Saturday, December 30, 2006

Don't hold your breath.

In the Providence Journal today (Sat. Dec. 30, 2006) there was a letter to the editor asking for legislators who can balance a budget without raising taxes ("Assembly spurned governor's cuts").

The day before, (Dec. 29, 2006, "Treasury appointee once filed for bankruptcy"), Katherine Gregg reported on an appointment by the treasurer-elect Fran Caprio, of Donald O. Reilly Jr.

This isn't about whether Mr. Reilly is qualified for the position. He might be a very nice person with excellent qualifications.

It is about a much more serious problem; the attitude and respect of our elected officials toward our money. It's about finding positions in government for friends (and family) instead of finding qualified people to fill necessary positions. In the piece there is a telling remark:

"In this situation," Caprio said, "Don will be someone that will be dealing with day-to-day issues in the office where his background in government and his professional background will be of use to the office and I look forward to working with him."

Asked specifically what Reilly would be doing, Caprio said that has not yet been determined, but "he is going to be working in the financial side of the office"

It's a small thing really, but for me it speaks volumes. A decision has been made, by the State Treasurer no less, to hire someone to do something "that has not yet been determined" but who will be paid with our money, of course.

Responsible budgets? Don't hold your breath.

Maybe it's just me.

Tuesday, December 12, 2006

NK, RI Town Council Meeting Dec. 11, 2006

Impressions from a citizen:

The new council got off to a good start, I think. The routine of running a meeting was understandably a tad shaky but will get smoother as time goes on. The mood was cooperative and respectful, a very good sign.

The first item on the agenda was an introduction of all the department heads to the council for the benefit of the new members. Maybe there'll be a test next week to see if they remember all their names?

There weren't any fireworks until a request to alter wetlands was before the council. It seems that because a lawyer didn't file a paper in a timely manner that DEM might consider a developer's request to encroach on wetlands to gain greater access to a house lot.

Not one person that spoke before the council was in favor of granting the exemption. The applicant wasn't there.

The council options are: a) lodge a protest or b) veto the request.

The problem is that should a veto be overturned, the town could be on the hook for damages the applicant might demand. The council opted to register a protest and not exercise a veto. Not an easy call for the town but the consensus was that strong town objections were usually upheld by DEM.

There was a discussion about the new tax levy limits, heading down in little increments from 5.5% to 4%. This year it will be 5.25%. The council talked about its own limits which could be even lower than the state's. A limit is just that, a limit; it's not a goal and I didn't see the point of saying that the council might want to spend less than the 5.25% increase. I take it for granted that the council will always try to spend as little as it can for necessary services, not up to a limit. Isn't that the idea of zero based budgeting?

Then came the item about the Elderly Tax Exemption. It makes sense that any exemption takes into account inflationary pressures on values and adjusts the limits of the exemption accordingly. My objection is with the whole idea of elderly exemptions at all.

Exemptions are given presumably on the basis of need. Income is measured as a percentage of the poverty level and the exemption is granted accordingly. Seems to me that a young family who finds that they can no longer afford their taxes on inflated property values are just as worthy of help as older people who find themselves in that position.

Exemptions such as this are a testimony to the need for true RE-FORM of the way we tax property to pay for local government services.

All in all a good meeting and I am very optimistic about the new council.

But maybe it's just me.

Friday, December 8, 2006

Property Taxes. Deal or No Deal?

On the popular TV game show, Deal or No Deal, host Howie Mandel asks the contestant a very important question, "Deal or No Deal?"

The contestant must choose between taking an unknown amount of money in his or her suitcase, or a known amount of money offered by the 'banker'.

What does this have to do with property taxes?

Taxes pay for government. Whether federal, state or local government, we pay for them all with our taxes.

For local government we have been taxing property for centuries. Long before the Industrial Revolution, long before there was a United States, we taxed property. The value in those earlier times was determined by the revenue produced by the property - more revenue, more value, more taxes. In fact one could say that the property tax in those early days was really an income tax.

Things are very different today. The market place determines the value of property. People who own property of equal value must pay equal taxes. No matter how wealthy they are, no matter when they purchased the property, the taxes will be equal if properties are of equal value. (To insure that new owners don't pay unfairly low taxes based on previous values we revalue property every three years.)

Most of us accept that this is a fair way to distribute taxes among tax payers as long as assessments are accurate and up to date. If it's fair, it begs the question:

Would you choose to pay your state or federal taxes based on the value of your house? "Deal or No Deal?"

"Hold on" you say, "no way. Pay state taxes on my revalued property? It wouldn't be fair!".

If it's not fair to pay state taxes that way, what makes it fair to pay for local government that way?

It isn't fair, at least not the way we do it today. Revaluations are indeed necessary to insure that new owners pay their fair share but those revaluations make it harder to hold on to a home, even forcing some existing owners to sell.

Maybe we should do away with property taxes altogether and have a local income tax.

Income taxes would be much more fair than property taxes. But they have serious drawback; they're very unreliable.

Today, when a town sets a tax rate, it is guranteed to produce the revenue required by the tax levy. This is a good thing, and very important for prudent management of our towns and cities.

On the other hand, if towns depended on income tax and sales tax revenues, and the economy stumbles, towns would face the same problems that the state currently faces, deficits and expensive borrowing. Clearly not a good thing.

The challenge is to retain the benefit of taxing property and, at the same time, discard the unfair treatment of our existing long time owners who are forced to pay taxes on homes they could never afford to buy at present day prices, while still assuring that new owners pay their fair share.

It can be done. We have just such a proposal on our web site at R.I.G.H.T.

I welcome your comments.