A Taxing Question

A November ballot referendum to repeal Massachusetts’ income tax has many educators scared. Though supporters of the referendum argue it would make the government more efficient and effective, detractors argue that it would put valuable public services at risk. Especially concerned are public college and university administrators, who warn that, for the state’s higher education system, the consequences of an income tax repeal would be grim.

A similar referendum failed in 2002. But to the surprise of many in the state, the measure -- which would have abolished the income tax immediately -- received a respectable 45 percent of the vote.

This year's referendum would reduce the state’s income tax rate from 5.3 percent to 2.65 percent in the upcoming year and eliminate it entirely beginning in 2010. Many fear the measure will pass this time, since it is more gradual than the 2002 measure and comes before voters at a time of exceptional concern over their finances. If the measure passes, Massachusetts would join nine other states that do not tax income. Many of those states have never had an income tax and have developed, over the years, alternative sources of income. This is not the case in Massachusetts.

The official sponsor of the referendum is the Committee for Small Government, an organization led by Michael Cloud and Carla Howell, former Libertarian Party candidates for U.S. senator and Massachusetts governor. Howell said that ending the income tax would cut $12.5 billion from the state budget and give back an average of about $3,700 per taxpayer each year. Additionally, she argued, it would force legislators to cut government waste and direct funds only toward essential services.

Funding for higher education and other fundamental government services represents a small portion of the state’s budget, Howell said. She noted, however, that funding for services valued by the public would be preserved as long as the legislature elects to prioritize them in a potential spending cut. To do otherwise, she said, would be “political suicide.” Howell maintained that the income tax repeal might even help some students pay off college loans and credit card and other debt by leaving them more discretionary funds.

Others in the state, however, express more concern about the referendum. The Massachusetts Taxpayers Foundation -- a non-partisan organization that researches state spending -- recently released a report outlining the significant changes that would take place in the event of an income tax repeal. The report notes that almost all state programs would have to be cut by more than 70 percent to adjust for the drop in revenue.

Massachusetts currently spends more than $1 billion on higher education each year. If the higher education budget were to be cut as outlined in the report, about $303 million of that would remain. This money would have to help sustain the five campuses of the University of Massachusetts, nine state colleges and 15 community colleges. These institutions rely on state money for approximately 20, 35 and 37 percent of their operating budgets, respectively. (The percentage of state appropriations for the UMass budget appears relatively small because it receives a number of federal research grants. If these grants are included as money spent on undergraduate education, the percentage of state support for UMass is considerably higher, comparable to the percentages received by the state and community colleges.)

For a system that is already experiencing budget cuts, some higher education officials argue, the consequences of another significant cut would be disastrous. Eileen O’Connor, spokeswoman for the Massachusetts Board of Higher Education, said that, although the board has not taken a formal stance on the referendum, it recognizes the serious effect it would have on the state’s public institutions.

The higher education system is already underfunded by about $400 million, she said. In the absence of income-tax funded state appropriations, she added, students would likely have to pay more in tuition and mandatory fees to make up for this lack. O’Connor explained that, in Massachusetts, the state board sets the tuition for each of its 29 public institutions, and the individual colleges and universities charge their own fees -- typically four to five times higher than tuition -- to bolster their operating budgets.

The impact of an income tax repeal would not solely affect tuition and fees, O’Connor said, noting that it would also severely limit state capital spending at campuses throughout the system. Last year, Massachusetts approved a $2 billion bond for infrastructural improvements and building construction at all 29 public campuses. O’Connor said the tax repeal would almost certainly limit the state's ability to borrow for this capital spending and therefore halt many construction projects.

Additionally, she said, the repeal would put many financial aid opportunities in jeopardy. O’Connor noted that nearly $100 million in state financial aid is appropriated by the board. A cut in need-based aid offerings, she said, would affect both public and private institutions of higher education in the state.

At the state’s flagship institution, the University of Massachusetts Amherst, some argue that an income tax repeal would change the very nature of the institution. Robert C. Holub, its newly appointed chancellor, said his campus’ state appropriation would have to be cut from 27 to 7 percent and that tuition and fees would likely have to be doubled. In-state students at the flagship currently pay $10,234 in tuition and fees. Doubling them would cost in-state students slightly less than out-of-state student currently pay. Such potential changes, he said, ensure the institution’s stance against the referendum.

“It would be fairly devastating to the institution, as far as the financial implications,” Holub said, noting the university would have to accept more out-of-state students to bolster its budget. “We would become a different kind of institution. We would be something that would resemble a private institution and have to reconsider our mission of educating Massachusetts students. We feel this would be a bad move for the state.”

The potential repeal of the state's income tax also worries some at the community college level, where institutions rely even more on state funding to keep their open-access institutions affordable for students. The trustees of Berkshire Community College, in the far west of the state, symbolically voted 10-1 for a statement expressing their opposition to the ballot referendum. The statement argued that the referendum would "jeopardize the future of public higher education in Massachusetts and Berkshire Community College in particular."

Additionally, the Massachusetts Community College Council, the National Education Association affiliated union for two-year faculty members and other professional staff, expressed its concern about the referendum in a letter to members. Donnie McGee, council vice president, noted that some academic programs would be have to be eliminated, support services reduced, and a number of campuses could shut down to make up for the lack of funding. Passage would likely lead to layoffs, the union has projected. Still, he argued there is potentially a great cost for students.

"Our mission of access would be impossible," McGee wrote. "Most students simply couldn't afford the skyrocketing fees."

Recent polls either show strong opposition to the referendum or a statistical dead heat, though more appear to oppose the measure when given more details about its possible effects. In either case, the mere talk of it passing has supporters enthused and opponents frightened.

“People are hurting in this state,” said Holub. “People say, even if it would mean $20 to $30 more in their paycheck each week, they are looking at what they can gain in the short term. There’s a huge backlash against politicians holding the resources they do. I think the economic downturn is hurting people so much that [this referendum passing] becomes more of a likelihood.”