Tuesday, December 11, 2007

The Independent Columnist

Wednesday, December 11, 2007
With apologies to "the Onion"

Property taxes finally received the attention it deserves on Smith Hill. The Rhode Island legislature is considering a bill to re-evaluate this ancient tax system after months of debate in committee. Sources close to Senate and House majority leaders have released documents to this "reporter" on the condition of anonymity that suggest that lawmakers see nothing wrong with the 250 year old system in current use and are reluctant to make changes.

Under the traditional ad valorem tax system tax payers pay taxes to their town based on the market value of the property they own. The rate used to determine each tax bill depends on (1) the amount of the tax levy and (2) the total market value of the tax base, or all community property that is taxable.

New owners are assured that the rate used to tax them on the market value of their purchase will be based on current market values for the entire tax base, thus avoiding the unfair practice of using older and usually lower valuations as the basis of the tax rate and applying the rate to new, current market values of new buyers’ property. Revaluations will be done every three years instead of every ten to fifteen years common prior to 2000. “This assures fair treatment for new buyers” said the House minority leader

The tax levy itself will become limited to annual increases of no more than 4% which is very good news to property owners. Of course, while the levy is limited to 4% increases there is no limit to the increase in any individual tax bill since the market determines the value of each property.

In fact some waterfront property owners in the Saunderstown area of North Kingstown this year have seen their taxes plummet 25 to 30% while others in the same neighborhood have received increases of 20 to 50%. When asked about this apparent breakdown of logic and fairness a prominent senator responded that "the market is the best judge and we should let it work".

We are told by several trusted sources that the sentiment on the Hill is that taxes based on market values is the best way to pay for local government even if it means that some will be forced to sell their homes.

When reminded that the market was responsible for the sub-prime debacle and that market prices might be artificial and innaccurate indicators of wealth the Speaker of the Senate said, "I don't know about that but you can be sure we will try to do everything possible to help our citizens, as we always have."

Senate leaders have assured us that the present system is in everyone’s best interest as it brings in fresh new faces to Rhode Island and is good for the real estate business. “We believe in tradition and this tradition is hundreds of years old” said the House majority leader in a leaked memo.

Saturday, November 3, 2007

It's not a crime to hate.

Hate crime: A crime motivated by prejudice against a social group

Scapegoat: One that is made to bear the blame of others.

Racism and bigotry are arguably the most important issues facing America and perhaps the world. The energy misused because of them is energy that will not be used to address the major world problems such as hunger and disease.

Racism saps the strength of a nation, robs it of the contributions that might have been made by its victims. It is a blot on our society, a curse.

Is it any wonder then, that acts of racism are to be condemned and punished?

Enter the notion of a "hate crime".

I am very troubled by the idea that a person who commits a crime motivated by hate might be treated differently than another who commits the same act but for a different reason.

If I were killed by a gang member who, as part of an initiation had to murder someone, or by a white supremacist because I was black, or by a homophobe because I was gay, I'd be just as dead.

Are the last two crimes really 'worse' than the first one? Hate crime legislation suggests that indeed, the last two crimes must have harsher, or at least different punishments. I strongly disagree.

I believe that what is at work here is our collective guilt that in our society we can still see racism, bigotry and intolerance, and that we try to reduce our guilt by making the perpetrator of a 'hate crime' pay more dearly than if his crime were not motivated by hate.

Hate crime law creates, in effect, a scapegoat for our society's failings and demeans all the other victims of crimes that don't fall into that special category.

Hate crime legislation is dishonest and hypocritical and should be stopped.

Until we pass legislation to the contrary, it is not a crime to hate.

But maybe it's just me.

Sunday, August 12, 2007

Are you an unwilling buyer?

Revaluation is a process by which the latest market values are applied to all property. (Market values = values resulting from the actions of a willing buyer and a willing seller.)

Prior to frequent revaluations, a person could buy a home at a high price and simply continue to pay taxes on an old, usually lower assessed value - clearly unfair to existing owners.

Simply reassessing that one property would be very unfair to the new buyer however, since the tax rate was based on those lower values and would be much too high when applied to a market value.

