Keene City Councilor Randy Filiault has lost patience with the New Hampshire state government over its inadequate sharing of meals and rooms tax revenue with municipalities. Pointing to the 60-40 revenue split long provided for in the legislation — with the 40 percent designated to go to municipalities — and the state’s ongoing failure to live up to that share, he has asked the City Council to consider either suing the state for the full 40 percent or withholding it from the amount of tax the city collects for state coffers.
The issue is one Filiault has highlighted in the past, and he notes the council has submitted letters and resolutions over the years to the state that have been ignored. The trigger for his more aggressive proposal is the half percent decrease — from 9 to 8.5 percent — in the meals and rooms tax rate adopted in the recent state budget that Gov. Chris Sununu has trumpeted as a benefit to consumers and businesses alike. Filiault says that the rate decrease “actually will result in increased property taxes for Keene residents” as well as an additional shortfall in state aid to the city. His point was echoed by Democratic Sens. Cindy Rosenwald of Nashua and Lou D’Allesandro of Manchester, who wrote in a June opinion column that the cut “won’t help restaurants one bit ... saving the customer just a nickel on a sandwich,” while costing the state budget $30 million in revenue.
The state’s record over the years of living up to its pledged share of the meals and rooms tax has been abysmal under both parties. Though the statute, RSA 78-A:26, long spelled out that 40 percent of net collected revenue should be divvied up among the state’s municipalities according to their relative populations, the amount actually paid has been limited in budgets stretching back to 1995, with the most recent share payment hovering near 20 percent. That has put a significant hole in state aid to towns and cities, forcing them either to raise property taxes to cover the shortfall or cut services. It’s a statewide and not just a Keene problem, and, indeed, Republican Sen. Denise Ricciardi of Bedford introduced legislation this year aimed at getting back to the full 40 percent.
Though there’s good reason for the city to continue to take a stand against the state’s not reaching a 40 percent share, there is a concern over what options are available. Suing the state or withholding funds to get to the 40 percent threshold will have to overcome the obstacle that, in the budget trailer bill Sununu signed into law in late June, the Legislature amended RSA 78-A:26 to eliminate the 40 percent mandated share and replace it with a 30 percent share. City Manager Elizabeth Dragon has confirmed the tax share this year will indeed be 30 percent, increasing the amount paid to the city by more than $400,000 over last year’s $1.85 million. An increase to the full 40 percent would certainly be welcome, but the council will surely need legal advice on whether there remains an enforceable state commitment to get there before suing or withholding tax collections from the state.
The bigger concern is the meals and rooms tax issue Filiault raises is part of the same problem that has long vexed municipal, county and school officials. Two years ago, when he raised a similar objection to the tax split, the council discussion sought to frame the matter more broadly to include the downshifting to local taxes caused by the state’s underfunding of its retirement system, municipal bridge aid, local education aid and Medicaid provider payment rates.
The state is not alone in its reprehensible downshifting — the federal government has long woefully underfunded local school aid to fulfill mandated responsibilities under the Individuals with Disabilities Education Act. But the same politicians statewide who rail at the effect on local taxpayers of unfunded federal mandates are often the same who crow loudest about statewide tax reductions that also end up underfunding local obligations. Whether the council can find a way to put more pressure on the state remains to be seen. What’s needed is political will among the state’s leaders to fully fund its mandates.