In case you missed it, Chris Gabrieli published an op-ed in the Globe today, entitled “Make the elected accountable.”
I’ve got some thoughts on the content, but don’t have time to write them up right now – I’ll try to do that later on. But let me just say this. Gabrieli talks a lot about “accountability.” His ads all say he expects to be “held accountable,” and today’s op-ed starts out:
In the business world, if you have an idea but no plan to pay for it, you get laughed out of the room. If you make a promise you can’t keep, there are consequences. If you ultimately fail to produce results, you lose your job. That’s how businesses create accountability. I believe elected officials should be held equally accountable for getting results.
What does he really mean by this? Normally, in politics, being “held accountable” means standing for election every so often. And without question, the next Governor will (if he or she chooses to run for reelection in 2010) have the opportunity to be “held accountable” for what he or she does, or does not do, over the next four years. So to that extent, of course the next Governor will be “held accountable.” Does Gabrieli propose going beyond that – by, for example, pledging to resign or not run for reelection if he doesn’t achieve certain “results” by 2009? Not as far as I know. So what is this “accountability” thing all about?
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Sounds pretty simple to me. “The accountability thing is all about” his belief that Romney/Healey didn’t get “protect your money”, so vote them out.
Obviously, every Dem is going to be saying (and is saying, Reilly louder than anyone else right now) that Romney/Healey hasn’t done the job for 4 years, so why give them another 4. But Gabs is talking about himself – I expect to be held accountable – not so much about others. I still don’t understand what he means, beyond having to face the voters 4 years from now.
He uses his untold billions to send out monthly mailers to every registered voter in the state asking them to grade him on various policy issues. If he doesn’t get a passing grade — say “C” or better — on his report card, he resigns and hands over the keyes of the corner office to the Lt. Gov. Seems right in line w. being Mr. Education, no?
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/snark
but given Prop 2.5, how could it be that
[blockquote]since 2002, residential property taxes are up 32 percent[/blockquote]
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The statistic is that residential tax levy has increased by $1.8 billion since 2002, which works out to 35%.
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Prop 2.5 accounts for approximately 11%. I suppose overrides could count for some small increase beyond that, but not to 35%.
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The 2 1/2 limits is imposed on total tax, not a single individual tax bill. So, maybe ‘mix’ accounts for remainder? (I’m just guessing) Mix, as in residential tax is up while commercial real estate is by contrast less.
everyone who owns a home knows property assessments have risen dramatically. Those assessments are what the 2.5% is based on.
2-1/2 has two meanings. The rate cap is 2.5% of the town’s value, and the year-over-year levy increase can’t be more than 2.5%.
Those ugly but necessary overrides really hurt.
Changes in assessment alone can’t account for the 35% increase since 2002, but I doubt that overrides can account for such a dramatic rise either. We’re missing something.
that is, that DavidLA is right and his parent isn’t, throwaway comment about homeownership be damned.
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If each town must limit it’s total levy to a 2.5% growth per year, then assessing each home at a higher value doesn’t make a lick of difference.
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Now, maybe Prop 2.5 only applies to residential, and commercial real estate taxes are resulting in the big gains. Certainly Prop 2.5 overrides would increase, but nowhere near the additional 24% needed… that would be like 1 out of every 5 towns doubling its property tax revenue in the past four years due to Prop 2.5.
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So, does anybody have a more complete answer?
Source
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It looks like gary has really gotten to the bottom of this.
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But, to be clear, the lions share of the increase isn’t due to the 2.5% general increase, and certainly isn’t due to the paltry roughly $200M in overrides. It would seem that “mix” is the dominating reason.
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In any given town, the total property tax revenue is going up 2.5% (assuming no override). But, relative to commercial properties, residential properties are going sky high in price. I don’t know if this is because both are growing and residential is just growing faster, or if commercial values are actually falling.
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So, here’s a made up example for Faketown, MA.
Let R = actual property tax rate on accurately assessed properties. So, assessment * R == actual tax bill.
