Worcester Mayor Joseph M. Petty convened a 16-person committee in April 2015 to begin a conversation about municipal tax policy.
Comprised of residents, members of the local and state government as well as business and nonprofit communities, the committee “met numerous times over the past year to discuss the challenge of local finance, the limitations of existing tax revenue structures, and options for diversifying and strengthening the City’s tax base.”
The committee released its 17-page report earlier this month, and it was presented Nov. 15 to the City Council.
The report acknowledged the committee “was not tasked with identifying and implementing solutions to the challenge of fair apportionment of cost among Worcester interests. Instead, we were invited to weigh in on ideas for building a stronger tax base that could lower the burden on all property owners and potentially identify new revenues to offset financial impacts.”
In other words, the central question is “how can the city raise new revenue while limiting our growing reliance on the property tax?”
The question is an appropriate one considering property taxes represent roughly 45 percent of the city’s fiscal 2017 budget of $614.1 million, with state aid providing a majority of the balance.
While state aid is critical to the proper operation of any municipality, the level of state aid is dependent on state tax revenue and its allocation. Moreover, property taxes are increasingly impacted by the growing value of tax-exempt property.
A recent report by Worcester Regional Research Bureau showed the value of tax-exempt land in the city has increased by close to 250 percent since 2003. Tax-exempt property holds one-third of all property value in the city and that figure continues to rise.
Of the 17 concepts put forth for consideration by the committee, four focused on new taxes or fees that municipalities could opt in to. Those included proposals to allow municipalities to institute a sales tax and gas tax, and fees for car rentals and affiliated businesses (e.g. Airbnb and Uber).
Three focused on enhancing revenue through existing laws. These include a surcharge on local property taxes with the adoption of the Community Preservation Act, taxing multi-unit housing at commercial rates rather than residential rates and expanding the local Payment In Lieu Of Taxes [PILOT] Program for nonprofits.
Three others focused on extracting a greater allocation of funds from the state by reviewing state PILOT payments, acting on the Foundation Budget Review Commission’s recommendation for adjusting the state Chapter 70 funding formula, and having the city receive compensation for being an urban hub for regional social services.
Not all of the concepts involve generating additional tax revenue. One suggestion is to use tax revenue from new growth to lower property taxes on all property owners. The report highlights four tax relief programs and exemptions, raises the prospect of consolidating municipal services, calls for a greater marketing effort, and suggests increasing the residential requirement for city employees.
The most innovative and promising suggestion involves the creation of a real estate investment trust. “A Worcester real estate investment trust (REIT) is an opportunity to encourage local investment in the city while offering a modest return,” the report states. “College and university endowments, business holdings, and individuals assets could be leveraged through a Worcester REIT to promote growth in the Downtown, build on the quality of life in our neighborhoods, provide opportunities for new jobs, enhance the value of Worcester’s historic properties, increase property tax revenue, and provide a stable return for investors.”
It is easy to envision the REIT being attractive to the city’s “asset-rich institutions, businesses, and individuals” and far more palatable to the city’s nonprofits, whose investment could offset PILOT obligations.
Taken in sum, we believe the committee properly identifies the overarching issue with regards to tax policy. The committee’s report states [emphasis not added]: “We are restrained by state laws that limit the ways in which we craft our tax policy. What we need on a local level is more local control.
“We need revenue options that cities and towns can opt into if they so choose. This would diversify the revenue streams of the city and mitigate the tax burden on our families and business owners and more evenly share the burden to a larger portion of the people that live, work, and play in Worcester. In short we need to be able to create smarter ways to raise revenue to fund our necessary programs like police and fire and provide a first rate education to our children.”
We believe the committee’s report is an important one. It merits attention and much more discussion.
We wholeheartedly support the goal of more local control of revenue and of diversifying revenue streams that fund local government.
At the same time, we urge the state to consider the recommendations for new taxes and fees, but to proceed cautiously. If enacted, we further urge the city to proceed with great caution in adopting these local taxes and fees lest Worcester be put at a competitive disadvantage with neighboring towns.
Mayor’s Tax Policy Committee members
- Mayor Joseph M. Petty, Co-Chair
- Dr. Robert Johnson, Co-Chair, President of Becker College & Chair of the Worcester Regional Chamber of Commerce
- Daniel M. Donahue — State Representative
- Tony Economou — District 1 City Councilor
- Frances A. Anthes—President & CEO, The Family Health Center of Worcester
- John Creedon, Jr.— Vice President, Creedon and Co., Inc.
- Joan Crowell—Member, AWARE Coalition
- Seth Eassel— Managing Partner, GIMP Management and Tax Consultancy
- Arthur Ellis—Community Member
- William Ford—City Assessor
- Paul Giorgio—Founder, Pagio, Inc.
- Stephen Madaus—Partner, Mirick O’ Connell
- Timothy McGourthy — Executive Director, Worcester Regional Research Bureau
- Timothy Murray—President & CEO, Worcester Regional Chamber of Commerce
- Christopher Philbin—Vice President of Government and Community Relations, UMass Memorial Healthcare, Inc.
- Gary Vecchio—Chair, Shrewsbury Street Neighborhood Association