Revaluation attempts to solve this unfairness. By updating market values for the entire community and calculating a tax rate based on those market values the resulting tax is indeed fair to all new owners.

However, revaluations produce two classes of existing owners; those with higher taxes and those with lower taxes, typically a ratio of two to one. The two thirds who pay more taxes pay much more in total than the tax levy increase, the excess being used to offset the reductions given to the other one third.

[e.g. In 2004, North Kingstown owners of property over $5 million in value received reductions averaging 18%!]

The impact of revaluation can be devastating for many of the two thirds who become unwilling buyers, obliged to pay taxes as if they were willing and able to pay market price for their homes, the same as new owners.

Sadly, many people, often the most vulnerable, old and young, are being forced from their homes, not because community tax levies are rising too high and too fast, but because the real estate market has made them unwilling buyers!

Try this little exercise:

Ask your town manager what the percentage increase in the tax levy was the year after your last revaluation.

Next, determine the percentage increase in your tax bill for that year.

If your tax bill increased more than the tax levy, all of the money you paid in excess of the tax levy increase was given to other tax payers in the form of their lower tax bills. This is not fair distribution.

Property taxes are supposed to represent our fair share of the tax burden. Instead, they're just a gamble.

Check out R.I.G.H.T.

Or maybe it's just me.

Sunday, July 8, 2007

Patriotism and other stuff

Government is supposed to provide the services we can't provide for ourselves, like defending the country, maintaining roads, public education, public health etc.

How's it working?

We know for instance, that health care costs are skyrocketing. We in the U.S. spend more per capita than any other country in the world.

Unfortunately we also have at the same time millions of people with inadequate or no health coverage at all.

And America has slipped in overall quality of health care compared to other nations. The latest WHO ranking places us 37th worldwide, behind Oman, Colombia, Israel, Morocco, Chile and Costa Rica. France and Italy are first and second.

How would any company that wanted to be best, respond?

Would it raise employee salaries? hire more people? Obviously not, at least not in the real world. In the real world when customers feel they aren't getting their money's worth, or are treated badly, they take their business elsewhere. Businesses know this and will react effectively, or they will fail and close their doors.

But government isn't business, or in the real world, it seems.

Customers (taxpayers) can't take business elsewhere.

Nor can they can't refuse to pay.

And government can't close its doors.

Here in Rhode Island, public employees' compensation and benefits are among the highest in the country and greater than the private sector as well.

Legislators have the power to increase taxes to pay for services, whether overpriced, substandard, or even non-existent.

And it isn't just here in Rhode Island but in the nation as a whole. Which brings me to Patriotism.

For too many, patriotism means waving a flag and saying how much you love America. A flag on a car doesn't make the driver a patriot, especially when he flips a cigarette butt out the window. Talk is cheap and flag waving is easy, but they're no substitute for patriotism.

Patriotism means not cheating our fellow citizens, not dirtying our streets, nor dumping trash in our waters, nor cheating on taxes.

True patriotism encourages us to volunteer, to pick up litter when we see it, to respect every citizen; in short, living American values.

True patriotism means we're honest, and that when elected to office we know we are servants of the people and protectors of the Constitution.

Patriotism is actions not words, not slogans, not flags.

Years ago, when I practiced dentistry, the pressures of our practice sometimes seemed overwhelming and we dreaded the ring of the telephone. At such times I would remind myself and my staff that our patients didn't exist for us. We existed for them!

John Kennedy said it well in his inaugural address in 1961:

"… ask not what your country can do for you - ask what you can do for your country"

Elected officials, are you listening?

Or maybe it's just me.

Saturday, June 30, 2007

Do Our Rights Come With Obligations?

There’s a lot of talk about rights today, in the newspapers, magazines, talk radio and on TV. For instance, Do we have a right to health care? Does the Supreme Court respect our right to free speech by siding with the school department in the “Bong Hits 4 Jesus” decision? Does the White House violate our right to privacy with its wire tapping policy?

