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Half of RI Taxpayers Lose out on Car Tax Money

Thursday, April 11, 2013

 

The current system of state aid tied to car taxes rewards communities with higher tax rates, punishes those with lower rates, and effectively forces nearly a half of all state taxpayers to subsidize the other half, says a prominent northern Rhode Island mayor. 

“You have some taxpayers being treated differently than other taxpayers,” said Dan McKee, the mayor of Cumberland.

McKee says state aid for car tax revenue—often referred to as a reimbursement since it’s meant to compensate communities for the amount of revenue they lose through exemptions—is greater for those communities with higher tax rates.

The upshot is that communities like Cumberland end up subsidizing cities like Providence and Pawtucket, according to McKee.

He says using tax rates as a basis for doling out state aid is arbitrary and unfair. Instead, McKee says that a fair system would base state aid on the ratio of the total value of all motor vehicles in a city or town to the total valuation for the entire state. For example, if a ten percent of all vehicle values were located in particular city or town, that community should receive ten percent of all state aid issued that year for car tax reimbursements.

McKee says his proposal is based on the same basic principle behind the new state education funding formula, which recently has been reformed so that state funding is tied to the number of students in a community. “If it’s good for one policy, it should be good for another policy,” McKee said.

However, that formula also makes adjustments for communities that are poorer and may need more assistance from the state—something McKee said he is open to incorporating into his proposal.

Current state system accused of hurting suburbs

Under the current system of state aid, Cumberland benefits the least from state car tax aid, followed by Coventry, South Kingstown, and North Kingstown. The communities benefitting the most are Providence, Pawtucket, Cranston, and Woonsocket.

Over the past decade, McKee says Cumberland has lost out on $20 million in state aid that it would have otherwise received were the system fairer. That creates pressure to keep tax rates higher than they should be and limits his administration’s ability to provide as much funding as it wants for work on local infrastructure, McKee said.

Using McKee’s standard for fairness, about two thirds of cities and towns—accounting for about 400,000 residents—lose out in the current system of state aid. Because taxpayers in those communities are receiving less than what they should be, McKee says they are effectively subsidizing the communities that are receiving more in state aid.

McKee’s proposal would radically shift the current system of how the state provides funding to communities for car tax revenues.

It would pour an additional $204,602 of state aid into Cumberland’s coffers and between $158,547 and $179,365 for the other three communities most disadvantaged under the current system. But, it would also cut nearly $1 million in state aid from Providence and about $300,000 from Pawtucket—using 2011 figures for state aid allocation, which totaled $10 million statewide that year. (See below table for a comparison of all 39 cities and towns based on the current system and the proposed reform.)

And that makes his idea a huge sticking point with officials from those cities.

“Any further reduction in [state] aid is going to put some communities in perilous financial condition ever closer to the edge,” said Daniel Beardsley, executive director of the Rhode Island League of Cities and Towns. Because his membership is divided over the issue, he said the league remains neutral on the best system for the allocation of state aid for car tax revenues.

Cities strongly oppose proposal

But officials in the communities that would lose out under the McKee proposal staunchly oppose the idea.

“As mayor of Pawtucket and thus a board member of the League of Cities and Towns, this is the first time I have heard about this proposal,” Pawtucket Mayor Don Grebien said in a statement released to GoLocalProv last night. “I’m surprised and disappointed to learn that as a community Pawtucket would be hurt by such a proposal, and wish Mayor McKee had reached out to me directly prior to any such announcement.”

“I will be sure to reach out to him over the coming weeks to get a better understanding of exactly what his proposal would entail and its potential financial impact on Pawtucket,” Grebien added. “My administration will continue to work hard to move Pawtucket to a better financial position. I will not allow the hard-working residents of Pawtucket to be hurt by any such proposal or decision that would appear to have such a negative financial effect on our city.”

In Providence, city Councilman Bryan Principe said he appreciated the effort to provide tax relief but faulted McKee’s plan for not taking into account poverty. He said it only stands to reason that poorer communities would have a lower per capita car value than wealthier ones.

“I don’t think it’s fair to distribute the allocation of state aid based upon the municipality’s share of vehicle [valuation],” Principe said.

He said that a $500 clunker of a car and a $50,000 Mercedes both cause the same wear and tear on roads, making vehicle values a less relevant basis for deciding how much money cities like Providence would need to repair and rebuild their roads. If there has to be some variation in how state aid is distributed, Principe said it would be better to base it on the number of vehicles or the amount of traffic on a community’s roads.

(Principe added that he isn’t convinced that there needs to be such wide variations in state aid. He personally favors the institution of a universal motor vehicle tax rate in Rhode Island, modeled on Massachusetts. Yesterday, city Councilwoman Sabina Matos said she supported the same approach.)

