February 21, 2006

Is it fair to freeze property taxes only for senior citizens?

One of the local East Greenwich newspapers published an article last week about a proposed property tax freeze for seniors. The other local paper carried the story here and the ProJo story is here.

The real story is that property taxes are too high in Rhode Island and nobody is talking about changing the underlying drivers which result in a tax burden that hurts all working families and retirees. With that in mind, here is a expanded version of an email I sent over the weekend to the East Greenwich Town Council:

I want to thank the East Greenwich Town Council for the fiscally prudent manner in which they have been managing the use of our hard-earned tax dollars.

The purpose of this letter is to address the current proposal to assist our seniors via a property tax freeze.

Seniors are an integral part of our community in many ways, including a link to our heritage. None of us wants them to be forced out of their homes. I agree that rising property taxes, together with rising energy and medical expenses, can create a genuine financial burden.

I was disappointed that the news stories about such a freeze did not focus any of the angst on the underlying cause of property tax increases at rates greater than the income growth rates of our seniors: the expensive terms of our union contracts, especially the teachers' union contract which is such a large percentage of the total town budget.

If you stop and think about how this problem arose, things are out of whack. The NEA union put a stranglehold on our School Committee and, with work-to-rule, used our kids as pawns to extort outrageous contract terms: 9-13% annual salary increases for job steps 1-9, only 4-6% health insurance premium co-payments or $5,000 annual cash payments for not using the school's health insurance program, and rich pension benefits. Unfortunately, I don't recall seniors mobilizing over the terms of that contract when it could still be affected for the better. Instead, they now show up at Town Council meetings and ask for relief from something over which the Town Council has no direct control. Our seniors and the entire community passed up an opportunity to make a real difference earlier.

There will be a future opportunity for seniors and the Town Council to jointly exert pressure on the NEA when the next contract is up for negotiation and I hope they will do it. The need for tangible pressure is a genuine one and that is the point where all of us can exert real financial leverage.

As to the issue at hand, I am troubled by the idea of using age as the sole factor in determining eligibility for a tax freeze. A freeze would assist some seniors, like Frank Woods, who genuinely need the help. That said, here is what troubles me: There are some wealthy seniors who don't need the help. There are also some single moms who need the help but are disqualified based on their age. Furthermore, providing a tax freeze benefit to all seniors amounts to an incremental tax increase to all non seniors, including those single moms who can least afford it. Providing a wealthy senior with a tax break at the expense of a single mom seems unfair - and that would happen under a tax freeze for seniors only.

There would be another effect: A tax freeze benefit, awarded selectively, would begin to polarize our community into subgroups who then have an increased incentive to clamor for more government intervention and benefits. Why shouldn't all of the economically disadvantaged mobilize? Or childless couples and single adults who pay taxes to fund our schools while never having children to send through the public schools? Or families who pay similar taxes while also separately paying tuition for their children to attend parochial or other private schools? The last thing East Greenwich needs is to begin morphing into a bunch of special interest groups, with each trying to drink more water from the government trough - no matter how genuine some of their needs might be.

Another concern about a tax freeze - as with most government programs - is the inability to forecast accurately its future costs. There is an endless list of government programs which have exceeded their original cost estimates and few, if any, programs which came in under their initial estimates. For example, read about the cost of Coventry's tax freeze program, which have totaled nearly $5 million in the first five years - after costs were originally forecasted to be minimal. It would be irresponsible to burden future generations of East Greenwich taxpayers with such a unfunded liability.

A tax deferral is preferable to a tax freeze because the deferral eliminates a related, albeit unspoken and potentially insidious, side effect of a tax freeze: Under a tax freeze, current taxpayers pay higher taxes in what amounts to a wealth transfer from themselves to the heirs of our seniors. That wealth transfer is also unfair.

Here is one possible way to resolve this dilemma: The Town Council could offer a tax freeze to residents based on a means test. I personally think it is a massive invasion of people's privacy to show tax return data to any more government agencies. Plus it would require the Town Council to determine which level of income qualified for assistance, a non trivial decision certain to be fraught with politics and difficult to implement without knowing all the town residents' financial data. In addition, it would be an administrative burden for town staff. For all these reasons, I believe this approach just wouldn't work.

Another alternative is to set the allowable increase for the school budget at a level so that seniors (and all residents) do not see their standard of living decline due to taxes going up faster than their incomes. That would be a contentious approach although the resulting cuts in school programs would certainly bring community focus to the core problem: How our already high taxes are adversely affected by many teachers getting 9-13 percent annual salary increases, 4 percent health insurance premium co-payments or $5,000 annual cash payouts, plus retroactive pay for time when they consciously decided to stiff our kids all while our seniors struggle to make ends meet and while leaving few funds for new and innovative academic programs that benefit our children. Perhaps leadership from the Town Council could convince the community to put enough pressure on the NEA and force a re-opening of contract negotiations.

These thoughts lead me back to a general conclusion that there is no easy way to do a tax freeze unless it is for everyone. And that leads us back to the financial terms of our major union contracts which drive our heavy tax burden.

This is a "teaching moment" for our town leaders. I would encourage the Town Council to educate residents on the financial impact of 4% versus 20% health insurance premium co-payments, $5,000 cash payouts, changing the health insurance carrier from Blue Cross Blue Shield to United, 3% versus 9-13% annual salary increases, retroactive pay, and pension payments. I would bet that analysis would show tax increases going from unacceptable to tolerable if public sector union employees lived just like the rest of us, the people who pay their salaries and benefits.

Many seniors in East Greenwich are facing a genuine financial crisis that could result in them having to sell their homes. This is unfortunate and unfair. But it is a tax burden that is also unkind to a 41-year-old single mom struggling to make ends meet or a 55-year-old man who just lost his job. And all of these unfortunate situations are, yet again, another price we pay for having the fourth-highest state/local tax burden (see Table 6 on page 13 of this Tax Foundation report) in the United States.

At some point, the citizens of Rhode Island are going to rebel against the purveyors of economic fiction who destroy the ability of many working families and retirees to live the American Dream. The only open question is how many lives will be wrecked financially before the public sector unions are blocked from causing further havoc.