.
For the share of residential property taxes borne by the owners of renter-occupied buildings, the division as between corporate and non-corporate ownership in Boston is assumed to be the same as the national corporate vs. non-corporate shares of "total receipts" for the sector within finance, insurance and real estate called "operators and lessors of buildings." IRS"^"^ shows this sector as 37 percent corporate and 63 percent non-corporate. For vacant land, similar IRS national data for the sector ~ "lessors of real property, other than buildings"— are used; this sector is 19-1 percent corporate and 80.9 percent non-corporate.
For non-residential properties, there are two questions to answer if it is assumed that taxes are borne by the owners of the land: (1) how much of the sector is corporate vs. non-corporate, and (2) do corporate and nor -corporate establishments in each sector rent or own their property, and if they rent, do they rent from corporate or non-
-124-
corporate lessors? These two questions can be i^educed to the first alone if one of the following conditions prevails: (a) owners of commercial property pass all taxes on to the establishments which actually use the property, or (b) lessors of property to each sector have the same corporate/non-corporate split as the operators of the establishments in the sectors, or corporate lessees lease from corporate owners, non-corporate from non-corporate lessors. Because this question has been consistently ignored in studies of this type, it will also be omitted from this analysis on the grounds that one or another of the parts of (b) is a fairly close approximation for Boston .
12
On the basis of IRS figures for Massachusetts on shares of total net income or profits, the proportion of each sector which is corporate can be estimated, assuming that Boston is not significantly different in this regard from the state as a whole:
Retail: 5^% corporate
Wholesale: 8l% corporate
Manufacturing: 9^% corporate
t. Finance, Insurance, Real Estate and Business Services: 9^% corporate The net exporting figure for Boston for property owners (corporate and non-corporate) is estimated in a way similar to the procedure described above for retail activities. In the retail sales discussion, R with subscripts and superscripts refers to retail sales; P may now be used to refer to property, with the subscript reflecting the location of the property and the superscript reflecting the place of residence of the owner. If Bof..ton residents own the fraction c of Boston non- residential property, and this represents the fraction d of all non-
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residential property owned by Boston residents, \he result, as before, is
Boston residents, as owners of commercial property, pay the equivalent of r times the total commercial property tax burden borne by owners of Boston's non-residential property. The following equations are derived from this formulation.
^ = ^Vb^ /^B^^l ' 4^ - Pb/^B ' (V^B^^^n/^b)
r = c + (tj^/tg)(l - d) c/d Under the previous calculation, t^/t^ = .4115, and c/d is estimated as follows: From figures of the Bureau of Local Taxation, Massachusetts Department of Corporations and Taxation, the percent of total equalized value in various use categories is used as the basis for calculating the total equalized property value of commercial and industrial pro- perty in Boston and in the SMSA. (Because of data constraints, Boston relative to the SMSA is the framework of analysis rather than Boston relative to the state.) Census data on income by source for the SMSA and for Boston were used to calculate total property and proprietorship Income (using methodology outlined by the Syracuse University Metropolitan and Regional Research Center (see footnote 2) for refining "other income" to "property income"). The property value data reflect the location of property; the income data, the residence of property owners... If, for the SMSA as a whole, SMSA residents own property ?qual to that located in the SMSA area, then
c/d _ Boston income . SMSA income Boston value " SMSA value
^rom this assumption, c/d = .8901. This gives r = .89 as an upper
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-127-
limit if all the property owned by Boston resld^its were located in Boston (d = 1). Since ownership is expected to be more dispersed than retail purchasing, the assumption becomes d = 3/4 and r = .76. This means that net exporting due to in-state, out-of-Boston owner- ship of land (or enterprise) is 2H percent. For corporate ownership the r result of .76 is multiplied by McLure's residual in the state of 27 percent. The results are a 21 percent remaining burden for the city residents leaving 79 percent exported from the city. For non- corporate enterprise, the 24 percent exporting figure is used.
This leaves a net burden of property taxes borne by Boston resi- dents as corporate owners of property of 3.1 percent of taxes in case 1 and 1.2 percent in case 2; and the burden of Boston residents as non-corporate owners of property becomes 7-5 percent of property taxes in case 1, and 2.3 percent in case 2.
