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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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