By Larry Jones
February 6, 2006

Oklahoma City Mayor Mick Cornett, Chair of the Conference of Mayors Urban Economic Policy Committee, told member mayors and guests attending the January 25 committee meeting that they would continue to focus on critical issues that affect local revenues in 2006.

Before introducing Senator Lamar Alexander (TN), Cornett reminded members that the Conference and other state and local groups followed the advice of Alexander by sitting down with representatives from the telecom industry to see if a compromise could be reached on re-writing the nation’s telecom tax laws. Unfortunately, the two sides met many times but no agreement could be reached. Although state and local groups were willing to compromise on many issues including simplifying the tax collection process, centralizing the administration of taxes, and better ensuring that certain fees such as 9/11 fees would be used for their intended purpose, the meetings reached an impasse when representatives from the telecom industry insisted on banning state and local telecom taxes and only allowing the general purpose sales tax to be applied to telecommunications services.

In his remarks, Alexander mentioned the streamlined sales and use tax proposals (S.2152 and S. 2153) introduced respectively by Senator Michael Enzi (WY) and Senator Byron Dorgan (ND) in December of last year. Both proposals are designed to simplify the administration and collection of state and local sales and use taxes. If enacted, the legislation would help state and local governments collect taxes on remotes sales. State and local governments lose billions of dollars each year because out-of'state merchants are not required to collect their taxes under current law. However, certain provisions in both bills open the door for the telecomm industry to push for the elimination of telecommunications taxes, which could cause some local governments to lose more more in telecommunication revenues. While acknowledging that the simplification bills still needed more work, Alexander urged mayors to continue to work with Enzi and Dorgan on an acceptable compromise.

John Echeverria, Executive Director of the Georgetown University Environmental Law and Policy Institute discussed the Supreme Court’s decision in City of New London v. Kelo, which affirmed the city’s use of eminent domain for economic development as a legitimate “public use” under the Fifth Amendment of the U. S. Constitution. In response to the decision, he said new legislation was enacted to restrain the use of eminent domain by prohibiting its use for economic development that primarily benefits private entities. It also requires the Government Accountability Office to conduct a study of how its being used across the nation. However, he explained that the House adopted a much more restrictive proposal which would prohibit state and local governments from using eminent domain for economic development if they receive federal economic development funds. So far, he said the Senate has not shown an interest in considering the House bill.

Ken Hoagland of Americans for Fair Taxation discussed “FairTax,” a national campaign supporting legislation to replace the “indecipherable” federal tax code and income tax with a simple, non-regressive national sales tax. He said 50 members of Congress have signed on as co'sponsors of the legislation, but resistance from influential tax lobbyists has slowed progress. He said cities would “greatly benefit by the simplicity and transparency of the FairTax and by the fact that the nation’s poorest citizens would see the elimination of all federal income and payroll taxes.” For more information he directed mayors to the website Fairtax.org.

Paul Maco, from Vinson and Elkins, LLP, discussed a new accounting rule that local governments will be required to comply with starting December 2006. He said the Government Accounting Standards Board Statement 45 will require state and local governments to calculate and report their total accrued post-employment benefit liability that is not an integral part of their pension plan. Two of three rating agencies have said the liability will be treated as “debt.” Retiree health care is perhaps the best known benefit of this type because of its cost. This could have a significant impact on state and local bond ratings.