Proposal is premature

  • Published in MyView

By Pete Mooney

I agree with Tom Mehuron’s sentiment in the November 29 Valley Reporter that “the proposal to put the LOT on the ballots for this March is way premature.”

The MRV-FLO initiative sounds like it has some merit. It appears well thought through, seems to have designed some good goals and metrics for success and has proposed what looks like a sound governance process. There is significant need in The Valley – affordable housing, economic development, increasing our profile – all things we need.

I am concerned that we have selected the local option tax as the best funding approach. I’d like to see the analysis of what other funding options were considered and why increasing taxes was decided to be the best approach. I’m also concerned about the model used to derive the “$2 per resident per month” estimate.

I don’t view any tax increase as benign. Any increase, no matter how apparently minor, is of concern given the huge tax burden Vermonters already face.

The projections quoted in the November 1 Valley Reporter and quoted elsewhere state that the tax will generate about $1 million per year, we get to keep $700,000 of this, and Valley residents would fund 12 percent of that amount ($2 per resident per month). This projection seems based on a simplistic financial model. Assuming 5,000 residents you can do this math in your head, no spreadsheet required. The projections seem to only account for direct impacts. But, second order implications can have a big impact and need to be considered. Here’s one example.

NOT THAT SIMPLE

I’m a Valley resident and I rent out a property here to visitors. I do this mainly so I can afford my property tax. I charge the 9 percent meals and lodging tax to my renters. Applying the LOT to the meals and lodging tax would increase that amount to 10 percent (a quick check on the Vermont tax website confirms lodgings are liable to collect the tax). I’d try to pass that on to my renters, but it isn’t that simple. I’ve found that renters do consider the all-in cost. I had to reduce my rates when the state finally started to enforce the 9 percent tax on Airbnb rentals and I will probably have to do so again if an additional 1 percent is added. Maybe we won’t have to absorb all of the increase, but we’ll take some of it. I imagine there are many property owners in the same boat. Did the model used to derive the “$2 per resident per month” projection assume this kind of increase would be passed on to renters, rather than some percentage being absorbed by local residents?

Say 10 percent of Valley residents rent out properties with average revenue of $20,000 a year. Assume they can only pass on 50 percent of the LOT increase. That’s a roughly $50,000 per year additional impact on Valley residents. In this example, the Valley resident impact would become $3 per person per month, not $2. I don’t know what the actual numbers are, but you get my point. The indirect impacts are of consequence and need to be considered.

To go further, does the financial analysis consider the impact on the bottom line of Valley lodges and hotels or did it just assume a full pass through across the board? Things like this can make the indirect impact on Valley residents more significant than the numbers I’ve seen and it can hurt the overall competitiveness of our businesses.

On the sales tax side of things, I share Tom’s concerns. Many of us living in The Valley shop locally when we can. I suspect that the quoted $120,000 comes from some projection of the amount Valley residents currently spend annually in the three towns. But, what if the additional amount in sales tax might be just enough to cause some residents to shop elsewhere? It doesn’t seem like much, but it adds up. Our local prices are already high; loyalty to local businesses only goes so far. In the case where the increase is just passed along to consumers, does the projection model assume some decline in spending due to Valley residents who will shop and eat elsewhere?

TWO IMPLICATIONS

Ultimately, an increase in tax has only two implications for a business. The business can eat the increase, which reduces margin and impacts longer-term viability, or it can pass the increased cost along to consumers. That obviously reduces demand. The Valley does not have the profile of destination resorts like Stowe and our businesses need to compete on price. I suspect many of our businesses will eat the cost increase rather than pass it along and lose customers. Local businesses will sacrifice margin to maintain demand. What scenarios did the model run in this regard?

I am open to the idea of using an LOT to fund MRV-FLO, but if forced to vote this March I’d say no. It is naïve to believe that the impact on Valley residents will only be $2 a month per person. We should come up with a more comprehensive model to determine the true impact on Valley residents and on our businesses.

If Vermont were a state that had lower overall taxes, I’d be less concerned. But, we keep shoveling tax dollars at our broken education system and this crowds out our ability to use tax dollars to fund other items. Taxing existing residents (or our second-home owners) more is not a viable solution. I think about this as an additional 1 percent tax increase on top of however much my property tax is going to increase next year. One percent may not sound like a lot, but you need to consider the marginal impact of these things. When individuals and businesses are already sitting on the knife-edge, it does not take much to push you one way or the other.

I need to hear much more about the benefits of MRV-FLO and why a tax increase now is the best option to fund it before I’d be persuaded to vote yes.

Mooney lives in Waitsfield.