The Highest Taxed Communities for 2014
Thursday, November 21, 2013
The highest taxed communities in Rhode Island are among the poorest cities and towns—the ones that can least afford it, new state data for the current fiscal year shows.
A common theme dominates those communities at the top. The highest taxed community is Central Falls, which is fresh out of bankruptcy while the next two are ones that had recent bankruptcy scares, Providence and Woonsocket.
Rounding out the top ten are Pawtucket, Johnston, East Providence, Cranston, and West Warwick, the data shows. (See the below slides for a complete ranking of all 39 cities and towns.)
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“It is clear that an entirely undesirable race to the top of the tax chart is on between some of Rhode Island’s most fiscally challenged cities,” said Monique Chartier, spokesperson for the Rhode Island Taxpayers.
“Central Falls, which just emerged from municipal receivership, owes its ‘lead’ to a tax rate imposed by the receiver. Woonsocket’s Budget Commission has pushed that city near the top with both a supplemental tax and by maxing out annual tax increases for at least five years. And Providence is unfortunately very much holding its own as yet another in a long line of mayors and city councils has failed to hold the line but saw it necessary, somehow, to increase their residential tax rate,” she added.
(Central Falls Mayor James Diossa and Woonsocket Mayor-elect Lisa Baldelli-Hunt did not respond to requests for comment in time for publication.)
Overall, Rhode Island has the fourth highest tax burden in the United States, in terms of taxes for every $1,000 in income, which exceeds the national average by 42 percent, according to Gary Sasse, the Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University. “The over reliance on this revenue source is further evidenced by the fact that 46 percent of Rhode Island’s state and local revenue come from this source compared to the U.S. average of 35 percent,” Sasse said.
Poorer communities have higher tax rates
Cities and towns were ranked on the basis of their four property tax rates for residential, commercial, personal, and motor vehicle property. GoLocalProv also examined the affordability of taxes in each community, calculating the cost of home and car taxes for a typical resident and estimating that cost as a percentage of the local median income.
Overall, a striking pattern emerges: those communities whose residents can least afford it are the ones facing the highest tax burden.
Central Falls, the number one highest-taxes community, had a residential tax rate of $25.72 per $1,000 in value and a motor vehicle rate of $48.65, which would cost the owner of a median-priced home and a 2008 Honda Accord—currently one of the most popular selling cars—$5,465 in taxes. And that’s after the homestead exemption is taken into account. Those tax payments would eat up 16 percent of the local median household income, which is $32,759.
Compare that to Charlestown where tax payments would be roughly half that amount, but median income is double that of Central Falls, lowering the tax-to-income ratio to 3.56 percent.
In nine cities and towns, the local property tax burden amounted to at least ten percent of the local median income. For about half of them, the burden approached 15 percent. Taxes are least affordable in Providence, where a median income-earner owes 18 percent, even after the homestead exemption.
Another measure of tax affordability is the ratio of taxes to home values, according to Sasse.
In nine communities, the taxes owed exceed the value of a median-priced home by 2.5 percent, according to Sasse. “In my opinion property tax burdens above 2.5 percent of value are excessive. The data suggests that there are significant differences in property taxes paid by families among Rhode Island’s cities and towns. This raises a basic question of statewide tax equity,” said Sasse, who is also the former state administration director and a GoLocalProv columnist.
One progressive policy expert calls the disparity in resources among communities the biggest problem in the state. “The single biggest problem we face in Rhode Island is the wildly disparate levels of resources available to the cities and towns,” said Tom Sgouros. “Barrington can raise more money per capita than Providence with far less effort. Barrington is not being particularly frugal or efficient with their money; they just have more of it.”
“Look at poor Central Falls. I don’t know how anyone can say that the kids in Central Falls deserve less in services then the kids in Barrington, but their parents have to pay over four times the percentage of their income to get less than one third the level of services,” Sgouros added.
He said the problem has worsened over the last quarter of a century as the burden of funding public education has been increasingly shifted onto property taxes.
“Central Falls has already gone bankrupt, and the ‘responsible’ people in state government have told the people there that they don't deserve a library or a community center or any of dozens of other services that we take for granted in the rest of the state. I’m not sure which city will go bankrupt next, but even if they avoid bankruptcy court, the message is the same: if you want services and decent schools, the city is not where to get them,” Sgouros concluded.
Chartier blames high tax rates less on wealth disparity, than the policy decisions of local and statewide elected officials.
“Two major factors have contributed to high property taxes in these municipalities. The first is on the front line, where decades of local elected officials failed to hold spending in line with a realistic revenue stream,” she said. “The second is decades of bad economic policy implemented by a misguided General Assembly which has resulted in a very bad statewide business climate, a poorly performing economy, and the corresponding shriveled tax base.”
33 out of 39 communities raised taxes
Nearly every city and town raised at least one of their tax rates between last year and this year.
Out of 39 communities, only six had no tax hike. Of those six, three reduced one or more of their tax rates: Glocester, Hopkinton, and Jamestown. The remaining three—Cranston, Little Compton, and Pawtucket—kept all of their rates flat.
One other community, North Smithfield, reduced its personal property tax rate by ten cents, but this was more than offset by a combined hike in residential and commercial rates of 63 cents.
Out of 39 communities, just over a third, or 15 of them, increased their taxes more than 5 percent, according to Susanne Greschner, the chief of the state Division of Municipal Finance.
By state law, communities cannot raise their tax levies by more than 4 percent. But exceptions are allowed as along as certain conditions are met.
