April 26, 2017

Editorial: Discussing a taxing problem

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Worcester Sun

City Hall

As the state and its municipalities begin to formulate their budgets for the next fiscal year, it’s worth considering the major components of government funding.

Income tax is the largest contributor, representing 23 percent of state revenue. The sales tax, which represents 10 percent of the budget, is third largest single source, behind federal reimbursements.

When it comes to cities and towns, property taxes represent the largest single portion of the city of Worcester spending plan, roughly 46 percent of the $611 million fiscal 2017 budget.

However, revenue from those three taxes — income, sales and property — has been affected, and continues to be affected, by the rise of the nonprofit sector of the economy.

As we wrote in June, we do not mean to “denigrate the nonprofit sector. It is an economic engine whose products and services benefit many.

“At the same time it bears noting the effect this long-term growth has on the economy. More than property not being subject to real estate tax, nonprofits that are exempt from paying federal income tax are also not subject to state income or sales taxes.

“If this trend continues, and there are no signs it will abate, three important mechanisms for funding state and municipal services face significant reductions.”

There are 1,001 tax-exempt or partially exempt properties in Worcester that are not owned by the government, according to a report submitted to the City Council last year. The value of those properties is nearly $2.3 billion, which is roughly 15 percent of the total assessed value of all property in the city. When you add in government-owned property, that percentage rises to 33 percent, a third of all property value in Worcester.

The growth of the nonprofit sector, which employs 17 percent of the state’s workforce, or roughly one out of every six workers, is manifestly a good thing for Bay State residents. The more than 22,000 not-for-profit organizations run the gamut from small charities to neighborhood social service organizations to large universities and health care systems.

However, maintaining essential public services at the level which residents expect and demand is becoming more difficult and will be nearly impossible if trends continue.

Consider this: A 10 percent increase in property valuation removed from the city’s tax rolls, even at the residential tax rate of $19.22 per $1,000, would result in a $4.4 million loss for the city. That would result in either a reduction of city services or increased property taxes for all other property owners.

In this light we commend District 5 Councilor Gary Rosen for his order at last night’s City Council meeting.

Gary Rosen

City of Worcester

Gary Rosen

Rosen’s order seeks a report from City Manager Edward M. Augustus Jr., “concerning whether city colleges that have profit-making businesses (such as Dunkin Donut franchises) in any of their buildings, pay real estate taxes on that portion of the facility being used for non-educational purposes.”

While we assume the immediate impact of taxing those portions would make a minimal dent in the municipal budget crunch, we credit Rosen for bringing forward the idea for discussion.

In days passed, such a move might be considered a “cash grab.” However, long-term solutions that blunt the impact of reduced tax receipts cannot be found without discussion, and we believe these discussions are better had now than later.

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