Rights certainly are a cornerstone of our democracy. After the Constitution was ratified our founding fathers recognized that there needed to be some protections for the people from coercive or intrusive government behavior and they produced the first ten amendments to the Constitution - the Bill of Rights. And what masterpieces these two documents are. With them America has become the greatest, most powerful, freest country the world has ever seen.

When I was talking recently with a friend about whether all citizens have a right to health care [I believe we do] it occurred to me that we never discuss, along with our expected rights, whether citizens have obligations as well.

John Kennedy, in his inaugural address in 1961 famously said, “And so my fellow Americans: ask not what your country can do for you - ask what you can do for your country.” Inspiring words, yet today we hear nary a peep about obligations.

After 9/11 we were told to go shopping so the terrorists might know we are not intimidated by them. No mention of our obligations, our duties, our sacrifices. The idea of citizen responsibility, obligation, seems to have vanished.

As we approach July Fourth 2007 I’m proposing that from now on we make this ‘quaint’ concept part of every conversation about rights. For instance -

Right to Freedom from Hunger:

We provide soup kitchens, social service agencies, public assistance programs, such as food stamps to feed the poor. But do the recipients of these services, both government and private, have any obligations?

Are food stamps also “Twinkie” stamps? Or should recipients of food stamps have an obligation to use them as intended? Is there an obligation to know basic nutrition, to know that cigarettes and alcohol are not in any food group? Should repeated failure to observe these obligations jeopardize eligibility for assistance?

Right to Health Care:

When the poor are insured by Medicaid as their ‘right’, should there be an obligation associated with that right?

Do people who exercise their right to free medical care have an obligation to stop smoking? to avoid becoming obese? to exercise, or at least try a little?

Right to Free and Fair Elections:

The right to vote is perhaps the most important right of all conferred upon us by the Constitution. Do we have any obligations as we exercise this right?

Should the right to vote be accompanied by an obligation to understand the issues on the ballot? To be at least familiar with the candidates and their positions on issues? To be able to read and understand English? Should these be a prerequisite for voting?

I realize that some of these questions are controversial and such obligations or requirements have been abused in the past.

But when concern for our personal 'rights' blinds us to personal obligations, society risks a downward spiral from which it might never return. There must be a balance between the two.

If this awakens in us the idea that as American citizens, we have obligations to our fellow citizens and our country, we might once again become the nation President Kennedy spoke to on Friday, January 20, 1961.

But Maybe It's Just Me.

Monday, June 25, 2007

What I Learned From a Stone Wall

It happens every spring; my stone wall shows the ravages of the winter – stones out of place or on the ground, looking like my grandson's smile with his missing front teeth. But unlike my grandson, whose teeth will grow back, my wall needs attention, removing loose debris, and carefully refitting the fallen stones. I do this each year. And each year the stones fall out again.

A New England winter is hard on stone walls. Ice forms between the stones, acting like crowbars prying them loose. The ground itself heaves as the frost descends into the soil with advancing winter, and heaves again as frost retreats with spring.

I completed the wall myself after the workman who started it left unexpectedly. I assumed my inexperience that was the main reason for the annual repair ritual as I'm no wall expert. Is the wall doomed to endless repair?

This year I was determined to find out if I could do better and I removed all of the stones in the worst areas. I found that there wasn't a proper footing under the first course of stones; they were placed on uneven, slanted soil. A stone wall, or for that matter any structure, even a government, needs a proper foundation. Without one, whatever follows, no matter how pretty on the surface, is bound to deteriorate with time. Though a poor foundation is unseen, its effect is not if only we are willing to see.

The parallel to my stone wall is obvious.

Laws should benefit society as a whole. With time, new challenges arise and we have little choice but to respond to them with new legislation, and the 'wall' gets bigger (not necessarily better). The number and variety of laws, regulations, ordinances and rules has become staggering.

Yet no one seems to question whether the foundation itself might no longer be right for the task.

Perhaps the most common and stubborn issue confronting us is money. Cities and towns perennially either don't have enough or they spend too much, often both. Rhode Island isn't unique in this, although we are pretty near the top in property taxes nationwide.

