August 11, 2011

Property Tax Rates Don't Matter

Justin Katz

Reading this article, I thought it worth reminding everybody once again that, given the way local budgeting is done, property tax rates don't really matter:

After voting to take court action against Mayor Charles A. Lombardi's vetoes, the Town Council changed its tune Wednesday night and voted unanimously to set the tax rate for residential property at $24.15 per $1,000 of assessed value.

This was the same rate proposed by Lombardi. For his part, he rescinded his previous veto of the $23.35 tax rate voted by the Town Council, showing a measure of deference to the council’s authority as the town’s tax-setting authority.

The tax rates might matter if cities and towns assessed the value of the property in their towns, applied the tax rate to it, and then figured out how much money they have to run local government. That's not how it works. In practice, the government calculates how much it needs, typically based on projected increases from the previous year, divides that number by the total value of property in the town, and figures out what the rate turns out to be per $1,000 of value.

Assuming that everybody's property increases or decreases at roughly the same rate, the actual dollar amount that every household pays in taxes will increase by the same percentage that the town's budget increases. In other words, it's more of an ownership fee based on the portion of the town's value that the family owns.

One consequence of this method is that you can't really compare property taxes from town to town, because a town with lower property values will have higher tax rates. Another, more central, consequence is that the town has no real incentive to attract additional property owners or try to get homeowners to invest in their own homes.

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To take in consideration:
1. Ability of municipalities to stay with tax cap set by state.
2. In the case of towns in regional school districts the inability of town councils to control bottom line of school budgets.
3.Not all municipalities spend the same on school/education versus general government. Richmond is over 80%, and my town Hopkinton well over 70%,. Then we are in fire districts taxing authorities not part of town government so fire protection is not part of the town budget.
4. The assessable bases vary by munipalities and also by homes versus private business and non taxable property like private organizations. I know that Providence for example has a concern about such institutions like colleges and their financial support for the city.
5. The medium income of munipalities vary and the ability of those who can afford property taxes.
6. The number of property taxpayers vary by municipality vary who can actually vote on budget matters and elections. This would be particularly noticeable in coastal communities.
7. The requirement of the R.I., State Constitution for the R.I. General Assembly to promote education. The state clearly needs to address education funding better.
Just some thoughts.
Scott Bill Hirst
Member, Hopkinton Town Council (Represents Hopkinton on Washington County Regional Planning Council),.
Former Member, Hopkinton Finance Board
Vice Chairman, Hopkinton Republican Town Committee
Moderator-Elect, Ashaway Fire District
Former Member, Board of Fire Commissioners, Ashaway Fire District

Posted by: Scott Bill Hirst at August 11, 2011 1:17 PM

I've been thinking about reforms to taxation. It seems strange to pay income, property, AND sales taxes. What would the conservative take on switching to only a statewide income tax, with each town being apportioned shares based on where the residents lived and/or worked? Wouldn't having no sales tax and no property tax (even at the cost of having a higher income tax) be a boost for investment and consumption in RI? It would certainly make things easier for businesses.

Posted by: mangeek at August 11, 2011 1:38 PM

"Then we are in fire districts taxing authorities not part of town government so fire protection is not part of the town budget."

Excellent point! Some towns/cities have full time fire departments while others have volunteer departments that have tax authority. Of course the cities/towns with full time fire depts will have higher taxes, it just costs more for a full time dept. Of course the service level is completely different as well.

I would say that perhaps the RATES don't matter, but the property tax you pay for the same type/size home does vary from town to town. Some towns have more business/corporate tax revenue than others, directly effecting the (homeowner) property tax rate.

Also consider the automobile property tax. Depending on the overall tax revenue needed, some cities and towns (Providence) have MUCH higher auto taxes than others.

So while the RATES may not mean that much, there is definitely a difference in what you pay in local taxes from town to town. Yes there are some service differences (full-time vs volunteer fire depts, trash pick-up, etc.), but IMHO some towns are cheaper to live in than others, you just need to do your homework to figure out the differences, you're right, you can't just go by the tax rate.

Posted by: stuckhereinri at August 11, 2011 5:52 PM

Just an aside. When I first moved back to this area, around 1995, I noticed that tax bills on East Side houses were astronomical, as compared to their valuations.

I realize that the East Side is expected to support much of Providence, but the tax burden seemed incredible.

East Side property valuations have skyrocketed since 1995. Perhaps the tax bill is in line with current valuations, I haven't kept an eye on it.

Posted by: Warrington Faust at August 12, 2011 12:44 PM
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