But McKee’s ideas won support from other quarters yesterday, including the town manager for South Kingstown, Stephen Alfred, who agreed the current system is unfair. “The distribution has been out of balance ever since the year the tax rates were frozen,” Alfred said.

He said income and sales taxes on South Kingstown residents are viewed locally as going to Providence with “very little” coming back. He agreed that McKee’s proposal was fairer. (Another supporter is Cumberland state Rep Karen MacBeth.)

Debate over fairness echoes national one

But how to define what is fair is a matter of some debate. Tony Pires, the director of administration in Pawtucket, said that on a national level fairness has been defined as the ability to pay—meaning that those who can afford to pay higher taxes should, instead of adding to the burden of taxpayers with lower incomes who are already taxed to maximum, as is the case in Pawtucket, Pires said.

“That really ought to be the standard by which any of these suggestions ought to be judged,” Pires said.

He said the amount of state aid Pawtucket would lose under the McKee scenario—about $300,000—translates into about a dime on the local tax rate. “We’d have to find another $300,000 in savings or pass that burden onto taxpayers,” Pires said.

Cities like Providence and Pawtucket, he added, have a “greater expenditure responsibility” because of crime rates, fire protection needs, and schools where more spending is needed because of the socioeconomic background of their students.

He also contested the idea that principle behind the state system is unfair. Pires is the former House Finance Chairman and was in office when the current system of aid was developed. He said the original idea was simply to reimburse communities for the amount of revenue they would lose by exempting some of the value of vehicles—which at one time was $6,000 before the recession led cash-starved state officials to drop the threshold to $500.

Pires said allocating state funding the way McKee advocates would unduly cost a city like Providence revenue and enrich a community like Cumberland—providing it with more of a reimbursement for lost revenue than it needed.

And, if anything, he said Pawtucket loses more under the current system of state aid than Cumberland actually does. In theory, state aid is supposed to reimburse cities and towns for the amount of revenue they lose by exempting some of the vehicles of a car. The current exemption amount for which the state will make up the difference is $500.

Based on those figures, Pires said Pawtucket should be getting $2.5 million in state aid. But instead it received about $664,000 in 2011—about 20 percent of what it should have. Of course, Cumberland also received only 20 percent of its reimbursement as well, but Pires said the difference in dollars was much greater for Pawtucket than it was for Cumberland.

Asked if he could understand the car tax frustrations of communities like Cumberland, Pires responded: “We only ask that they walk in our shoes.”

Stephen Beale can be reached at [email protected]. Follow him on Twitter @bealenews

 

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Comments:

My issue is that since the state stopped sending Providence as much money we have now been taxed on both our cars at a very high rate. One of our cars is 9 years old and we are taxed as if the value is still $7000. Who would pay that much for a car that is almost 10 years old? This is a car that we did not get taxed on before the cut in state aid. So we are being taxed not only by the state for our cars but also by the city. Double taxation. I don't consider this fair either mr representative.

Comment #1 by Neal Rogers on 2013 04 11

National level fairness has been defined as the ability to pay.........This is what is wrong with this country! Grebien won unopposed he will not win again these 2 pad their pocket along with the rest of the council here in Pawtucket....Time for a tax revolt!!!!

Comment #2 by happy harry101 on 2013 04 11

I love the way some politicians define "fair share" as what I am able to pay - who the Heck are THEY to decide what I can afford? Do they know what my budget is? What my expenditures are? No - yet THEY would deem themselves perfectly capable of knowing what I my "fair share" would be!

Comment #3 by C B11 on 2013 04 11

Just more & more creative ways to steal from the RI taxpayers at the city and state level.

Tax revolt? These pols are lucky this the 21st century because if this were the 18th or 19th century there would be a severe shortage of tar, feathers and oak wood used for stocks.

But..we keep electing them so I guess we like to get burnt.

Comment #4 by Robert Anthony on 2013 04 11

I am tired of everyone in this State being forced to subsidize Providence et al. If they cannot (or will not) live within their means, then let them reap the benefits of bankruptcy.

Why is the phrase "fair share" only used when the money comes from my pocket. Where are the people my "fair share" support? Where are they when after working all week I have to come home nights and weekends and maintain my property. Where is their "fair share" of my work and when can I expect them to arrive. They certainly have enough time to squeeze it in.

Comment #5 by John McDougall on 2013 04 11

It is to be expected that the least well run, eternally broke cities and towns work a scam to take from others rather than to actually learn how to run their own jurisdictions competently.

This is why those cities and towns are forever looking to run scams on "everyone else" .. it is all they know how to do.... look for some angle to con something.