In the case of the 15 communities that were above 5 percent, the increase was driven by factors beyond each community’s control, according to Greschner: “[E]ach of the affected communities had performed either a statistical update or a revaluation in 2012 and the percentage of the increase in the rate was at least partially due to the decline in the overall assessed property values (both residential and commercial) that year,” Greschner said in an e-mail. (The assessment for fiscal year 2014 is dated December 31, 2012.)
Only one community that broke through the 5-percent ceiling did not do so because of a statistical update or revaluation: East Greenwich. Instead, the increase—which amounted to $2.76 on the rate for each category except motor vehicles—is due to the merger of the first districts into a single municipal department, according to Greschner.
Pawtucket has 5th highest tax rates
In Pawtucket, which ranked fifth for the overall highest tax rates, a city official said the administration of Mayor Don Grebien, who is in his second term, is doing everything it can to ease the burden.
Tony Pires, the city administration director, said the mayor “challenges his management team every day via his personal contact, e-mails and texting to find ways to do ‘more with less’ and to insist that we keep an eye out for opportunities to reduce costs.” Pires offered specific examples:
■ Personnel: The city now operates with 10 percent fewer people than when Grebien took office in January 2011.
■ Privatization: The city has outsourced its transfer station, trash, and recycling services. It has also partnered with Central Falls and East Providence in purchasing of trash and recycling services.
■ Consolidation: The school department and city have merged IT functions and future consolidation of services and facilities is in the works.
Efforts have also been made to increase revenues from non-tax sources, or add new taxpayers to the rolls, according to Pires. He pointed to Grebien’s reorganization of city economic development activities, which have been centralized in the mayor’s office.
“In so doing, he has assigned major projects to his executive office staff, including himself. Those efforts have borne direct results in the relocation of a major medical services call center (Tunstall AMAC), the groundbreaking for a new medical facility (RioView Medical Center) and a number of other projects in various stages of development. This focus has the sole objective of increasing our tax base and reducing the tax burden on residential and commercial tax payers,” Pires wrote in an e-mail.
The city has also been aggressive in finding revenue sources beyond taxes. Pires said the city had been able to obtain $4 million in federal SAFER grants over two years, funding 21 firefighters (at least for the initial years) and cutting overtime costs by about $2 million during the same time.
Those efforts, Pires said, are why the city was able to produce a current budget without any tax increases—one of the handful in the state to do so. Another positive sign, according to Pires: Fitch’s recently completed its annual ratings review and revised Pawtucket’s outlook from stable to positive. “[S]o we’re making great progress as recognized by an independent rating agency,” Pires said.
Higher taxes on the way?
The tax increases simply perpetuates a pattern of steadily rising tax rates across the board. But one taxpayer advocate warns that tax rates could be due for sharp increases in the future. “Generally, it is our view that cities and towns are really hiding behind a couple of benefit areas that are really unsustainable and un-fundable,” said Mike Stenhouse, the CEO of the Rhode Island Center for Freedom and Prosperity.
Stenhouse is concerned about the rising cost of pension and retiree health benefits at the local level. He says cities and towns are not correctly estimating their costs, publicizing them, or even developing a plan to pay for them. “At some point, they’re going to have to pay the piper,” he said.
In particular, he warns that the rate of return on local pension investments might be set at overly optimistic levels of 8 percent or higher, when in fact 4.5 percent might be more realistic. Were a realistic rate of return used, unfunded pension liabilities at the local level could double or triple in size, according to Stenhouse.
The impact will be felt by taxpayers and municipal employees alike once those “time bombs” start getting closer to zero, forcing them to confront the cost of the unfunded pension liabilities. “If they think taxes and benefit cuts are extreme now, then they ain’t seen nothing yet,” Stenhouse said.
Stephen Beale can be reached at [email protected]. Follow him on Twitter @bealenews
Related Slideshow: RI Communities with the Highest Tax Rates #39 - #1
How do the taxes in your community compare to other cities and towns in Rhode Island?
GoLocalProv has ranked communities from the least to the highest taxed on the basis of their tax rates, using newly released data from the state Division of Municipal Finance. The below slides list the tax rate per $1,000 in value for homes, commercial property, personal property, and motor vehicles for the 2014 fiscal year, which began last July and ends next June.
Along with the rates are examples of what taxes might cost a typical resident in each city or town. For residential taxes, this calculation is based on the current statewide median price for a single family home, which is $240,000. For communities with them, homestead exemptions are factored in using the latest available figures. For motor vehicles, the example used is a 2008 Honda Accord, valued at the maximum retail price of $15,150. The total cost of home and car taxes is then represented as a percentage of the median income for that community, offering a rough measure of how affordable taxes are for those residents as compared with the taxes in another city or town.
Data sources: the Rhode Island Division of Municipal Finance, the Rhode Island Association of Realtors, the Rhode Island League of Cities and Towns, the National Automobile Dealers Association, and the U.S. Census Bureau.
#39 New Shoreham-
#38 Little Compton 
#37 Jamestown
#36 Charlestown
#35 Narragansett
#34 Bristol
#33 Portsmouth
#32 Westerly
#31 South Kingstown
#30 Newport
#29 Middletown
#28 Exeter
#27 Tiverton
#26 Richmond
#25 North Kingstown
#24 Coventry
#23 Cumberland
#22 Hopkinton
#21 Warren
#20 East Greenwich
#19 Burrillville
#18 Barrington
#17 West Greenwich
#16 Foster
#15 Scituate
#14 Glocester
#13 North Smithfield
#12 Lincoln
#11 Warwick
#10 West Warwick
#9 Cranston
#8 Smithfield
#7 East Providence
#6 Johnston
#5 Pawtucket
#4 North Providence
#3 Woonsocket
#2 Providence
#1 Central Falls
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