Can We Talk?

At a recent meeting with the Chief of the Rhode Island Division of Municipal Finance, to propose an idea for changing from a market value base property tax to a 'taxable' value based property tax, I was presented with some of the very serious issues facing the state and its municipalities, in effect challenging whether the proposed change would help the property tax problem.

Some of those issues were, (1) the large increase in foreclosures, (2) those who simply find it increasingly difficult to make their skyrocketing tax payments, and (3) the concern that the proposal would mean people might be living in identical homes paying different property taxes.

Each of these deserves an answer.

1. Foreclosure occurs when the owner of a property can't meet his/her mortgage payments. Those mortgage payments are established at the time the mortgage is created and is simply a loan using the property as collateral. The borrower and lender (bank) choose a mortgage that will satisfy the borrower's ability to make the payments.

There are things than can change the ability to make payments; job loss, unexpected medical bills, either of which could reduce one's ability to make mortgage payments. The actual market value of the property has little to do with the mortgage as described, unless...

There are other situations however, when the owner of a home that has appreciated in value is tempted by a lender to take out a second mortgage to finance say, a vacation or a new car. The increased value is treated as if it were like money in the bank and, if necessary, the owner can sell for the higher value and pay off the loans, maybe with some money left over. Tempting. As unscrupulous salespeople urged buyers to take out these loans these mortgages proliferated like crabgrass in August, producing enormous profits for the people who pushed paper from one place to another.

Too often the "free money" added to monthly payments more than the owner's ability to meet obligations. Add in increased property taxes based on the higher market values and we have the makings of a serious problem: people began selling their homes to reduce monthly payments. The increase in selling forced down market prices as more people began to panic. They to tried selling their homes quickly to grab those 'high' market values, only to find they weren't there. Their homes in some cases weren't even worth what they paid for them and many were forced to declare bankruptcy.

This downward spiral only increased the disaster that was beginning to unfold as the banks holding those mortgages found themselves with worthless paper (toxic assets) and their incomes fell as more and more people defaulted on their loans.

And yet the market values of homes are assumed to be the best and fairest metric upon which to tax people to pay for municipal services. Incredible.

The RIGHT proposal of using 'taxable' values instead of market values will not immediately fix the above problems. Of course, neither will the continued reliance on market values. But going forward one must consider if we will be in a better place if we make the transition to a taxable value based system or if we continue using market values.

2. This brings us to the individual who is simply struggling to pay taxes on an increased property value. With the expected drop in values one might expect some tax relief, but this is anything but certain. If values drop town wide, as they have recently, the tax rate will simply rise to produce the needed revenue. In fact revaluation to market prices produces thousands of people whose taxes drop as those whose taxes are too high, regardless of the overall increase or decrease in property values. It's the nature of swings in market values.

The more important question is this: Would we be in this position at all if we were taxed on 'taxable' values for the last twenty years instead of market values? It would be much better to pay taxes limited to 4% increases for the next twenty years rather than continue with the market based system which brought on current problem in the first place. It seems we have an opportunity to rewrite history: today is the future's past.

3. Now for the last concern, that under a taxable value based system there would be people living in houses of equal value, possibly side by side, paying different taxes. Quite true. For many it is hard to accept and seems unfair.

Consider. If Bill and Joe buy property at the same time for the same price, they should pay equal taxes.

But what if Bill sells his house to Nate for a much higher price than he and Joe originally paid? Should Nate simply pay the taxes that Bill was paying? Of course not. Nate should be taxed based on what he paid, just as Bill and Joe were, and to make sure Nate pays a fair tax on his market value we must use a rate calculated from the market value of the entire town.

But now he and Joe will not be paying the same taxes would they? Nothing wrong with that. But our reevaluation system insists that everyone be reassessed to market values. If Joe's property increased in value the same as Nate's, Joe will pay the same tax as Nate. The reassessment has decided that Joe is in fact the same as Nate, but he is not. Assessing someone's property greater than (or less than) the one he bought, doesn't make him equivalent to the person who just spent that amount.

The use of 'taxable' values instead, would increase the value of Joe's house and every other current owner, the same percentage as the tax levy, not the market place. For example, a 3% tax increase would increase everyone's tax bill by approximately 3% while new owners would pay based on market value. Both owners are treated fairly. The following year the new owner becomes an existing owner.

