$240 Million in New Local Taxes Since 2009
Friday, May 04, 2012
Even as homeowners watched their property values plummet throughout the recession, city and town governments across the state were raising taxes to the tune of a combined $241 million, a GoLocalProv review of property tax levy reports shows.
Municipal leaders blame the combination of the recession and drastic cuts in state aid under former Governor Don Carcieri (aid was slashed by 72.6 percent between FY 2008 and FY 2012) as the primary reason for raising taxes in recent years while others point the finger at the inability of cities and towns to control spending.
“The average Rhode Island property taxpayer is the last line of defense against a coming default that’s actually being caused by bad management of the operations over years if not decades,” said Mark Zaccaria, chairman of the state Republican Party.
Slash in State Aid
Zaccaria placed the blame on political leaders who have made unrealistic promises and union leaders for failing to “scream bloody murder” when politicians failed to fund the annual set-aside payments over the course of the last several decades.
That ineptitude, he says, has hurt the taxpayer the most.
In Barrington, for example, the property tax levy grew by more than 10 percent between fiscal years 2009 and 2012. In Burrillville, the levy increased by more than 25 percent, from $21,011,173 in FY 2009 to $26,687,010 in FY 2012.
The urban cities that are now struggling to avoid bankruptcy were also hit hard. In Providence, the tax levy increased by more than 12 percent. Pawtucket saw a 17 percent jump in its tax levy. And in Woonsocket, where Council members last month voted in favor of a 13.8 percent supplemental tax hike, the levy has increased by nearly 25 percent, from $42,128,184 in FY 2009 to 52,984,558 in FY 2012.
At the same time, local government revenue sources have faced significant declines, according to a report recently released by the Rhode Island Public Expenditure Council (RIPEC).
“Between FY 2008 and FY 2012, direct state aid to local governments in Rhode Island was reduced by 72.6 percent,” the report stated. “Moreover, as residential property values have seen steep declines in the recent recession, local tax bases have eroded. The resulting pressures on local governments to meet service level demands given increasingly constrained resources, coupled with unaffordable expenditure structures that some communities have not modified, have pushed some local governments to the brink of insolvency. “
Mazze: Many Reasons for Tax Hikes
Dr. Edward Mazze, Distinguished University Professor of Business Administration at the University of Rhode Island, believes the increase in property taxes goes well beyond the recessions and cuts in state aid. He said there are five reasons for property tax hikes.
1) Increases resulting from negotiated union contracts for salaries, benefits and pensions;
2) Budget cuts made by the Governor and the legislature;
3) The postponement of decisions at the local government level to cut expenditures;
4) The general increases in the cost of running local government;
5) Funding unfunded state mandates.
“Each factor has played a significant role in increasing local property taxes,” Mazze said. “Unfortunately, the Governor and the legislature believe they have not increased individual income and corporate taxes since they passed this burden to the cities and towns.”
But Governor Chafee is now trying to reverse course by attempting to provide more aid for the state’s most distressed cities and towns. Last month, Chafee submitted a seven-part relief package he says will allow struggling communities to get back on their feet.
The package, which would only apply to Pawtucket, Providence, West Warwick and Woonsocket, would allow the municipalities to freeze COLAs for retirees, grant more control over school budgets, reform disability pensions and allow the state to advance municipal aid to the communities. It remains unclear how much, if any, of the package will be supported by the legislature.
“The reform and relief package I have submitted to the legislature will empower communities to use the tools they need to achieve fiscal stability, and I am pleased to have the support of the overwhelming majority of municipal executives across the state,” Chafee said last month. “Each city or town in Rhode Island is different, with unique needs and challenges. My legislation places the power to take steps to address these challenges where it belongs – at the local level. I look forward to continuing to work with municipal leaders to avoid more bankruptcies, keep property taxes down, and restore fiscal health for our cities and towns.”
Tea Party Leaders: Too Many Excuses
Still, others remain concerned that more increases in property taxes may drive businesses and residents out of the state. Rhode Island Tea Party President Susan Wynne said she believes the tax hikes are a result of “the inability of municipalities to control budgets, burdensome taxes and regulation on business and a public pension system that is sending RI on this downward spiral.”
Lisa Blais, who heads up the Ocean State Tea Party in Action, said local leaders have let communities down by agreeing to union contracts they could not afford.
“They have had too many excuses to do what has needed to be done for years,” Blais said. “Stop signing unsustainable and unaffordable public sector contracts. Generally, local officials have been provided with an excuse as a result of the GA failing to limit the scope of bargaining and by not tying state aid to certain requirements.”
More Difficult for Job Creation
Moving forward, Mazze said, cities and towns will still have to make further cuts in expenditures and services to meet unfunded pension and health benefits even if the legislature passes the municipal relief package supported by Governor Chafee.
Either way, Mazze predicted, city and town governments will likely be forced to continue to cut expenses look toward sharing services, a plan the communities of Pawtucket, Central Falls and East Providence are now exploring.
“Without dealing with these factors now, housing affordability will make it more difficult for job creation since workers will not be able to afford property taxes,” Mazze said.