Most other states today have surpluses which can be used to help municipalities pay bills and reduce property taxes, but not Rhode Island. This year threatens to be painful for both our communities and our state. The discrepancy between expenses and revenues is critical and needs to be addressed, like "stones" that need to be replaced immediately.

The General Assembly has made significant progress over the years, limiting tax levy growth. In 1986 a 5.5% limit was instituted and in 2006 that limit was modified such that it shall decrease .25% annually until it reaches 4% in 2012. A 4% limit is certainly not unreasonable considering Massachusetts has had a 2.5% growth limit since 1980 and has done reasonably well. Remember when Massachusetts was called "Taxachusetts?"

But in Massachusetts or Rhode Island, no matter how low a tax levy limit is, even at 0%, there is no limit on the growth of any individual's tax bill. This may sound like a contradiction, a paradox, but it is a fact. The reason is Revaluation.

Can the very foundation of our property tax system - Property owners pay taxes according to the most recent market value of their property - be contributing to the problem?

Imagine a community where the town council and management, with the assistance of dedicated and committed public employees, create a budget with a 4% increase in the tax levy. With no revaluation, everyone will pay 4% more taxes than the year before and the bills would get paid. A 4% levy increase will increase everyone’s taxes by 4%.

Revaluations are necessary however, to insure that new owners pay their fair share using a tax rate that does not discriminate against them. Therefore someone who’s assessed into a $500, 000 home must pay the same taxes as someone able to pay $500, 000 for a similar home, often producing incredible tax increases for current owners.

With revaluations, property values change; some homes might increase a great deal in value, some homes or businesses might increase very little in value. Because of this, after a typical revaluation, 2/3 of property owners will get tax increases. But since the remaining one third will pay lower taxes, the amount of anyone’s increase over 4% will not be paid to the town but is used to make up for those lower tax bills.

In other words, the 4% limit imposed by the General Assembly applies to everyone together but to no one individually. Some people have seen their tax bills DOUBLE.

Can we tax new owners fairly, as we do now, and at the same time, avoid those huge increases for the majority of property owners? Can the foundation of our property tax structure be fixed? Yes and Yes.

There is a way to create a foundation for a more fair distribution of property taxes for everyone, new owners and existing owners alike, a way that provides the revenue required by the budget, and limits growth in property taxes, not only for the town as a whole but for every individual taxpayer as well, both residential and commercial. Visit http://righttax.org to learn more.

By limiting the growth in the tax levy alone we've merely replaced some “stones in a wall” with a faulty foundation. Such a wall will need repairs again and again. By the way, it's not just property taxes that get superficial or cosmetic fixes. It's the way most things seem to get done.

I'm rebuilding my stone wall this year, starting with a proper foundation, finally. It will be a lot of work but it's the RIGHT thing to do.

Wednesday, May 16, 2007

Property Tax Roulette.

Catherine Orloff's commentary on property taxes in the Providence Journal recently was, for me, like a tasty worm on a hook.

I just had to bite.

There is much to be said in support of Ms Orloff's position, that the property tax is the better way to fund tax levies and especially education. Her discussion of the differences between income taxes and property taxes regarding fairness and progressivity however missed what I believe are the most important considerations. Also, the summary offers no solution when she states, "The property tax is not perfect, it can be improved, but it is more open and democratic than most if not all other taxes...".

In my view an income tax is far more fair than a property tax. The fundamental principle of income taxes is that one pays according one's ability to pay - more income, more taxes. If all the loopholes could be plugged so that none of the tax lawyers could wriggle their clients out of their fair share, it still has one fatal flaw that makes it second best for funding local government: it is not dependable.

When local governments commit to providing services and enter into contracts with municipal unions they need to be able to pay for them. If tax levies were funded by income taxes (or sales taxes) and the anticipated revenue fails to satisfy the need, towns would be left with deficits. Deficits are expensive as borrowing costs money.

