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Over 30 Cities & Towns Have Raised Taxes Above State Law Since 2009

Tuesday, January 08, 2013

 

Cities and towns across Rhode Island have sought approval to exceed the state’s cap on property taxes 33 times since the 2009 fiscal year, according to a GoLocalProv review of municipal finances.

Each year, the state’s Division of Municipal Finance releases a report on the property tax cap, which reflects legislation passed by the General Assembly in 2006 that cut the maximum property tax levy from 5.5 percent in fiscal year 2008 down to 4 percent for the current fiscal year.

But a poor economy, cuts in state aid and the threat of massive unfunded pension liabilities have forced some communities to increase taxes beyond the cap in recent years. In fact, Burrillville (3 times), Pawtucket, Woonsocket, Cranston, North Providence, Richmond, North Smithfield, Tiverton and Westerly have all requested waivers to raise taxes higher than the cap multiple times, according to the annual reports. In Central Falls, which filed for bankruptcy in 2011, state officials are enforcing a 4 percent increase every year through 2017 in effort to stabilize the city’s finances.

In the current fiscal year, only Burrillville requested to raise taxes beyond the cap. According to the Division of Municipal Finance, the town was approved to increase rates by 6.4 percent, but ended up enacting a 4.29 percent hike. An expired payment in lieu of taxes agreement was the reason the town was allowed to exceed the cap.

Cities & Towns Need to Fend for Themselves

But the cap was never expected to be a figure communities would need to exceed, according to University of Rhode Island business professor Dr. Edward Mazze, who said the initial reason for the cap was to prevent cities and towns from raising taxes to any level to cover expenses without reducing expenses first.

“The cap made sense in good times but in today's economy, the cities/towns need to fend for themselves,” Mazze said last year. “It is time to do away with the caps and allow voters on a local level to determine more taxes or less services. The solution to this problem is to rethink the type of government structure and services that Rhode Islanders want and can afford.”

When the law passed in 2006, then-Senate Majority Leader M. Teresa Paiva Weed, now the Senate President, praised the plan, calling it a relief for taxpayers.

“Property taxes affect all Rhode Islanders – businesses, homeowners and renters alike,” she said at the time. “Property taxes stifle economic growth and job creation, making housing less affordable and straining the middle classes. We recognize that this property tax relief package is the beginning, not the end. But it is a good beginning and will result in significant, long-term tax relief for property owners.”

A Vicious Cycle

But 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.

Rhode Island Tea Party president Susan Wynne said those factors have forced some communities use the cap just to balance their budgets. Ultimately, it’s the taxpayers who feel the pain.

“It’s been a vicious cycle for local municipalities,” Wynne said. “They’ve been so dependent upon state aid over the years. The aid was cut, property taxes went up and cities and towns were not able to adjust quickly enough and tragically are going broke. When cities and towns have to rely on raising property taxes, it doesn’t fix the problem; it results in higher costs for taxpayers resulting in less economic growth and ultimately drives people to leave.”

The concern over municipal finances last year led Governor Lincoln Chafee to propose a relief package that would have provided more aid for the state’s most distressed cities and towns, but the majority of the proposal was left on the cutting room floor.

The package would have given cash-strapped municipalities the ability to freeze COLAs for retirees, granted more control over school budgets, reformed disability pensions and allowed the state to advance municipal aid to the communities.

“My legislation places the power to take steps to address these challenges where it belongs – at the local level,” Chafee said at the time. “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.”

Time to Regionalize?

But others believe there is another answer when it comes to solving the municipal finance woes that lead to high property taxes: Regionalization.

“Can a state with one million people afford 39 cities and towns? This is the time to look at a five county government with one school superintendent, one police chief, one fire chief, one maintenance department per county,” Mazze said. “We would be able to save dollars, have a more efficient system of governing, retain and attract more businesses and have lower property taxes.”

Some cities and towns, like Pawtucket, Central Falls and East Providence, are already considering options for sharing services. And State Senator Lou DiPalma said continuing to look at regionalization is one of his top priorities for the current General Assembly session.

“Regional collaboration for common problem solving and cost savings, including new perspectives and workable solutions to complex problems,” DiPalma told GoLocalProv. “As the Co-Chair of the Permanent Joint Commission on Shared Municipal Services, I’m looking forward to laying the groundwork, via the collection of facts and data, to ultimately produce real results for the residents of District 12 and all of Rhode Island.”


 

 

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Comments:

David Beagle

Towns are very reluctant to cut spending because that translates into lost union/democrat voters. The law passed in 2006 was a joke to begin with. When is cap, not really a cap? Only in Rhode Island.

pearl fanch

Spend now and worry about it later. When everyone moves out, the last guy standing is going to be left with one hell of a tax bill.

Christopher Lee

There are several indefensible cost-drivers at the state and municipal government levels.

First cost-driver: employee healthcare. There was once a time when only a spouse and the employee’s children were covered. No more. Domestic partners are now covered. So if an employee is merely living with his girlfriend who has five children with three different fathers, all are covered. Likewise, a gay man lives with his partner, all are covered. Of course no one is policing these benefits, driving up costs to astronomical levels.