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In 2002, the assessment split is $1B residential, $1B commerical.
In 2006, the assessment split is $1.8B residential, $1.2 B commercial.
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Assume that each year the total tax base goes up it’s allowed 2.5%, and that there are no overrides.
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In 2002, the total residential tax bill = (.5 * R * $2B) = $1B * R.
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In 2006 we have a different mix (.6 instead of .5) and the overall allowable taxbase grows by 2.5% four times from $2B. The 2006 total residential tax bill = (.6 * R * $2B * 1.025^4) = 1.32 * R.
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This means that in the four year span, the residential tax bill has gone up by 32% in Faketown, MA.
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To me, this means the real problem is that property values on commercial space aren’t growing fast enough. The question our state government should be asking is: how can we make the property values of commerical space go up without negatively impacting the quality of life of MA residents?
I guess that’s the price to pay for its shift from manufacturing (big commercial) to service (retail and little commercial).
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Well, then elect a Democrat that cares about business as well. Say Gabrieli?
… or even Reilly, I dare say.
You think the shift from commercial value to residential value is bad?
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The most innovative plan belongs to Mr. Mihos. What’s your guy’s plan?
It looks like gary has really gotten to the bottom of this.
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But, to be clear, the lions share of the increase isn’t due to the 2.5% general increase, and certainly isn’t due to the paltry roughly $200M in overrides. It would seem that “mix” is the dominating reason.
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In any given town, the total property tax revenue is going up 2.5% (assuming no override). But, relative to commercial properties, residential properties are going sky high in price. I don’t know if this is because both are growing and residential is just growing faster, or if commercial values are actually falling.
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So, here’s a made up example for Faketown, MA.
Let R = actual property tax rate on accurately assessed properties. So, assessment * R == actual tax bill.
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In 2002, the assessment split is $1B residential, $1B commerical.
In 2006, the assessment split is $1.8B residential, $1.2 B commercial.
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Assume that each year the total tax base goes up it’s allowed 2.5%, and that there are no overrides.
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In 2002, the total residential tax bill = (.5 * R * $2B) = $1B * R.
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In 2006 we have a different mix (.6 instead of .5) and the overall allowable taxbase grows by 2.5% four times from $2B. The 2006 total residential tax bill = (.6 * R * $2B * 1.025^4) = 1.32 * R.
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This means that in the four year span, the residential tax bill has gone up by 32% in Faketown, MA.
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To me, this means the real problem is that property values on commercial space aren’t growing fast enough. The question our state government should be asking is: how can we make the property values of commerical space go up without negatively impacting the quality of life of MA residents?
Communities can raise assessments 2.5% of the total existing property PLUS taxing new development. That’s what’s missing.
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Keep in mind soaring property values over the past few years. Based on my understanding of Prop 2 1/2, new development has a disproportionate effect on total tax levies in a time of rapidly rising property values.
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Simple example. Say a town had 10 houses each worth $100,000. Total allowable taxation for the first year of Prop 2 1/2 would have beem $25,000. Barring overrides, each successive year total allowable new taxation would be up 2.5%/year assuming no new development.
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Now say that last year, 3 new houses were built in that town. Those houses wouldn’t be valued at $100,000, or even 2.5% a year more times the number of years since Prop 2 1/2 came into being. They might be valued at $500,000 each, or $750,000 each. That’s the missing piece. The value of new development is WAY higher than the 2.5%/year under Prop 2 1/2.
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New development allows this increase to the total allowable amount the town could raise in property taxes: the previous year’s tax rate multiplied by the $1.5 million value (or $2.25 million) of the new homes. That’s likely to be way more than 2.5%/year. Then that total levy amount is spread out among all properties, new and existing, based on the most recent property valuations in the last reassessment.
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Do you see what’s happening? If there’s no new development, then property taxes could only rise 2.5%/year regardless of how property values go up. But if there’s new development, then the total levy limit goes up by the most recent tax rate multiplied by the high value of the new property (and, “new development” includes condo conversions).
