2016-05-05 / Front Page

Localities Mulling Meals Tax

By Olga Enger and Barry Bridges

Newport and Middletown are coordinating strategies in finding revenues to help meet their ever increasing outlays for sewage treatment, stormwater collection, road improvements, and other infrastructure demands.

Councilors from both communities unanimously lent their support to Senate Bill 2686, which would make convenience stores subject to the state’s meals and beverage taxes. Pursuant to state statute, the tax is presently gathered at “eating and/or drinking establishments” such as restaurants, bars, and even roadside stands, but does not apply to food or beverages purchased in convenience stores.

Additionally, the two councils unanimously approved a resolution asking the General Assembly for permission to enact ordinances authorizing an additional one percent tax, with “funds dedicated to support sewer system and roadway infrastructure repairs.” The amount currently collected by localities is one percent of gross receipts. That is on top of the seven percent sales tax on those tabs that goes into state coffers.

“Newport City Manager Nicholson and I have been meeting regularly, mostly to discuss issues related to the infrastructure that Newport and Middletown share, and also related to the wastewater treatment plant which is going to undergo a $55 million upgrade,” said Middletown Administrator Shawn Brown at the May 2 Town Council meeting. Newport entered into a consent agreement with the U.S. Environmental Protection Agency (EPA), that requires the improvements at the Coddington Highway Wastewater Treatment Facility, of which Middletown is responsible for 25 percent of the costs, said Brown.

Newport voted on the meals and beverage resolutions in April.

“Shawn Brown and I speak fairly regularly and we are for the most part aware of what the other is doing,” Nicholson told Newport This Week. “We talk about a whole gamut of things every week. The resolutions are representative of our collaboration.”

The idea of broadening the tax was first publicly broached in February when local members of the House and Senate met with Newport city leaders to discuss areas of mutual concern. When the talk turned to city finances, Sen. Teresa Paiva Weed, D-Newport, mentioned that an expansion of food offerings at convenience stores had created an opportunity.

“We should keep in mind the disconnect between places like 7-Eleven and The Hungry Monkey,” she said. “The only difference is that people at The Hungry Monkey are paying meals and beverage taxes, and people at 7-Eleven aren’t…. I think that in the spirit of being fair to all of our local restaurants, that’s something that should be looked at.”

Several weeks later, S-2686 was introduced by Sen. Louis DiPalma, D-Middletown. The measure to bring convenience stores into the paradigm was heard by the Senate Finance Committee on March 25 and is being held for further study.

“Most bills the first time they are heard, they are held,” DiPalma told Newport This Week. “It takes a little longer, but it’s the right process. There may be unintended consequences we didn’t initially consider.”

At the February meeting with legislators, Nicholson shared his concern about the costs of sewer and stormwater collection improvements required under the city’s federal consent decree.

“We’d like to ask for a [one percent] increase in meals and beverage taxes for targeted sewer and road infrastructure projects,” he said. “You don’t have to have a crystal ball to see that our costs will become untenable.”

“It did make sense to piggyback on what Newport is doing, given that the two of us are trying to work together on this problem,” said Brown.

In addition to the $55 million project required by the EPA, Middletown has identified over 32 projects, totaling $11 million to address stormwater and drinking water issues related to pathogens, nutrients and flooding in the Baily Brook, Maidford River and Paradise Brook which feed into Aquidneck Island’s raw water supply at Gardiner Pond, Nelson Paradise Pond, North Easton Pond and South Easton Pond.

Moreover, Nicholson pointed to Newport's costs of regular maintenance for an aging network of sewage and wastewater pipes often made of clay or bricks.

The rationale of paying for infrastructure improvements through the meals tax, much of which is borne by visitors, was outlined in the resolutions, which state that “tourists… contribute to stress placed on roadway infrastructure and sewer systems.”

Newport Councilor Marco Camacho elaborated, adding, “A lot of the wear and tear and a lot of our build-out and infrastructure is there because of the millions of tourists we get every year.” Nicholson reported what a one percent increase would mean in real terms: an additional $800,000 annually in Newport. It would bring in around $700,000 in Middletown, said Brown.

“If we were to apply all of that $800,000 to the sewer system, it would have a substantial impact on reducing the sewer rate, or at least controlling the expansion of that as we move forward. This could be really important,” said Newport Councilor Justin McLaughlin when the resolutions were approved.

“Exceedingly important,” Nicholson agreed. “It would have the equivalent effect, if I recall the numbers, of approximately 60 cents on the sewer rate. So it’s absolutely significant.”

Newport has estimated that residential sewer rates are likely to increase in Fiscal 2017 to $17.00 per 1,000 gallons, up from $13.89.

Middletown Councilor Paul Rodrigues said municipalities should not be expected to absorb the high expenses inherent in new federal mandates.

“Am I for cleaner water? Sure I am. But don’t mandate something and then turn around and make us pay for it,” said Rodrigues. “There isn’t one documented case of someone getting ill. It’s just that they changed their standard.”

Brown said there are no earmarks in Washington to offset the costs.

The fate of S-2686 is uncertain.

“Will it pass? That’s unclear. We are still trying to gather facts,” said DiPalma.

A bill has yet to be introduced on Smith Hill to authorize the towns to collect an additional one percent tax.

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