Meals tax a lifeline for cities and towns
More communities used levy, got $60m last year
Two years after the state authorized cities and towns to impose their own meals tax, communities are increasingly turning to the small surcharge to bolster finances battered by declining revenue and surging costs.
More than 40 percent of all Massachusetts cities and towns, and most in Greater Boston, now assess the tax, which adds 75 cents to a $100 tab, and many are receiving enough money to save public programs and avoid layoffs.
For residents, it’s yet another tax, albeit one so small many hardly notice. But for budget-crunched communities, the fresh source of money could not have come at a better time.
In Peabody, the revenue has helped pay for street and sidewalk repair. In Brockton, it saved some school bus routes.
“There was no other way to get the money,’’ said Linda Balzotti, the city’s mayor. “All the little pennies add up.’’
Statewide, cities and towns raised $60.7 million through the meals tax in the past fiscal year, which ended June 30, up sharply from $27.1 million from the year before as more communities approved the measure.
Boston raised $18.4 million, Cambridge $3 million, and Worcester $1.9 million. Burlington, Framingham, Newton, Springfield, and Quincy surpassed the $1 million threshold, according to state revenue figures, often sharply exceeding projections.
Led by restaurant owners, critics say the local surcharge adds to an already heavy sales tax and places an unfair burden on the restaurant industry. While paid in small increments, the tax could easily add up to hundreds of dollars a year for residents.
“It has a cumulative effect,’’ said Peter Forman, president of the South Shore Chamber of Commerce, which has lobbied against the tax. “It’s the typical approach of government: ‘Let’s nickel and dime and hide these small amounts and hope people don’t notice and complain.’ ’’
Critics also fear the tax won’t stay small for long, likely to rise whenever towns struggle to balance their books. And some towns have avoided the levy entirely, fearing an impact on fragile local economies.
“The small-business owners here have a hard enough time staying afloat,’’ said Judith Flanagan Kennedy, the mayor of Lynn, which does not levy the tax.
While often generating relatively modest sums in the scope of the overall budgets, the tax revenue often proves pivotal, the difference between eliminating programs and positions or not.
“It’s $800,000 we would have to find elsewhere,’’ said Michael Meehan, a spokesman for the city of Somerville, which approved the tax two years ago. “That’s a lot of jobs.’’
In 2009 - when lawmakers hiked the state sales tax on meals from 5 percent to 6.25 percent and gave communities the choice to impose an additional local tax of .75 percent - 72 communities approved the tax. Another 52 followed suit the next year. This spring, 20 towns, including Foxborough, Lynnfield, and Randolph joined them.
The tax has been particularly attractive to communities with high tourist and commuter traffic, where leaders can claim much of the revenue flows from out-of-towners and is less of a burden on local residents.
“In a city like ours, this is a real benefit,’’ said Joseph O’Brien, mayor of Worcester. “We have a lot of visitors, and 30,000 college students with a good bit of discretionary income.’’
Robert Mercier, town administrator in Burlington, said his community has generated just over $1 million, largely from residents of other communities traveling to Burlington for dinner.
Mayor Thomas Menino of Boston had long lobbied for the authority to assess meal taxes, saying it would lessen the financial burden on property owners, but he was thwarted by restaurant owners. With the recession taking a hard toll on local budgets in 2009, lawmakers decided it was time.
“That created the right storm to move it forward,’’ O’Brien said.
Peter Christie, president of the Massachusetts Restaurant Association, said restaurant owners fear the tax will increase over time and will seek to eliminate it when the economy rebounds.
Christie said while the tax may not cost individual consumers much, it transfers tens of millions from the private to the public sector.
“That’s $60 million that would have been better spent in our industry,’’ he said.
Forman said the combined tax of 7 percent in towns is hurting businesses in ways that may not be immediately seen.
“What happens is that people continue to go out, but they’ll cut back on what they spend,’’ he said. “All of these increases cut into an industry that works on very thin margins.’’
In Boston, a spokeswoman for the mayor, Dot Joyce, said the new revenue has helped offset sharp reductions in state aid, and “prevent more significant cuts.’’ The $18 million generated by the meals tax was in line with projections, Joyce said.
In many other communities, the revenue has exceeded expectations. In Somerville, which draws a large number of diners from surrounding towns, quarterly tax revenue jumped from last year despite the persistent economic doldrums.
“It reflects a strong restaurant sector,’’ Meehan said. “There’s certainly no indicator it has stopped anyone from having meals here.’’
In Provincetown, which raised $339,000 in its first year, tourism has been strong, easing some restaurant owners’ fears.
“In the grand scheme of things, we didn’t think it was that big a hit,’’ said Sharon Lynn, the town manager. “Seventy-five cents on a $100 tab? We didn’t think that would keep too many visitors away.’’
Even some small towns with few restaurants are adopting the tax. In Sherborn, which expects to bring in about $30,000 this year, residents figured that since they are already paying the tax in other towns, visitors should have to pay, too.
“Every penny paid by a nonresident to Sherborn means less pressure on property taxes,’’ said selectman Paul DeRensis.
Peter Schworm can be reached at firstname.lastname@example.org.