Second cost-driver: employees – by far the greatest cost. Politicians and government employee unions drive up cost far higher than they should be. Employees are hired based upon who they know rather than competence. Once hired, if the political patronage benefactor-employee goes badly, it is virtually impossible to fire the employee – especially if protected by a “godfather” or a member of a protected group, that is, a female, minority or homosexual. Bad employees combined with plenty of disincentives to supervise, for example, a supervisor and employee belong to same union, drive costs even higher. Then there is lost productivity, stealing time, or other frauds, for example, bogus discrimination or workers compensation claims, and the costs continue to rise with no end in sight.

Third cost driver: fiefdoms. Politicians and managers are incentivized to build their fiefdoms, not dismantle them or even save money. When preparing budgets, managers spend all of last year’s allocation and more, then argue the need for still more money. There is no incentive to actually save money because if a manger saves money, his budget will be reduced the following year. No, the rule is to spend more - waste more - each year and then ask for still more. Regionalization could save a tremendous amount of money, but don’t expect to see it on a large scale anytime soon because of the overriding desire to build fiefdoms. I mean really, what politician is intentionally going to reduce fiefdoms and in the process eliminate political patronage opportunities?

Last, but not least, the final cost driver: government employee unions. With wages, benefits, and work rules that are far more generous than those found in the private sector, overhead cost keep going up, up, and up. When combined with politicians, arbitrators, and judges that are in government employee unions’ pockets, there is truly no hope for Rhode Island taxpayers. Everything falls under the rubric of “working conditions” and must be negotiated with the unions before implementation can occur. The most common-sense solutions are stopped dead in their tracks because of union opposition. There are no management rights, just government employee unions’ right to veto anything management wants to do. Bad employees are protected at all costs; unskilled, menial workers enjoy wages, benefits, and work rules that would bankrupt companies in the real world; supervisors frequently belong to the same union as subordinates, so they refuse to supervise; there is simply no incentive to supervise; pliant politicians are elected through union support and, consequently, refuse to assert management rights.

In the final analysis, government enjoys a monopoly, so there is no incentive to innovate, improve, and keep costs down. When combined with an apathetic electorate, I just don’t see Rhode Island pulling out of its death spiral anytime soon. There are no political profiles in courage in Rhode Island.

Walt Barrett

Things will not get better until the the state defaults totally and many people lose everything and move away from the state.

Gary Arnold

@Chris Lee, you are right on.
Add the high % of union employees in RI, shrinking private sector, no plan from cities/towns or political leadership to take a lead for change gives RI a questionable future.

Art West

I, sadly, agree with the comments here. And Christopher identifies the problems -- that could turn into solutions if there were the political will to take action.

There is a bright spot, though. A middle-ground solution that just might work and that might get political support is regionalization. Towns themselves, facing financial collapse, may be forced to consolidate services. If Pawtucket, Central Falls and East Providence, for example, share services and show savings doing so, I believe others would follow. Chafee is right -- solutions have to happen at the local level with local people acting in their own self interest.

Who knows, the fiefs in their fiefdoms and the union bosses in their Cadillacs might finally be overthrown.

Pam Thomas

I agree with prof mazze about thinking outside the box about structure. What is the point of having 30-plus police departments when much of the state has almost no crime? Let's have one police chief over one department in which cops are actually fighting crime instead of hiding on roads trying to catch taxpayers going 5 miles over the speed limit in order to raise enough revenue to pay their salaries (can you say south county). This state can be a role model! Happy to hear At least one legislator is thinking along these lines.

Gov- stench

There are too many municipalities in this state. That needs to be slimmed down. One thing to be sure, stay clear of North Kingstown. They have an agressive tax collections program underway and they are sending everything out to collections agencies. Talk about shaking down the taxpayers! None of these bergs ever heard of spending cuts.

pearl fanch

At what point does someone, or some group of people stand up and say enough???

We all complain, point out the obvious, or whatever......but the beat goes on.

At what point does it seriously change?

Steve Jones

I agree with many of the thoughts in these posts but I think some of the people that consistently write comments need to back up their rants with actual action. If you don't agree with the leadership why not go to the council meetings, write letters and e-mails, call your reps, go sit in their offices to complain in person or get people mobilized to continue those efforts as a community? If that stuff isn't getting results, run for city council or other elected offices yourself. Make the changes that need to be made and move on. One of the greatest obstacles to consolidation is the career politician that is always worried about their next election. I think you will find that leading is harder than you think but sitting in front of your computer and complaining to a bunch of people that agree with you isn't going to change anything.

Odd Job

"I agree with many of the thoughts in these posts but I think some of the people that consistently write comments need to back up their rants with actual action..."
Did you see election results? The Dems are actually stronger. Why would anyone waste their time trying to change things, they'd just lose badly.

michael riley

This law was well crafted and intended but when the final bill passed the teeth were taken out and there was no repercussion for going over. Consequently i would venture to guess many of the towns who asked for exemption did not even contribute their arc or address OPEB liabilities.Much like the Auditor general who did all the work to expose communities like Narragansett that willfully and purposely diverted ARC payments in order to instead give out new raises for the very same beneficiaries.His exposure went without penalty so cities continued to cheat and give out costly benefits and raises.The auditor general had and has no teeth. So lets either close up shop and stop the charade of oversight and enforcement or lets really address the problems pointed out in the article and by Christopher Lee.

michael riley

kind of ironic my post after Steve Jones and Odd Job




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