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Sat, 07 Jun 2008
What shall we do about our property taxes? Pretty much everyone agrees property taxes are too high. But that's the easy part. The hard part is figuring out what to do about it. Two years ago, Teresa Paiva-Weed, the Senate Majority Leader from Newport, had a neat and plausible idea: limit them.
So the Assembly that year passed S-3050, limiting the increases in the taxes a city or town can collect year over year to 5.5%, then 5% and marching down to 4%. Amazing, no? You wonder why no one thought of this before.
The newspaperman and essayist H. L. Mencken once wrote, in an essay about inspiration, "There is always a well-known solution to every human problem -- neat, plausible, and wrong." And of course, the reason no one thought of simple tax limits before is it's a horrible idea.
When the bill was proposed, there was not huge opposition to the idea by the cities and towns themselves. Who would oppose lower taxes? But this was, so far as I could tell, largely due to a calculation expressed to me by a town finance manager who told me he was sure the legislature wouldn't pass only the tax levy limits. This was only part of a package, he assured me, that would include increased local aid, as well as changes in laws about collective bargaining, pensions, and relief from other state mandates.
He countered my skepticism with condescension: "The Assembly knows what they're doing. They wouldn't have passed this without planning to increase state aid."
Two years later, guess what? They didn't.
There have been some serious unintended consequences from the legislation, too. For example, cities across the country have used something called "Tax Increment Financing" (TIF) to redevelop blighted areas. The idea is that, usually in cooperation with some private developer, a city or town issues a bond to finance some improvement, and pledges the increase in property taxes they expect from that improvement to repay the bond. A perfect example is in East Providence, at the old BP/Amoco tank farm, about 300 acres on the Providence River.
BP/Amoco is willing to sell, but the land is contaminated. The city would like to clean up the land, and Gilbane would like to develop it. Currently the land is worth a few million, but as housing and shopping, it could be worth as much as a billion dollars. This would be a serious shot in the arm for East Providence's finances, but it's not permitted under 3050, which would redirect all the increase to lowering the tax rate. Lowering the tax rate isn't necessarily a bad idea, but unless the TIF bonds can be repaid, the improvement won't happen at all.
TIF financing can be controversial, and it's not always a good deal. But East Providence isn't even going to get a chance to try to make a good deal unless this changes.
And then there's school funding. Amid very little fanfare, there is a new school funding formula working its way through the legislature. In many ways, it does represent a fairer way to allocate school aid than the completely arbitrary system we have now.
But fair or not, a lot of districts are going to get hit hard by it. The Newport schools, for example, are slated to lose about $11 million from their $37 million budget if the legislature won't come up with additional school aid. Why? The new formula includes a factor called "tax effort". This is essentially a way to measure how much a town could raise from its property taxes and compare it to how much it does raise. Put crudely, this formula says to some towns that they are undertaxed compared to others.
It's one thing to say to a town it's "undertaxed" but also to say it's not allowed to raise the revenue to replace the lost state aid is a strange definition of fair. (A town can raise taxes over the Paiva-Weed limits to replace lost state aid, but they have to ask the state for permission to do so and the request has to have the support of 4/5 of the city or town council. So far this year, Bristol, Foster, Tiverton, West Greenwich and Richmond have asked for a waiver.)
Except for Newport's Paiva-Weed, the legislators in control of things come from towns that will gain in the new school aid formula, so passage looks promising. I tried to get a comment on the conflict from Steve Costantino, from Providence, the chair of House Finance. He spoke quite persuasively in favor of the new school aid formula at its hearing a couple of weeks back, but declined comment on whether passing the school aid formula would require changes to 3050.
TIF and school aid conflicts are only the beginning of the list. The tax limits have also changed municipal politics, and may even have increased taxes in some towns whose managers have realized that if they don't ask for enough money this year, they can't catch up next year. Ultimately, though, the limits are fundamentally undemocratic, denying towns both the money they need to run, and the independence to decide how to raise it. Is that the way we want to run things here?
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