In 1980, Massachusetts passed Proposition 2½ to limit the taxing power of municipalities by one of two methods:
- The “Ceiling”: Total annual property tax revenue raised by a municipality shall not exceed 2.5 percent of the assessed value of taxable property contained in it.
- The “Increase limit”: The annual increase of property tax cannot exceed 2.5 percent plus the amount attributable from new real property, or “new growth.”
Worcester doesn’t need to worry about its ceiling after an increase of $1 billion in assessed property values was announced last month, restoring excess levy capacity and lowering the single tax rate. The increase limit, though — we should all be worried about that.
For the most part, the average taxpayer believes that the tax levy can only go up 2 ½ percent unless there is an override. You see examples of this often when a municipality wants to build a new school, safety complex or DPW building.
Using state Department of Revenue figures, let’s take a look at the city of Worcester tax levy situation for fiscal 2017 based on increasing the FY16 by 2 ½ percent.
- FY16 Tax Levy Limit = $280,922,031
- 2 ½ percent of FY16 Tax Levy = $7,023,051
- FY17 (2 ½ percent) Tax Levy Limit = $287,945,082
If you thought then that the tax levy in FY17 would have been $287,945,082, you would be wrong. There is one key line in the increase limit option that reads “plus the amount attributable to taxes that are from new real property.”
In FY17 the actual tax levy limit ends up looking like this:
- FY17 (2 ½ percent) Tax Levy Limit = $287,945,082
- FY17 New Growth = $5,463,519
- FY17 Tax Levy Limit = $293,408,601
In other words, the FY17 tax levy on residential and commercial property owners was not increased 2 ½ percent, but by 4.44 percent due to new growth.
So when the Mayor’s Tax Policy Committee addressed “new growth” by recommending we stop adding it to the tax levy increase limit, thereby helping to decrease the tax rate and curb increases in John Q. Public’s quarterly bill, I of course took notice.
And I wasn’t the only one. A number of experts and advocates I spoke with see the wisdom in this simple change. Just ask them:
“There are many ideas in the task force report that I fully support, and this is one of them,” said Gary Vecchio, who runs the Shrewsbury Street Neighborhood Association. “This would help every homeowner, business and rent payer. This is something the Worcester City Council can do this week. There should be no delay.”
Beth Proko, a city businesswoman who has been active in this realm for many years, thinks it’s time to turn good ideas into good policy. “Too often volunteers dedicate their time to helping Worcester come up with creative ideas to spur economic development and improve the ability to attract and retain a healthy tax base but these ideas rarely seem to make it into a viable plan,” she said.
For others it’s more academic.
“As I see it, the problem with adding new growth every year, is that the next year’s tax levy starts out with the previous year’s tax levy and it just keeps compounding every year at a rate much higher than 2 ½ percent,” said Joan Crowell, director of the AWARE (Accurate Worcester Assessments on Real Estate) Coalition. “Every business and residential property owner needs some relief in the out-of-control increases in property taxes every year. The Tax Policy Committee’s recommendation should be implemented immediately.”
Not a shocker, exactly, but the local chamber of commerce is on board too.
“The Chamber is very supportive of the concept of dedicating a significant portion of future new growth to reducing and/or stabilizing the city’s tax rate which is disproportionately carried by the business community,” said W. Stuart Loosemore, general counsel and director of government affairs and public policy for Worcester Regional Chamber of Commerce.
Regardless of whether you’re a business person, simply an advocate of commerce, or Average Joe on Grafton Hill $5,463,519 in potential taxpayer savings is no small matter.
The task force has spent 18 months working on these recommendations; we need to bring this one to the City Council floor yesterday.
Instead of spending one meeting each year figuring out how to pass along the increase between residential and commercial taxpayers, let’s plan ahead for FY18 and beyond, and give city councilors a chance to do the right thing. Unless, of course, they want to retreat to their two traditional camps:
- Camp We Have A Spending Problem — The 2 ½ percent increase in the tax levy is enough to run the City of Worcester and give both the residential and commercial taxpayers a break.
- Camp It’s About The Revenue — We have a revenue problem, and to limit tax levy by 2 ½ percent is not enough to buy all the things the City of Worcester needs.
I look forward to seeing if the mayor’s tax panel can motivate councilors to find a new camp this year.
Bill Randell served on a PILOT task force for then-Mayor Tim Murray and is a current member of the Holden Town Meeting Finance Committee. Bill started and operates the local news website Worcester Herald, and is the owner and author of FlyORH, a website dedicated to Worcester Airport. He is also president and founder of Worcester-based businesses Advantage Benefits and ABG Real Estate.