The results of this section are summarized in Table III-3 and in the Appendix Tables A-1 and A-2.
The preceding discussion of shifting and exporting for both residential and non-residential property would not be complete with- out making reference to more recent contributions to the literature of property tax incidence which challenge Netzer's "standard" cases. Larry Orr^^ suggests that whereas Netzer's "cases" may be appro- priate for an analysis of taxes falling on all property, they can hardly be applied to a metropolitan area where there is a great diversity in effective property tax rates. Owners of property in different jurisdictions within the economically Interdependent area must compete with each other in attracting consumers and there- fore find it impossible to- pass on more of the tax than Is common to
-128-
all jurisdictions in the area. The entire differential must be borne by owners, he claims, and supports his position with empirical re- search on cities and towns in the Boston metropolitan area. In 1970 the difference between Boston's effective tax rate and the lowest tax rate in the Boston SMSA (containing 78 cities and towns) is 78 percent of Boston's rate. Thus under Orr's hypothesis, owners would be expected to bear at least 78 percent of the property tax, the remaining 22 percent being split between owners and consumers, following Netzer's conclusion. Clearly, a major result of this, in terms of the final burden, is to suggest a higher overall exporting rate, since ownership is more geographically dispersed in general than is consumption. More specifically, for residential property 17.6 percent of the tax on rental units would be borne by the tenants and the rest by the owners. Owner-occupied units, of course, are unaffected by the change in assumptions. For non-residential property, the shifting percentages would be as follows (Netzer's Case 1 applied to Orr's unshifted remainder):
Retail: l6.5% borne by consumers, 83-5^ by owners Wholesale: 16.5% borne by consumers, 83-5^ by owners Manufacturing: 11.0^ borne by consumers, 89% by owners Finance, Insurance and Real Estate: l6.5% borne by consumers, 83.5^ by owners
If the exporting analysis is based on these shifting assumptions, the overall exporting rate becomes 46 percent, compared to the 36 percent rate from Netzer's Case 1. See Table A-3 for a summary of the Orr case comparable to that for the two /'standard" cases.
-129-
Another recent proposition in property tax incidence theory has been put forth by Peter Mieszkowski . He suggests that the basic effect of the imposition of property taxes is to decrease the yield of reproducible capital in general. This argument can only be applied to the nationwide average of property tax rates: relatively high tax rates in some cities and towns will have "excise tax effects" super- imposed on the basic effect; they will raise prices of goods and services produced and/or sold in the community, and/or reduce returns to factors of production (land, labor). The average level of tax does not increase the price of housing services: the price of rental housing is not increased, and owner-occupiers pay the tax only in their role of owners of capital- — the opportunity cost of capital has fallen. For the purposes of this report, however, only the "excise tax" effects in Mieszkowski ' s analysis are relevant, which are comparable to the Netzer approach already discussed. The reason for this is that although capital in general may bear part of the tax, capital's burden will not be affected by the shift proposed in this study, which is designed to reduce property taxes statewide in Massachusetts. In 1969 the Massachusetts average effective property
tax rate was the third highest in the U. S., and 1.6 times the mean
1 5
effective tax rate for the entire nation. ^ (On the basis of more recent data the estimate is that the Massachusetts average property tax rate is now the highest of all the states.) Thus it is highly unlikely that a statewide reduction will either put Massachusetts below the mean (turning the "excise tax effects" negative), or appreciably affect the mean; therefore, the burden on capital Is
-130-
constant. Since the objective of this study is'to trace the change in incidence resulting from the services financing shift, it is not useful to look at the total burden as Mieszkowski allocates it, since the decrease for each cell in the matrix will not be proportional to that total burden. Orr's analysis, on the other hand, refers to the effects of the interlocal differential part of the tax in a way different from Netzer's, and hence is an alternative which is perti- nent to this analysis. Both the relative differentials and the common lowest level will be affected by the proposed statewide reduction in property taxes so that the change in burden on each cell may be roughly proportional to the total. The implications of the Orr case for the results of this study will be discussed where appropriate in the rest of this chapter.
