Where are the tax breaks for the little guy?
It’s not uncommon these days to read about governments providing tax breaks to companies in exchange for the promise of jobs, development or both.
General Electric received a package worth $151 million to relocate to Boston. Included in the package was $25 million in property tax breaks. And Boston and the state are working on a package in an attempt to lure Amazon to locate its second headquarters here.
Closer to home, the city of Worcester has used Tax Increment Financing (TIFs), District Increment Financing (DIF), Tax Increment Exemption (TIE) and Investment Tax Credit deals to spur development. The latest is a TIE deal that will save the developers of Harding Green $838,000 over 10 years for a mixed-use development in the Canal District.
Worcester’s track record with TIF agreements is generally positive. According to a city report in May, the 24 active TIF agreements between 2012 and 2017 have:
- Created 1,679 full-time, permanent jobs
- Retained 4,682 full-time, permanent jobs
- Provided more than 1,500 full-time, permanent jobs for Worcester residents
- Retained 14 businesses in the city
- Attracted 3 businesses to the city
- Spurred 9 development projects, including 7 downtown
- Induced more than $882,000,000 in total private investment
- Added more than $202,000,000 in new real estate property value
- Generated more than $35,500,000 in new real estate property tax revenue
- Maintained more than $47,100,000 in base real estate property tax revenue
Despite the results, the use of TIFs is limited. The Research Bureau noted that since 1995, Worcester has negotiated a total of 62 TIF agreements.
At their core, tax breaks create incentives for activity government considers beneficial. And public policy focused on creating or restoring commercial properties certainly provides benefit to the community as a whole.
At the same time, it begs the question, “What about residential property?”
According to the U.S. Census Bureau, there were 79,186 housing units in Worcester in 2016. A full 45.6 percent of those, 36,108, are single- or two-family homes. Those homeowners, as well as other owners of residential property, are in an unenviable position.
Worcester has, by far, the lowest median home value compared to neighboring towns. The median home value of $216,700 is more than 10 percent below that of runner-up Leicester. At the same time, the city has the highest residential tax rate. [See charts below.]
Median home value (source: Zillow.com)
Residential property tax rate 2017, per $1,000 (Source: Municipal websites)
Worcester’s tax rate does not provide an incentive for homeowners to make improvements to their home that would increase its value; the greater the tax rate, the greater the disincentive for increasing its value.
We believe this imbalance could be remedied if the city could offer the same type of incentives it uses to entice commercial development.
Fortunately, the City Council took a step in this direction last night.
The City Council last night voted to adopt an “exemption from real estate tax the taxable portion/value of any addition/improvement made to real property in order to provide housing to a senior citizen … for the period of time that the senior citizen is so housed.”
The exemption, created in 1986 and rewritten in 1989, provides homeowners an exemption of up to $500 to homeowners who increase the value of their property for the purpose of housing a senior citizen. According to the city, “The $500 cap on the exemption equates to a $25,000.00 increase in valuation.”
While the current exemption is limited, the effects are not.
As the Sun first reported in 2015, a study by then-Clark University student Joe Biasi in a paper “Positive Impacts of Housing Reinvestment in Worcester” showed a correlation between renovations done on a single home and the value of homes within 200 meters.
“If small home improvement loans do have a spillover effect to sales prices of nearby properties, it could be an effective tool for neighborhood revitalization,” he said at the time. “Instead of allowing neighborhoods to deteriorate, a system of proactive rehabilitation could keep costs low while supporting property valuations.”
The larger point, he said, was that “You don’t need to spen[d] $2 million on this big fancy project to improve the neighborhood.”
We applaud the City Council for adopting the local option of tax relief. It is a step in the right direction, another proverbial tool in the toolbox.
At the same time, it should realize it’s on to something potentially powerful, something it should urge the state to allow. Exempting the increased value of a home for a period of time creates an incentive for homeowners that, once accepted, increases the value of nearby properties.
Creating a tax break for homeowners could unlock a massive investment in the city’s housing stock that, over time, could increase property values, decrease tax rates and put Worcester on a level playing field with some of its well-heeled suburban neighbors.