By Larry Jones
February 3, 2003

Manchester Mayor Robert A. Baines presided over a full agenda of the Urban Economic Policy Committee meeting on January 22. During the meeting, mayors heard from several national speakers who discussed the status of economic stimulus legislation, the prospects for enacting Internet Tax legislation, the implementation of the New Markets Tax Credit program, the accuracy of census data and the status of the Streamlined Sales Tax Project.

Economic Stimulus

Perhaps the most important message mayors heard during the meeting was from Senator Byron Dorgan (ND), who told them that even though President Bush did not include any funds for state and local governments in his economic growth proposal, he is convinced that a final compromise will include federal aid to assist state and local governments.

Commenting on the importance of including aid for state and local governments in the stimulus bill, Senator Dorgan said "I think it is an important part of the stimulus plan. That money will be spent immediately on things that will help stimulate the economy. He said that he, Senate Democratic Leader Tom Daschle (SD) and other colleagues have pushed very hard for state and local aid he believes "it will be a part of the stimulus plan that passes the Congress in the next month or two."

Senator Dorgan said it was unclear how much will be included in a stimulus bill for state and local governments or how the allocation formula will disburse funds. However, Senator Dorgan said he favors giving aid to state and local governments through a mechanism like the old general revenue sharing program, which allowed state and local leaders broad flexibility in determining how those funds are spent.

Internet Tax Legislation

On the prospects of passing Internet Tax legislation, Senator Dorgan told mayors that "we have a chance of passing legislation at some point, whether it's this year or next year is still up in the air." In explaining the need for the legislation, Senator Dorgan said state and local governments are losing somewhere between $25 billion to $30 billion annually due to a quirk under current law which allows individuals to purchase goods over the Internet without paying state and local sales or use taxes.

For the past few years, he has introduced legislation to collect these revenues. Under his proposal, Internet and other remote sellers would be required to collect and remit sales and use taxes to state and local governments just as local retailers are required to do. There is one condition however, state and local governments would be required to reform their tax systems to make the collection of these taxes simple, uniform and easy.

He said it will be very difficult to get Congress to enact this legislation, pointing out that his bill was voted down last year in the Senate on a vote of 47 to 52. "We will try again this year. As you might imagine, the technology companies, the Internet companies, the catalogue companies obviously do not want to be required to collect these taxes." He said he will keep trying because he understands how desperately state and local governments need the revenue in light of the economic downturn.

New Markets Tax Credits

Community Development Financial Investment Fund Director Tony Brown provided mayors an update on the status of implementation of the New Market Tax credit program, which was enacted in December of 2000 to spur investment in distressed communities. Under the program, tax credits will be issued to qualified community development entities that serve low income individuals and communities. These entities will use the tax credits as an incentive to raise equity. Investors will receive a 39 percent return over a seven-year period on every dollar invested in the community development entity. Brown said city government corporations such as community economic development corporations can qualify as a community development entity and use the program as a vital tool in its redevelopment efforts.

Brown told mayors that last year the program made $2.5 billion available in tax credits and that $15 billion will be available over the life of the program. "We received 325 applications requesting $26 billion in new market tax credit equity, over ten times the amount available for the first year," he said. Brown said the largest request was for $1 million and the smallest request was for $300,000. Applicants will be notified in February whether they will be awarded tax credits from the first round. The next round of applications will be received in late summer or early fall.

Addressing the Census Undercount and Improving Accuracy

Census Bureau Director Charles Kincannon explained that the 200 census was one of the most accurate counts ever conducted. That's why the Bureau has only recommended using the unadjusted numbers for official government use. And while the Bureau developed adjusted data which estimates the undercount for states and localities, the experts at the Bureau have determined that the method used to develop these numbers was flawed. That why the Bureau has not recommend the use of these data.

Streamlined Sales Tax Project

Illinois State Senator Steve Rauschenberger provided mayors an update on the Streamlined Sales Tax Project, a multi'state effort involving 31 states in reforming state and local sales taxes for the 21st Century economy. He told mayors that participating states had reached agreement on model legislation last year. And this year states are beginning to enact legislation to make state and local sales taxes more uniform, simple and easy for all retailers to collect, including Internet and other remote sellers. He said he is hoping that at least 10 or more states adopt legislation this year. If this happens, state and local governments will be in a position to ask Congress to pass Internet tax legislation that will require remote sellers to collect state and local taxes.

At the end of the meeting, Mayor Baines presented Senator Rauschenberger with a certificate of appreciation for his strong support in getting states to adopt model legislation that retains the local option sales tax after several attempts were made to eliminate it.