There is nothing inherently unfair about people in similar homes paying different taxes to support government; we do it all the time. We pay for state government and federal government differently despite living in similar homes and there is nothing immoral or unfair about doing the same for local government.

Is the proposed system perfect? No. Will it be better and more just for everyone? Absolutely. Check the RIGHTTAX website for more.

Organizing some thoughts

Conservative view:

• The free market is the best, most efficient way to allocate resources. The best ideas succeed, others fail. The best people succeed, others fail. Government should stay out of the way and let markets work because they have produced the most successful and powerful nation in history.
• The government has no business deciding how my earned money should be allocated. Politicians pretend to be concerned about the people but they act in their own self interest - to get reelected is their highest priority.

Liberal view:

• People are neither commodities nor resources and should not be treated as such by market forces, which will neglect (even abandon) the weakest among us. Governments are necessary to insure the welfare of those who might not have the resources or ability to succeed.
• If social decisions are left to individuals, the least productive, least powerful face neglect. Government must make these decisions and allocate resources to protect the weakest.

I see truth in each position. Will a battle for dominance of one philosophy over the other result in the best outcome? I don't think so.

Free Speech

I too, strongly support the First Amendment but Ed Achorn's Commentary, Feb 2, 2010, on the recent Supreme Court's First Amendment decision seemed to me to miss the real point of the controversy. The question before the court was whether corporations enjoy the same protections of the First Amendment as people. In other words, are corporations the same as people? The court decided yes in the case of First Amendment protections.

However, can a corporation be subjected to the death penalty? Can a corporation even go to jail?

I submit that corporations are not the same as people and therefor are not automatically conferred with all of the same rights and protections as people by the US Constitution.

These differences needed to be considered when applying Constitutional protections to corporations and I believe that the Court was wrong in its recent decision.

Term Limits

Edward Fitzpatrick's piece in the Providence Journal ("Here's something for which to be thankful", Jan. 14, 2009) is on target. The judiciary must be independent of external forces and make judgments based on law and not be influenced by outside interests.

It seems to me that those very laws themselves should be also be made with the same principles in mind.

To paraphrase Judge Bruce Selya and Mr. Fitzpatrick, if a legislator has to stop and think, every time he or she decides an issue, about how that decision is going to play with the voters, that's got to be a substantial and negative influence on the decision making process. What's more, elected officials often raise campaign funds from lawyers and others with a vested interest in the outcomes of legislative deliberation which can be a corrupting influence that we really don't need.

It seems we have a huge challenge here. How can we remove the corrupting influences from democratic elections? Is it possible? Is it time to have a serious debate on term limits?

Not Pretty

BURRILLVILLE , CENTRAL FALLS, EAST PROVIDENCE, JAMESTOWN, JOHNSTON, LINCOLN, LITTLE COMPTON, NEW SHOREHAM, NORTH KINGSTOWN, NORTH SMITHFIELD, PROVIDENCE, SCITUATE, SMITHFIELD, SOUTH KINGSTOWN, WARREN, WARWICK, WEST WARWICK, WESTERLY

These are the Rhode Island towns that had revaluations in 2009 and will tax their property owners on their reassessments in 2010.

Since Governor Carcieri has announced major reductions in state aid this year in an attempt to balance the state budget, these unfortunate property owners will be facing a double whammy; not only significant tax increases because of reduced state revenue but because revaluations produce their own dramatic shifts in tax burdens regardless of what happens to municipal budgets and tax levies.

In a typical revaluation year, from 1/2 to 2/3 of owners face tax increases far greater than necessary to fund the tax levy. It's an unjust and unfair system that lawmakers can fix if we and they are serious about being fair to Rhode Island property tax payers.

You can read more at the RIGHTTAX website: http://righttax/org

Makes religion look bad

I'm not a religious guy but for those who are, I'd suggest that if you accept as evidence of a supreme being a sort of weird cross on the shell of a chicken's egg or on a heifer's forehead your standards are pretty low. Do you think so little of G_d to believe he'd show his presence in such trivial ways? C'mon now.

