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Business group takes aim at Middlebury M&E tax

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By JOHN FLOWERS

MIDDLEBURY — While Congressional leaders continue to consider a federal stimulus package, an organization representing Middlebury businesses is asking town selectmen to make some tax law changes it believes would energize the local economy.

The Better Middlebury Partnership (BMP) on Tuesday asked selectmen to study the prospect of phasing out the town’s machinery and equipment (M&E) tax and revising municipal water and sewer rates in an effort to ease the burden on some local businesses that are struggling to make ends meet.

Bruce Hiland, head of the BMP’s community affairs committee, specifically asked selectmen to:

• Declare a moratorium on taxing any new (as of 2009) machinery and equipment.

• Initiate a study that would hopefully lead to the phase out of the M&E tax over the course of three to five years.

• Re-evaluate the town’s water and sewer rates, which Hiland argued have reached a point that is prompting some of the town’s water-intensive industries to either forego expansion projects or consider relocating to other communities.

“In a nutshell, we understand there are a couple of businesses here in town that want to expand but that are running into problems with both the M&E tax and the water and sewer volume charges,” said Hiland. “They are both situations where if (the businesses) can’t afford to do it here, they could very easily move out of the area, which is something none of us want to see. We decided to step up and address this as a board.”

Robin Scheu, executive director of the Addison County Economic Development Corp. (ACEDC), said the concerned businesses are not yet ready to identify themselves.

Middlebury is one of around 60 Vermont communities that levy a tax on the value of a business’s machinery and equipment. Other communities in the state have either phased out their M&E tax, or never had one. Vergennes completed a 10-year phase-out (10 percent per year) of its M&E tax last year. In 1997-1998, the M&E tax generated $120,757 in revenues for the Little City.

Middlebury officials have, in recent years, discussed the prospect of phasing out the M&E tax, but it has always come down to the same quandary: how to replace the revenues from a tax that is expected to generate $280,282 for the municipal coffers this fiscal year? That’s 4 cents on the municipal tax rate, slack that residential taxpayers may not be keen on picking up — particularly in today’s economy.

“The M&E tax … has been an important revenue source,” Middlebury selectboard Chairman John Tenny said.

Tenny noted selectmen last broached the topic around two years ago with then-ACEDC Executive Director Jamie Stewart.

“At that point, we kind of turned the challenge into the form of, ‘This is an important revenue stream; how might we replace this revenue stream if we were to look at restructuring the way that taxes are collected?’” Tenny said. “It really didn’t go farther than that. We did not see any more thought or proposal from Jamie Stewart after that. We haven’t looked into it any more ourselves.”

But Tenny and his colleagues agreed on Tuesday it was time to revisit the implications and impacts of the M&E tax, as well as water and sewer rates.

Middlebury’s current water charge stands at a flat rate of $2.85 per 1,000 gallons used. That rate increased last June from what had been $2.60 per $1,000 gallons. Prior to that, the rate had not been increased since 2001. Before 2001, Middlebury had offered a three-tiered rate system, through which the largest users saw their rate decline when they exceeded quarterly thresholds of 18,203 gallons and 52,368 gallons.

The flat water rate was established in 2001 in deference to residential users.

“There have certainly been issues of fairness and burdens on smaller ratepayers in the past that we have looked to alleviate by putting the current rate structure in place,” Tenny said. “So there is a balance there that we will try to have, but it is hard to achieve.”

Middlebury Assistant Town Manager Joe Colangelo cautioned that municipal water use has been on the decline this year — in part because one of the largest users (Agri-Mark/Cabot) recently drilled wells. That means less revenues to subsidize the system.

Selectmen reduced Middlebury’s sewer rates last June from $6.19 per 1,000 gallons to the current $5.94 per 1,000 gallons.

State statutes give towns the authority to immediately repeal their M&E tax or gradually phase it out over a period of up to 10 years, according to Middlebury Town Manager Bill Finger. Changes in the way the M&E tax is applied must be endorsed by a town vote, he added.

Officials agreed to formally place the M&E tax and water/sewer rates on their agenda in the near future.

Selectman Don Keeler said he hopes the board will be able to provide some help to local industries.

“I think it’s a great opportunity to stimulate some economic growth in this community and help some businesses grow here,” Keeler said. “Jobs sometimes may be just a little bit better than a tax on M&E.”

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