The previous sections estimated the shares of the Boston property taxes borne by Boston residents in their various roles: as consumers of housing services, consumers of goods and (non-housing) services produced and/or sold in Boston, owners of corporate or non-corporate Boston enterprise. It now remains to distribute these calculated shares over the taxpayers in each role according to family size and economic income class. Housing consumption is discussed immediately below, .followed by a discussion of the incidence of the non-residential burden.
Because the U.S. Census of Government's figures used as the basis for allocating the property tax base are in percentages of assessed value, the different assessment ratios as between the groupings is Of no concern. In the following discussion a constant assessment ratio is assumed for all single-family, owner-occupied units, a constant (not necessarily the same constant) assessment ratio for
-131-
all renter-occupied units, and a constant assessment ratio for all owner-occupied units in multi-unit structures. This permits the treatment of taxes as proportional to value (or rent), as reported in the U. S. Census of Housing.
The basic methodology used to estimate housing consumption by families classified by household size and income class is the same for single-family owner-occupied units and renter-occupied units, because the data provided by the Census of Housing is similar for each of them. Although the discussion which follows is in terms of rents, the word "value" may simply be substituted wherever "rent" appears, in order to make the discussion applicable to owner- occupied units in single-unit structures.
The aim of the procedure outlined below is to calculate the mean rent paid by households in each household size by income class cell within the economic income matrix previously developed. Taxes can then be distributed throughout the cells in proportion to the mean housing expenditures so calculated.
The Census of Housing (Metropolitan Housing Characteristics) provides three two-dimensional matrices:
1. Count of households by rent by income
2. Count of households by rent by household size""-^'
17
3. Count of households by income by household size
These three sets of data were used to construct a three-dimensional matrix of count of households by rent, by income, and by household size. calculations were made of the aggregate rent paid by each income class by household size cell (multiplying the mean rent in each rent Class by the number of households in the rent class and summing across
-132-
rent classes); and from that, the mean rent for feach cell, the output desired. The three matrices were combined as follows: First, the matrices were adjusted to reflect the same row and column totals (this was necessary because income and household size data are collected for more households than is rent (or especially value) data. Then the three-dimensional matrix was approximated by taking the rent by income matrix and assuming that, given income, rent is independent of household size; that is, the number of households in the (i,j)^^ (income class, rent class) cell was multiplied by the fraction of all households in the i Income class with household size k, in order to get the number of households in income class i, rent class J, and household size k. Finally, through iteration, by multiplying rows and columns, this matrix was adjusted so that the sum through any one dimension yielded a matrix identical to one of the three original two-dimensional matrices.
This process, applied to housing rents and values, generated matrices of housing consumption (aggregate and mean rent, aggregate and mean value) for renters and for owner-occupiers of single-unit structures, by income class and household size. The share of total property taxes falling on each of these two groups (see Tables III-2 and III-3) was then distributed in proportion to housing consumption.
An approach different from that outlined above is necessary for taxes falling on owner-occupied units in multi-unit structures be- cause the Census collects no data on the value of these units. The number of households by income class and household size which fall Into this category can be derived by a subtract ive process: the total matrix (3) mentioned in the previous section minus that derived J for single-unit owner-occupiers. Two alternative assumptions were
I
-133-
mme
used to secure housing consumption figures for these households:
(1) that owner-occupiers of units in multi-unit structures who are members of the (i,k) cell (income class, household size) consi housing proportional to housing consumption of single-unit owner- occupiers of the (i,k) cell;
(2) that owner-occupiers of units in multi-unit structures who are members of the (i,k) cell consume housing proportional to housing consumption of renters of the (i,k) cell.
In terms of real or economic income not reflected in census Income figures (especially imputed rents), owner-occupied households in multi-unit structures are more like single-unit owner-occupiers than renters; thus the first assumption was used in the tabular results. Taxes borne by owner-occupiers in multi-unit structures (see Tables III-2 and III-3) were distributed in proportion to housing consump- tion so derived.
The residential property tax burdens on the three groups, derived above, are combined to give the aggregate residential tax burden for all the city's households, by income class and household size. The mean residential tax for each cell is then simply the aggregate divided by the total number of households in the cell.
