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 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.