The property tax on the other hand is predictable and dependable. If a town needs $75 million dollars to fund its tax levy it will get $75 million dollars in property taxes. Period. This is critical to a town's being able to pay for what it needs without the nasty surprises that a slipping economy can bring, should income taxes or sales taxes dip. In case anyone needs proof, note that the state which depends primarily on income and sales taxes, will need to fund an anticipated $360 million dollar deficit over the next few years. What if our towns faced these deficits?

The real problem with property taxes is that they are not distributed in a fair manner. Ms Orloff states that "...since real estate ownership is closely associated with wealth...the property tax is quite progressive." Sorry to disagree. Real estate is associated with wealth at just one point in time, when a buyer makes a decision to purchase a property. At that time the decision depends on the new owner's ability to pay the down payment, the mortgage payments and the property taxes. In short, can she afford it?

Over time, the down payment obviously doesn't change, the mortgage payments remain constant and the owner's income may change but not usually dramatically. Yet property revaluations produce huge tax swings, wildly upward for thousands of owners and downward for thousands as well. Those property tax payments no longer reflect an owner's wealth, or even the changing needs of the tax levy, but merely the fickle and unpredictable gamble we call the real estate market.

Can we preserve the reliability of the property tax, so necessary for the fiscal health of our cities, and at the same time fix this very unfair distribution produced by the swings in the real estate market? Absolutely we can. Rep. John Loughlin II is trying to introduce legislation that will do just that. It is modeled on the principles introduced on the righttax.org website, such that new owners pay a fair tax precisely as they do now and existing owners are protected by the limits on the growth of the tax levy. He deserves your help.

I doubt that the property tax, in Ms Orloff's words "...is one of the major reasons for the economic and the political greatness of America." but at least it shouldn't be the reason for folks' losing their homes when revaluations distribute tax increases and decreases no better than a throw of the dice, or a spin of the roulette wheel. 

Hey, but maybe that's just me.

Thursday, March 29, 2007

Latest talk on Property Taxes

Last night I spoke at the North Kingstown Senior Center, sponsored by the Democratic Town Committee. What a wonderful experience for me and I learned from them as I hope they learned from me. People were enthusiastic and eager to talk about their impressions and experiences with the recent re-valuation and their new assessments.

Many had their individual horror stories and each one deserved to be heard. Unfortunately I was not the one to hear them as I can do nothing about those matters individually.

As the people who attended last night now know, my position is that these types of issues, incorrect data on field cards, unrealistic estimates of resale prices, inconsistent valuation increases within the same neighborhood, and odd reductions for some of the most valuable properties as levies increase, are all issues that should never again be of concern to property owners. It is most bizarre

I suspect we all want pretty much the same things: a home in which we can afford to live over the years, an education system on a par with our spending, quality services at reasonable cost, and a distribution of those costs fairly for everyone.

How do we stack up? Not very well.

Our property taxes are among the highest in the nation (most of those dollars are for education), student performace lags behind the most of the country, and infrastructure that leaves much to be desired. We are not getting full value for what we are paying.

Add to that the unforgivable fact that about two thirds of property owners shoulder the full burden of tax increases PLUS an extra amount to compensate for the tax REDUCTIONS received by the other third of property owners whenever there is a revaluation.

Until 2000, communities would revalue property every ten years or so. Some communities did so far less often than that.

This meant that as a rule everyone would share equally in tax increases; a 4% tax increase meant a 4% increase in everyone's tax bill. Usually.

While existing owners generally believed that they were paying their fair share, property was increasing in value. This meant that new buyers, willing to pay higher and higher prices, were paying taxes on prior values, thus, less than their "fair share".

The simple solution to this was to revalue all property and tax everyone according to the resulting tax rate.

In fact a revaluation does indeed produce a tax rate which taxes new buyers fairly. However, in the process, the new tax rate taxes all existing owners unfairly. Most owners wind up paying too much and the rest don't pay enough. Do you think this is a good trade?

We can correct this. To see how, you can visit the website. You will also be find a link to your legislators. Contact them and let them know that this is an issue that concerns you. That you want it to be explored, debated, discussed and FIXED!

Rep. John Loughlin II has drafted legislation that will modify the General Laws to permit us to make the distribution of property taxes fair for everyone.

