BRATTLEBORO — First, the Selectboard and town officials should be commended for their hard work and efforts on behalf of the residents of Brattleboro. We should all be grateful for their efforts.
My comments are not meant as an endorsement or a condemnation of their efforts or of the improvements proposed for the municipal center/police/fire station.
However, we should not implement an additional sales tax to pay for the improvements.
Historically, our local legislative representatives, as well as those in other eastern Vermont border areas, have been opposed to the state increasing sales taxes.
In the 1990s, noted Vermont economist Arthur Woolf issued a report indicating that a differential in sales tax between contiguous states of more than 3 percent - like Vermont and New Hampshire - has the effect of exporting sales to the state with lower sales tax.
His updated study in 2010, “The Unintended Consequences of Public Policy Choices: The Connecticut River as a Case Study,” states that the “Vermont Sales Tax has dramatically changed the pattern of retailing activity in the counties that border the Connecticut River, leading to a significant loss of the retail market in the Vermont border communities.”
And he concludes that “sales taxes along with the bottle bill and Act 250 have contributed to a hollowing out of Vermont retailing along its border with New Hampshire. All of these policies may have been introduced for worthwhile purposes. But they had major unanticipated consequences - essentially destroying what was once a thriving retail sector in Vermont's Connecticut River Valley.”
He cites that in the 1950s and 1960s, per-capita sales relative to local population, in stores selling goods now subject to sales taxes, were essentially identical. By 2007, per-capita sales in the border counties in New Hampshire were three times what they were on the Vermont side.
This disparity comes despite the presence of Interstate 91, which should act as an advantage to the Vermont towns he studied.
If there are any doubts concerning retail activity in this region, note where the development of shopping areas has occurred over the past 20 years.
Wal-Mart in Hinsdale and the Monadnock Marketplace in Keene are good examples; and farther north, numerous shopping malls in Lebanon, N.H. attract a significant number of customers from both sides of the river.
One has only to travel to these locations and count the number of green license plates.
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While Vermonters are shopping for goods in New Hampshire, where there is a sales-tax differential, they might decide to eat, or shop for a car (which must be registered in Vermont), or visit shops to buy objects that are not taxed differently.
This does not include Internet or mail-order sales, where the effect of the differential is also relevant.
What does this all mean? Lower sales in Vermont, fewer jobs, lower sales taxes, lower payroll taxes and, yes, reduced commercial property values.
Retail sales in Brattleboro, subject to sales tax, have declined during the past five years. Some of the decline can be attributed to the closing of Home Depot on Putney Road. We understand that revenue at this store was around $10 million. But even excluding the closing of this business, sales in this category have declined.
What does a declining base of retail sales mean to Brattleboro? A reduction in jobs, related income, and taxes are obvious. But the implications get broader.
• Commercial real estate values: An essential component of the value of commercial real estate is a function of the net income of a subject property.
Standard cost data as well as logic indicate that retail businesses can pay only a certain amount of their respective gross sales as rent/occupancy costs. Lower sales translates into lower rents, lowering the effective net income of a commercial property and ultimately the value of that property.
Lower commercial property values ultimately reduces the tax grand list, which means higher taxes for other properties.
• Appearance: The appearance of commercial properties affect how residents and visitors feel about a town. In a community such as Brattleboro, the downtown is a vital showcase of the heart, soul, and vibrancy of the community.
An active commercial center is a good indication of the economic health and viability of the community. Significant investments in the Latchis, the new Brattleboro Food Co-op, and the exciting Brooks House project are encouraging.
The town should not take any action that could have an adverse effect on existing businesses, or these projects.
• Compromising position: For many years, communities along the New Hampshire border have insisted that the sales-tax differential has been detrimental to their economic health.
If Brattleboro were to implement a local-option sales tax, what type of statement does that make to the state? “You've been against the increase in sales tax all these years, and now, Brattleboro, you've increased it more!”
That does not add to the credibility of the community. In fact, Vermont border towns and local legislators should continue to try to lower the state sales tax.
In reality, we really do not know the precise effect of an additional 1-percent sales tax. But we do know that the probability that it will have an adverse effect on retail sales in Brattleboro is significant.
The town needs to determine if the improvements to the Municipal Center, the police station, and fire station are necessary, as well as affordable.
However, the town should not contemplate raising any additional sales tax. Like former increases (albeit on the state level), we will probably see the effect of “unanticipated consequences,” which in the long run will be detrimental to the community.