These behaviors have been rewarded for at least a half century... longer than many voters have been alive. Those poorly run sinkholes of corruption and waste are sinkholes precisely because they spend so much of their time and effort dreaming up cons and excuses for them.

The entrenched "political elites" in the failure-towns simply are the very last people who can be entrusted with the jobs they have taken for themselves and for other members of their ridiculous social-climber cliques.

They have wedged themselves in place and it is nearly impossible to dislodge them. They are mostly interested in the percs of their offices.... the social status they think it confers upon their worthless petty selves being the most important perc.

These useless clowns are good at making sure they have no competition... either withing their own party or from outside of it... but they are utterly useless at anything but destructive behaviors... making up excuses and simply stealing by way of con-jobs.

They are like people who own wreckers and who throw rocks from overpasses to make sure there are plenty of accidents. They think this is "clever marketing". They carry this mentality into public office and, of course, nothing works out well... ever.

All the voters get to choose is which wrecker company will be throwing rocks off of overpasses to create accidents.

Comment #6 by Caroline Evans on 2013 04 11

This is completely ridiculous on any number of levels. My biggest complaint is that these so called "leaders" spend so much time trying to selfishly carve up a tiny pie instead of working to fix the economy so we could actually pay our bills. It isn't a lack of money that plagues us either. It is a lack of fiscal restraint, redundancy and mismanagement.

Rhode Island ranks 6th in spending per pupil but educational achievement ranks 32nd. UNACCEPTABLE!

Comment #7 by Steve Jones on 2013 04 11

Rhode Island is a city state. It should be incorporated as one. What I am hearing isn't much more than the know nothing nativist sentiment that was expressed over a century ago by Rhode Islanders living outside urban areas. The irony is, much of the sentiment expressed in those days was directed towards the ancestors of those who left the cities during the white flight of the sixties and early seventies from the urban areas. They are now the ones doing most of the complaining about not being able to abandon what they left behind. It's the same old story, just different players.

Comment #8 by edith pilkingoton on 2013 04 11

I take issue with the entire analysis from this article.

The vehicle valuations are based on fictitious numbers that have nothing to do with the condition of the vehicle.

This is the main reason why the Warwick Car Tax revolt started two years ago. How can anyone measure a new tax proposal if the valuations are not first corrected?

Instead of showing leadership the politicians and the RI League of Cities and Towns has continued to argue about the loss of revenue associated with any change.

The answer to this problem is to force Mayor’s and town councils to cut spending by first focusing on the ridiculous provisions that cost millions. For example in Warwick over the last few years paying employees for not calling in sick when they are not sick (Sick Pay buyback program) has cost taxpayers millions of dollars.

Giving employees an increase in pay based on the number of years employed and not job performance (Longevity) is also costing million.

Retired employees receiving free lifetime healthcare is costing Warwick taxpayers over $8 million a year. A realistic 25 percent cost share with save another $2 million.

I would bet many of these archaic provisions exist throughout the state. Eliminating these would most likely results in city and towns raising the exemption back to the $6,000 it was once at or even greater, providing tax relief to everyone.

The reality of the situation is that most politicians do not have the courage to propose these changes because it would incur the wrath of organized labor and when your main focus is to stay in office, that is the last thing these politicians what to do - with the exception of continuing to ask for more and more money from the taxpayers.

Comment #9 by Robert Cushman on 2013 04 11

I wonder why nobody asks the banks to pay the taxes on the homes they own because of foreclosures? Maybe I should ask a bank lobbyist.

Comment #10 by Charles Marsh on 2013 04 11

What really ticks me off here with this article is that there is absolutely no end to Mayor McKee's (of Cumberland) constant moaning and groaning on this overall topic....a topic he does not fully understand how and why it came to be....and it being done the way it was done when the legislation was first introduced by Pawtucket State Representative Tony Pires back when Tony was also the Chairman of the House Finance Sub-Committee. Tony being primarily responsible for the legislation that was designed to eliminate the hated vehicle property excise tax.....something the citizens of this state owe himj a big THANK YOU for doing!. A 'Citizen's tax Relief Program' would have, if not for Carcieri's actions the last year of his Governorship squashing the entire program, over time completely eliminated this dreaded and hated tax!

I have tried to explain, on more then one-occasion, to Mayor Daniel McKee, the vehicle phase out program and the legalities that were required for its passage that required property tax rates on vehicles to be frozen in every community in order for citizens to get the tax rate relief the original program afforded them!

Granted the program was not perfect, and this were an issue....however, it worked and provided the tax relief taxpayers required.... and also made up FAIRLY what each and every citizen and town were forced to give up. No more....no less.

