David Luberoff

Small change for cities and towns

By David Luberoff
June 28, 2009
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THE HOTLY debated tax increases in the budget that the Legislature sent to Governor Deval Patrick are small change, which is both good and bad.

On the plus side, the per-dollar provisions - which raise the meals and sales taxes from 5 cents to 6.25 and allow the state’s cities and towns to add another 75 cents to the meals tax and to raise hotel taxes by 2 cents as well - will add only small change to the cost of goods, meals, and rooms.

Yet the new taxes also represent only a small change for the state’s cities and towns, because the money will mitigate - but not eliminate - painful cuts to basic public services. And because the budget lacks other needed reforms, the taxes are only small change for local governments that need much larger and more systematic changes, not only in funding but in governance as well.

To begin with, the Legislature hasn’t fixed the growing and expensive problems associated with the health insurance localities provide for their workers and retirees. The problem is that unlike both state officials and managers in the private and nonprofit sectors, local officials must negotiate all aspect of health insurance plans - from co-payments to cost-sharing for premiums - with local unions that generally like the status quo.

As a result, localities’ health insurance costs have risen almost twice as fast as the state’s, and health insurance is claiming an increasingly large share of most local budgets. In Boston, for example, the share of the budget devoted to health insurance has almost doubled in less than a decade.

A 2007 law, crafted after intense negotiations, gave localities permission to join the state system but only if 70 percent of their unions agreed to that change.

Largely because of this provision, only 16 communities have joined. Many local officials say the small impact shows that they need the power to unilaterally design their communities’ health plans.

Not surprisingly, public-sector unions have strongly opposed this effort. And thus far, neither side has supported compromise measures, such as using binding arbitration to reduce the health insurance costs in communities where those costs exceeded the state averages.

Even worse, health insurance is just the tip of the iceberg. The high cost of fully funding pensions and other postretirement benefits will continue to stress local budgets.

Local officials’ ability to make needed changes are greatly limited by an outdated civil service system that bases promotions on test-taking and collective bargaining agreements that make it easy to challenge any changes to existing routines. Why, for example, does every town need its own emergency dispatch system? Why do many localities have separate systems for police, fire, and emergency services? Yet any effort to change these practices runs into a host of seemingly insurmountable obstacles.

Local officials are not blameless. State law, for example, gives them the power to greatly lower health insurance costs by requiring retirees to enroll in Medicare, a federally funded program. But many localities have not yet taken advantage of this option, not least because of resistance from retirees.

Such changes are hard to achieve because relatively small groups of individuals strongly oppose them. But the status quo may not be an option.

Costs are going to keep rising, revenues will remain flat, and the demand for services will not decline. Local policy makers, therefore, will have no choice but to reexamine longstanding practices and assumptions.

State policy makers can aid this effort by giving local officials the power they need to manage their affairs and by requiring that cities and towns adopt effective practices.

As important, the state should use its already extensive databases to identify localities that have unusually high costs or poor results, and then require that localities, with state help, fix those problems.

Such big changes are a tall order, but these difficult times require more than small incremental changes.

David Luberoff is executive director of Harvard’s Rappaport Institute for Greater Boston.

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