RI Constitution Article 1 Section 2, "...and the burdens of the state ought to be fairly distributed among its citizens"

It really is up to us.

But maybe it's just me.

ps. Feel free to post a reply here. Maybe we can use this as a forum to share ideas. Thanks

Thursday, March 8, 2007

So you think a limit on the tax levy is enough? You're wrong my friend.

The property tax cap legislation recently passed by the General Assembly effectively addresses an important loophole in the previous 5.5% tax cap. ("New property tax cap raises concerns over budgets across RI", Providence Journal, front page, March 6, 2007)

Prior to this legislation, a community could apply the 5.5% cap to either the amount of the tax levy or the tax rate itself.

For example, imagine that a town's total valuation rose by 30%, a very modest increase in today's climate of rising property values. Since the formula for calculating a tax rate is the levy divided by the total valuation, a town could apply the 5.5% limit to the rate, raise the tax levy by up to 30% (same as the value), the tax rate wouldn't increase at all so they would be under the 5.5% limit!

This is no longer possible under the new legislation which closes this huge loophole and even reduces the cap in stages over the next six years to 4%. NOTE: There is no limit to the amount your tax bill can go up!

There are important considerations however, which remain unaddressed. The first is the same one that characterizes both California's and Massachusetts' property tax solutions; the tax limit is arbitrary and fixed, while inflation and the economy, two main drivers of budgets, are not. In times of low inflation, the 4% limit could actually be too generous and by the same token, when inflation is greater than 4%, as it was in the recent past, it will be unrealistic to require such a limit on town spending increases.

The second, (in my view the more important) problem is that this solution fails to consider the most critical factor in an individual's property tax bill, the property value. Traditional revaluation produces increases in tax bills for about two thirds of property owners but it produces decreases for one third. This means that regardless of any changes in the budget, most of the increase in the tax bills of most property owners is used to offset the tax decreases of the other third. Two thirds pay more than their fair share of the tax burden under current revaluation practice and one third of owners don't pay enough.

With a revaluation every three years many owners are simply unable to keep up with their tax increases and are forced to sell their homes, not because the tax levy is increasing too much, but because new buyers are paying ever higher prices for their property requiring them to be overtaxed.

There is a real and fundamental difference between a person who is able and willing to pay $500,000 for a home and the associated tax, and another person living in a similar home who has been revalued into a $500,000 home. The right tax system must be able to address both individuals fairly. Currently it does not. We tax existing owners as if they too chose to buy their home at the new valuation. It is basically unfair to existing property owners.

There is an alternative way to revalue, (see http://righttax.org)which allows for the proper tax rate to be applied to new owners willing to pay those higher prices and at the same time, is fair to all existing owners who will pay their fair share of the tax levy in direct response to the needs of their town, the tax levy.

Only when new owners and existing owners alike pay their fair share of the tax burden have we fulīŦlled the request of our own constitution and the basis of our nation, fair taxes for all.

Wednesday, January 3, 2007

Language - Both Funny and Deadly

Language is arguably one of the most important of human abilities. The sharing of thoughts and ideas has enabled us to multiply our individual efforts and to achieve more than any species on earth.

Yet our misuse of language is often hard to understand and sometimes downright humorous. Words are misused and often say the opposite of what we actually mean. Rhode Islanders are especially picturesque in this regard.

"I could care less" is a very common Rhode Island expression used and understood by all. The person wants to show how little he or she cares about a subject, so little in fact that they could not care less, yet they say the exact opposite. Funny.

And now something not so funny.

"Abstinence only" sex education. How exactly do you teach someone how not to do something? Education is learning something not known before and yet children have been not having sex their entire lives up to that point. What might such a class sound like? "Don't have sex until you're married. Class dismissed".

On the other hand, teaching why one shouldn't have sex is more philosophy and opinion and should be left to parents and clergy, not to the public education system.

For example, I think we can all agree that teaching about the various world religions and cultures is legitimate public education. But teaching why one religion's view is preferable crosses the line and is clearly a violation of the US Constitution.

Maybe it's just me.