But if you do need proof, the story Bob Kerr wrote about in the Providence Journal about someone giving his coat to a man wearing only a sweater pushing a shopping cart along the street on a cold winter day, or the story about the three men who pulled a fourth from icy water at Waterplace Park might provide far better evidence for you. I hope so.

Those Pesky Averages

Imagine you're asked to put one finger in each of two substances whose average temperature is 52°. No problem, right? But what if one glass contains boiling water at 212° and one contains dry ice at -109°? Would you accept this as a fair request?

Averages can be misleading.

Not much different with property taxes after revaluations. Data often deals with averages. The RI law called "S3050" sets the annual limit for local tax levy increases. When it drops to 4% (in 2013) it means that the when all the taxes of all the property owners are combined, the average increase will be 4%. Looks good - on paper.

The reality is that in town after town, despite the 4% limit, about a third of taxpayers get increases much above 4%, some as high as 100%, while others actually pay lower taxes. That's right, lower taxes, even as the tax levy just increased. In reality there are two kinds of taxpayers: those who pay too much and those who pay too little.

Until this unjust distribution of the local tax burden is acknowledged and fixed, all the posturing, the complaining about assessments, about the 'greedy' public employee unions, about graft and corruption, will produce little relief for those who have to pay the bills based on market values.

We must convince our legislators to discuss a new paradigm, where taxes for existing property owners are based on a system of "taxable" values producing tax bills directly related to budgets instead of the marketplace, where new owners will receive their first tax bill based on the market value of their purchase, instead of after a two year wait for revaluation, and where the limits on tax levy increases will apply to individual tax bills as well.

Please visit http://righttax.org for an in depth discussion on this most important issue. Please talk to your legislators and ask that they at least think about this proposal. If you do, they might listen and we can get fair and just property taxes, at last.

Are we too stupid?

The highway signs informing us that "Texting" while driving is illegal made me smile. I can see it now:

Judge: "Mr. Jones, you have been charged with texting while driving. How do you plead?"

Accused: "Not guilty, your honor."

Judge: "Officer Smith says he watched you texting on your cell phone for several minutes before stopping you"

Accused: "Officer Smith was mistaken. I was not texting. I had just filled up with gas and was using my phone's calculator to figure out how much mileage I was getting. That's not texting, your honor. "

Judge: "Case dismissed".

Maybe we just need a few more laws, like "Crocheting while driving is against the law" or "Spreading mayonnaise on a tuna sandwich while driving is against the law".

A police officer should use his or her judgement to determine if one is not driving with appropriate skill, attention and equipment. This is beyond silly.

We're Too Lazy

Facts can be deceiving at times. Recently the Providence Journal had a front page article about Rhode Island's high property taxes. Being fourth highest in the country isn't anything to be proud of . But what if our student performance were the best in the nation? Those property taxes would be a real bargain and a source of pride, as I see it.

The point is that spending (or any one single thing) in itself is not the only consideration when we form our opinions about our taxes or government or anything for that matter. There are often other, equally or even more important considerations which should be considered.

It's so easy to be lazy when we read the headlines and form our opinions and we pay a terrible price for this laziness.

Maybe it's just me.

Are you with us?

Laura Lederer, adjunct professor at Georgetown Law Center should know better. In her letter in the Providence Journal, November 16, "Defeat for prostitution" she writes, "while others (more than one might think) are anti-trafficking and pro-prostitution". She characterizes those who would legalize indoor prostitution as PRO prostitution.

Ms. Lederer makes the same mistake that so many of us make, that everything can be viewed as an either-or position. "You're either with us or against us" might have done more harm to our society than we will ever know. Can she not see that one could favor legalization of an activity between consenting adults and not therefor advocate or promote it?

Might I prefer that a woman have the legal right to decide on an abortion and still prefer that she make a different choice? Is it too hard to imagine that I could favor equal treatment for homosexuals and not, at the same time, personally prefer heterosexual relationships? Can I not personally avoid alcohol yet allow others to legally indulge?

The legislators who voted against the recent anti-prostitution law did not do so because they advocate prostitution and to suggest otherwise is an example of the same old canard, "You're either with us or against us". A law professor should know better. We all should know better.