This one is by reader Divorced One Like Bush:
Property taxes and commercial development
Our taxes are getting too high! It’s not just building the school, it’s the operation costs that will kill us! The new teachers contract is coming, more taxes! You’re forcing people to move out! We need commercial development! We need to cut our taxes!
You know what is missing in this discussion (a discussion happening in every town USA)? The question: Compared to what? What are we basing the above statements on? Is it simply that we have less money after the bills are paid? Well, from 1955 to 1998, GDP rose by a factor of 20. Tax burden as a percent of income rose by a factor of 26.7. But income for a family of 4, 2 people working (sound familiar) only rose by a factor of 11.5. From 1976 to 2001 the top 1 % share of income went from 8.6 % to 21%. Yes, we have less money at the end of the day. Unfortunately, not benefiting from the national wealth as we had in 1955 (when the tax burden was 18% of your pay and would be today if all was equal) is a national policy issue.
So, what about taxes, specifically the property taxes puzzle? We have less money to pay them and they keep going up. The usual proposed and acted on solutions are to promote commercial development, sell and move to another town and elect those who promise to cut the taxes. There is one monstrously missing piece to the puzzle. Does it work? Do these actions actually result in lower taxes? I didn’t know. So, I looked because the town just OK’d a 600K sq ft retail shopping development (with an office building and some condo’s to make it mixed use) across the street from me stating that it would be a financial benefit to the town.
I can tell you only one approach for sure will work for sure: moving. However, you need to calculate the annual change in the tax rate for a series of years for the towns you are considering. Commercial development might help. It’s a big might. You have to look at the historical development and the tax rise. You should look at house values over time while your at it. Wouldn’t do any good to move to a town with a low tax rate if what is gained in your pocket is lost in slow rising house values. Electing people who promise to cut your taxes doesn’t work. Within one to 3 years of the cut, you’re going to pay. And beware of towns that have suddenly become popular. Moving to towns that have become popular is like buying a stock after everyone else has.
That’s it. You can keep your taxes low by constantly moving until we have reversed the national trend of less fairly sharing in the national wealth which we all work to create. But, you have to do your homework.
Do you really want to keep moving? It’s not really practical and it could get costly such that the tax advantage is lost. So, what’s left? We can learn the effects of decisions others have made and then apply those lessons to our policies. Don’t repeat the mistakes of others. Brilliant! Thus, I share the following with all of you in hope that it will begin a more concrete discussion in your neck of the woods concerning managing the tax rate.
For my work, I went to RIEDC.com because they have historical data on every RI town going back to at least 1986. I picked towns that I thought covered the spectrum of development and wealth. They are: N. Smithfield, Burrillville, Cumberland, Woonsocket, Smithfield, Foster, Warwick, W. Warwick, E. Greenwich, W. Greenwich. These 10 towns represent 26% of RI. To help you sense the spectrum, Foster is on the Connecticut boarder, had no commercial development and negative population to Warwick with the state airport to W. Greenwich with Amgen, APC, right off interstate 95 and inbetween, including 4 that boarder my town. I also counted all re-evaluation years as 0. I then produced a chart of percent change (after charting the raw numbers).
The first series to look at are the house value rise (percent increase). The House Val %, is for the most recent 17 years. Compared to 1991 to 2001 period (Hval 91-01%), there has been a rather large increase in the post 2001 years. Whether this is good or bad depends on what you value more; a lower tax bill or greater passive wealth.
The next number to look at is something I created to make it easy for me to compare towns. I wanted a number that reflected the combined value of rise in household income, house value, tax rate and population. I considered house and income value rise a positive, tax and population rise a negative and found the average. I labeled it the V factor. V for viability as these 4 factors reflect the viability of the town as it relates to producing a net positive change in wealth for it’s citizens. I admit, very simplistic, but it works. The higher the better.
Last is the Commercial Ratio. It is the dollar amount (reduced to xx.x) divided by the V factor. The lower the number the better. It was my way of quantifying the commercial development on the viability of the town.
A casual look shows that commercial development will not keep your tax rate down. Except if you are Burrillville which had one large industrial project; a power plant. However, it will not produce the rise in household income a town needs and appears to effect the house values too. Six of the towns have greater commercial development than N. Smithfield and all have higher average annual tax increases. West Greenwich, with low commercial development did well. Not seen here is that it’s development was 78% industrial. But W. Greenwich had a 50% in population. I believe this is why they are #1 in tax rate increase. Foster appears the winner. They even had a 5 year span of negative to zero tax rate changes. However, by the 3rd year after the streak ended they had a 9.1% hike streak. That’s the trend for all towns who try to reverse their tax rate, it goes up big a few years later. Kind of like the national tax cut game.
But, for my purposes Smithfield (an abutting town) presented the most interesting data. They had a new retail development go in, but ½ the size of that proposed for my town. It’s citizens have seen since 1999 in sequence a 9.8, 4, re-val, 5.5 and 8.7 percent rise in the tax rate. It’s commercial development has been only 10% industrial. My town only had a 6.4% total rise in the same time span. Also, the state is now spending $350K to redo the exit ramp to that plaza because of the back up onto route 295.
Well, there you have it. You can move to another town and be successful in lowering your tax rate, for a while. You might get some help from the right commercial development, but your personal wealth may not rise to it’s fullest. Forget the politician that just wants to cut your taxes. It’ll catch up to you sooner or later and it will hurt. Lastly is the town of East Greenwich an oddity. It is considered a wealthy town if not the wealthiest, but it is not doing well by it’s citizens in creating personal wealth. Maybe East Greenwich is showing us a sort of diminishing returns effect, only wealth related? Or maybe when you have the money you don’t mind spending it on your town.
By the way. Just got my new appraisal in. The town average increase was 20%. My property? Went up $550.00.