The final stage in the residential analysis is to convert the above results in terms of census income into "economic Income" results. This is done by deflating the economic income matrix using calculated under-reporting percentages in order to determine what census income categories it corresponds to, and then applying the appropriate mean tax results to the economic income categories. The final result of these computations, indicating the burden of property taxes on Boston
is shown in Tables III-i|A and III-4B
TABLE III - /jA
Economic Income Class
Tax Payments (thousands of dollars)
Mean Tax Payments
$
0- 999
$ 8540.62 1135.50 4080.76 4219.76 3820.80 4315.44 5994.32 6794.04 6226.29 6101.73 9882.82 9590.37 11865.89 7693.06
$273.68 271.97 274.02 263.55 254.47 281 .23 289.90 306.19 319.82 344.41 353.99 396.89 452.85 540.24
1,000- 1,999 2,000- 2,999 3,000- 3,999 4,000- 4,999 5,000- 5,999 6,000- 6,999 7,000- 7,999 8,000- 8,999 9,000- 9,999 10,000-11,999 12,000-14,999 15,000-24,999
25,000+
Total
$90261.38
The 1960-61 Bureau of Labor Statistics (BLS) survey showing consumer expenditures by income class and family size for urban areas in the northeast was used to distribute taxes passed on to consumers. The BLS survey data were adjusted using the Boston con- sumer price index (197O/196O) to reflect real income; that is, it was assumed that consumption patterns today as a function of constant dollar (purchasing power) income are the same as they were in 1960-61. This series was then adjusted to fit the "economic income" categories in a manner similar to housing consumption dis- cussed above.
Taxes borne by corporate owners are distributed according to the "property income" component of the economic income matrix; taxes borne by non-corporate owners,, according to "proprietorship income" in the economic income matrix for families and unrelated individuals in the City of Boston.
Table III-5 exhibits the burden of property taxes falling on
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TABLE III - 17
CHANGES IN TAX PAYMENTS IN CITY OF BOSTON BY INCOME CLASS AS A RESULT OF SHIFTING VARIOUS HJNCTIONS PROM LOCAL PROPERTY TAX TO A COMBINATION OF STATE INCOME TAX AND MOTOR FUEL EXCISE,
1970
Net Change In Net Change In Economic Total Tax Payments Mean Tax Income Class (thousands of dollars) Payments
|
$ 0 |
999 |
$ |
-2464.50 |
$- 78.97 |
|
|
1,000 |
1,999 |
- 401.28 |
- 96.11 |
||
|
2,000 |
2,999 |
-1504.75 |
-101.04 |
||
|
3,000 |
3,999 |
-1618.58 |
-101.09 |
||
|
4,000 |
4,999 |
-1593.92 |
-106.16 |
||
|
5,000 |
5,999 |
-1642.08 |
-107.01 |
||
|
6,000 |
6,999 |
-2122.13 |
-102.63 |
||
|
7,000 |
7,999 |
-1666.47 |
- 75.10 |
||
|
8,000 |
8,999 |
-1469.00 |
- 75.46 |
||
|
9,000 |
9,999 |
-1302.05 |
- 73.49 |
||
|
10,000 |
11,999 |
-1978.37 |
- 70.86 |
||
|
12,000 |
14,999 |
-1565.62 |
- 64.79 |
||
|
15,000 |
24,999 |
- '834.93 |
- 31.86 |
||
|
25,000+ |
622.73 |
43.73 |
|||
|
Total |
$ |
-19540.91 |
more in income taxes, offset by the reduction of $47.0 million in the local share of property taxes.
The distribution of the above net reduction across income classes is more "progressive" in the upper income ranges than in the shift which included the sales tax. The highest income class would actually^ pay more taxes after the shift than before, the tax relief (mean i and as percent of income) decreasing at a more rapid rate toward the top of the income scale. (See Tables III-17 and III-I8.) It should be noted that in the over-$25,000 economic income class, all families ; of three or fewer members would pay more total taxes after the shift; ' in the $12,000 - $25,000 range, "unrelated individual^' would also get
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