Tom Sgouros: Our Accountability-Free Society

Monday, January 02, 2012

Tom Sgouros, GoLocalProv MINDSETTER™

Planned obsolescence

I see that the state Vehicle Value Commission last week declined to do much about the rising tide of complaints about car valuations. This came as something of a surprise to me, since it's about the only pro-municipal move the state has made in recent memory. But on closer inspection, it's no real surprise. The commission is mostly made of local tax assessment officials. That is, people who understand the impact on their budgets of a change in assessment policies. After the devastating cuts of the last few years, who has the appetite for more cuts to libraries, schools, and police departments?

Oh, wait, the legislature does. I see that Rep. Joseph McNamara (D-Warwick) is convening a meeting to discuss drafting legislation to make car assessments lower.

So maybe it's time to make clear again what exactly has happened with the car tax. Cars have been taxable property in Rhode Island for decades. In 1997, Tony Pires, then chair of the House Finance committee, announced that he had a plan to eliminate the car tax. His solution was that the state should pay it for all of us.

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That same year, Governor Lincoln Almond proposed a 10 percent cut in the income tax. The two proposals met in House Finance, and rather than choose one proposal or the other, the committee went with both.

Of course it's not fashionable to plan how to pay for tax cuts, so they didn't. The committee happily voted to blow a three hundred million dollar hole in the budget by cutting both taxes without the first inkling of what we'd give up in exchange. Their only concession to reality was to phase in the cuts over several years.

Michael O'Keefe was the chief adviser to the Finance Committee at the time, and I sat in his office one fine day in 1997 and asked him how he thought the state could pay for these tax cuts. He leaned back in his chair, tugged on his bow tie, and simply said, "The Chairman [Pires] feels that the state would benefit from increased fiscal constraints in future years." Well here we are, enjoying that benefit.

Recent history

So much for deep history. The car tax phase-in only went smoothly for a few years, and then was halted -- because no one had any idea how to pay for it. Since then, the exemption level has gone up in fits and starts, hampered by the fact that once you're above a few thousand dollars of exempted value, each increment only benefits people who own expensive cars. But giving tax breaks that benefit well-off people is also the style for the 21st century, so the exemption level was bumped up a few times, until two years ago, when Governor Carcieri decided the state could no longer afford it, and dropped the payments entirely.

The structure of the program all along has anticipated that moment. That is, towns continued to count and assess all the cars owned by their taxpayers and levy the tax. They continued to count that money in their budgets, just as before. The only difference was the state would actually write the checks for the first $6000 in value for each car. So when the state abruptly decided to stop paying, the cities and towns were already counting on that money. That first year, many of them decided to eat the loss, and not try to raise the missing revenue. But reality has set in and cities and towns are starting to ask for their property tax revenue to be restored to them. This has produced complaints about rising tax bills, and pressure on the Vehicle Value Commission to address them by lowering assessments, which they declined to do.

One more wrinkle: Despite the fact that the car tax reimbursements were essentially only displacing money that you and I had once paid to our towns, the state legislature counted this money as new state aid. I listened at a Senate Finance Committee in 2009 while Senator Dan DaPonte, the committee chair, complained that despite what he called the growth in state aid to cities and towns, property taxes continued to rise. But of the $234 million in municipal aid that year, $135 million of it was car tax reimbursements, which didn't help a town balance its budget. If you don't count that money, state aid to cities and towns was down substantially -- as a proportion of state spending, as a proportion of municipal budgets, and as a proportion of the state's economy.

Lessons

So, a few lessons here. One is that our state apparently isn't to be trusted to hold up its end of a bargain with cities and towns. (Or retirees, for that matter.)

Two is who gets the blame. The state was paying your property tax bills, and then stopped, but cities and towns get the blame for increased tax bills. Is that fair?

Three is that policy makers in the state house correctly foresaw the budget devastation we enjoy today years ago -- and did nothing about it.

Not only did they foresee it and not act, but for some, their reputations were burnished in the process. Michael O'Keefe, who essentially designed the whole Rube Goldbergy car-tax-cut apparatus, is now on the commission overseeing the finances of the city of East Providence. Gary Sasse, an important budget advisor to Governor Carcieri when the car tax payments were stopped, is helping out with finances in Providence. Dan DaPonte is still chair of Senate Finance. All of them continue to enjoy fine reputations for fiscal probity, despite playing important roles in ruining the finances of your state and the cities and towns in it. That's the way it works in our accountability-free society: the people who create the problems pay no price.

Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected].
 

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