Despite Mayor McKee's playing numbers games here....to make it look unfair, again, if he would have taken the time to listen, on the number of occasions attempts were made to explain it to him, which he would not do, kept interrupting and shouting down the answer...he might have gotten through his thick-headedness the answer.

Mayor McKee is unnecessarily creating a situation that DOES NOT exist, however the way he is trying to present it, and make himself look like a hero, the White Knight in shining armor riding to to fight what IS NOT an injustice in any way, manner shape of form. (Albeit the process is confusing and could lead many astray, which has obviously happened based on the many comments to this article)

As to his calling this, now that the vehicle phase out has all but been eliminated, unfair is Hypocrisy in action....another McKee trademark!

(Hypocrisy is the state of pretending to have virtues, along with moral beliefs and principles, etc., that one does not actually have. Hypocrisy also involves the deception of others and is thus a kind of lie.....which is exactly what mayor McKee is espousing throughout this article!)

While there is no love lost between this man and myself, his latest egregious conduct, and betrayal to the citizens of his town and this sate, as to what is, and is not, fact,,,,, also goes top prove out something I have been saying about this man for years....that being, overall, he is a complete and total, overall, financial incompetent that does not understand these kinds of complicated and way over his head, financial processes! And this is a man that wants to be our next Lt. Governor....God help us he and Governor 'Gump' both in office at the same time!

The bottom line here, without being too long-winded, is the FACT that every city and town is getting EXACTLY WHAT THEY ARE ENTITLED TO AND WOULD HAVE BEEN RECEIVING FROM THEIR TAXPAYERS WERE IT NOT FOR THE VEHICLE PHASE OUT PROGRAM!

The only thing different is the source of the funds....not the amount. Again, the amount would be there and be the same with or without the phase-out program!

What is unfair is the fact that McKee will not go after, or allow his police department and taxing authorities to go after the hundreds of scofflaws in this town, especially with BIG BUCK automobiles (his friends supporters and I hear some family members) that keep their vehicles registered out of state! (VT, NH, FL even MA) so as to beat our towns taxing them. All of which means each and every one of Cumberland's taxpayers have to pay higher vehicle taxes as Mayor McKee chooses to leave hundreds of thousands of dollars in current and back taxes, plus penalties and interest on the table!

Comment #11 by TOM LETOURNEAU on 2013 04 12

The issue with the car tax has been a thorny one for decades. When the state got into trouble financially, they broke a promise to the taxpayers to eliminate the car tax. People started getting bills that were way out of line and they complained loudly.

Another sinister little law that certain municipalities pull is to not send you a bill at all and puts the burden on you to figure out what you owe and then have the gall to charge 12% on the balance. One town in particular that is doing this is North Kingstown. If a person unknowlingly falls behind on the car tax because of no bill will not excuse you of the liability or the interest penalty. The municipalities were given a gift with the law below.

§ 44-7-7 - Notice by collector to taxpayer of amount of tax

The collector, after receiving a tax list and warrant, shall immediately, at the expense of the city or town, send notice to each person assessed of the amount of his or her tax. The notice shall be mailed postpaid and directed to the address on file in the office of the city or town treasurer or the assessors of taxes.
Failure by the collector to send or failure by the taxpayer to receive a notice shall not excuse the nonpayment of the tax or affect its validity or any proceedings for the collection of the tax.
The attitude of the tax collectors in North Kingstown are “you owe it, pay up and there is no foregiviness at all!” They also take it one step further by making policy that “they won’t accept personal checks but only money orders or cash, even though there are no signs posted informing the taxpayers of this “policy.”
These people know you are looking for their tax stamped bill in order to renew a car registration and will bleed as much blood out of you until they are satisfied. These are cold people that are injuring taxpayers and I don’t believe the legislators intended the law to be abused in this manner. This law is poorly written and needs to be repealed.
Anyone thinking about moving to North Kingstown should think twice before buying a home there. They have some of the highest property taxes in the state!

Comment #12 by Gov- stench on 2013 04 13

Using the example of the $500 car let's look at the taxes paid.

7% sales tax on the 500 dollar car = $35.00, the question is how many times has the State received 7% on the sale of this car? Brand new even a $10,000 car the tax would have been $700.00, sold again for $5,000. the State gets another $350, etc. Parts for the vehicle over its life so far are taxed. So tires, oil changes, fan belts and of course gasoline. Washing, waxing and cleaning supplies, are also taxed. Registration fee every 2 years along with the inspection. Driver's license fees for the person driving it.

Seems to me the State (notice the property tax wasn't mentioned) has collected a lot of revenue off this $500 car no matter what city/town it lives now.

Don't you the State think you've collected enough. I do and from the comments we all have. Live with in your budget.

Comment #13 by Wuggly Ump on 2013 04 15




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