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I think very few taxpayers understand the impact that new development has on their local property tax rates. It doesn’t just add revenues (and expenses). It also adds to the levy limit in a disproportionate way, especially when new development tends to be more expensive than a community’s median home prices.
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but I’m not so sure I believe it.
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For one thing, it would be incredibly complex to manage. After all, the new houses were built on land. Land that before the developer purchased it was owned by someone else and being taxed.
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So, if I own a 2 acre empty lot, I’m being taxed on the land value of the 2 acres. Now, if I sell 1 acre and a house is built on it, the town is getting tax on the 1 acre I still own, and you’re claiming that the new development doesn’t count toward the 2.5%. What about the land itself? Does that not count toward the 2.5%, or does it?
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Furthermore, what’s the philosophical difference between building new and expansions to existing structure? If I add a wing to my 800 square foot mansion, does the increase in town’s total property value count toward Prop 2.5 or not? If it’s treated differently than new development, then the total tax bill for everyone in the town relies on whether or not I built new or added 3000 sq ft to my formerly 8 sq ft outhouse. That doesn’t make much sense.
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So, I’m skeptical without documentation, if only for the administrative and beurocratic nightmare your scenario provides.
…that Prop 2 1/2 is in fact fairly complicated to administer.
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You’re right in pointing out one part of the new development issue that I didn’t mention: New development is the CHANGE in assessed value between what was there before and what’s there now. So in the example I cited above about the 3 new houses, I should have subtracted the assessed value of the empty land from the total value of the new homes before calculating what could be added to the levy limit. If the empty land was being assessed at an average of $250,000 per lot and three new homes are now worth $750,000 each, in fact the addition to the town’s levy limit is $1.5 million and not $2.25 million.
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From the Dept. of Revenue site:
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Proposition 2½ allows a community to increase its levy limit annually by an amount based on the increased value of new development and other growth in the tax base that is not the result of revaluation. The purpose of this provision is to recognize that new development results in additional municipal costs; for instance, the construction of a new housing development may result in increased school enrollment, public safety costs, and so on.
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New growth under this provision includes:
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New growth is calculated by multiplying the increase in the assessed valuation of qualifying property by the prior year’s tax rate for the appropriate class of property.
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p> Note: Any increase in property valuation due to revaluation is not included in the calculation.
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Below we highlight how new growth is calculated:
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p> Increases in Assessed Valuation x Prior Year’s Tax Rate for Particular Class of Property = New Growth Addition to Levy Limit
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For example, for a community that applies the same tax rate to all classes of property:
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p> Increases in Assessed Valuation = $1,000,000 Prior Year’s Tax Rate = $15.00/1000 $1,000,000 x ($15.00/1000) = $15,000 New Growth Addition to Levy Limit = $15,000
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Below we highlight where the addition of new growth occurs in the calculation of the levy limit:
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Taking the previous year’s levy limit and increasing it by 2.5%.
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A. FY2000 Levy Limit
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$1,000,000
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B. (A) x 2.5 %
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$25,000
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Adding to the levy limit amounts of certified new growth added to the community’s tax base:
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C. FY2001 New Growth
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$15,000
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Adding to the levy limit amounts authorized by override votes:
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D. FY2001 Override
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$100,000
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E. FY2001 Subtotal (A + B + C + D)
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$1,140,000
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Comparing the FY2001 levy limit to the FY2001 levy ceiling and applying the lesser number (compare E and F)
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F. FY2001 Levy Ceiling
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$2,500,000
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$1,140,000
Applicable FY2001 Levy Limit
(lesser of E and F)
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New growth becomes part of the levy limit base, and thus increases at the rate of 2.5 percent each year as the levy limit increases. Reporting of new growth provides a community with an opportunity to increase its levy limit, which can provide for added budget flexibility in the future. Boards of Assessors are required to report new growth each year as a part of setting the tax rate.
Assessments may rise but in turn rates must fall in order to conform to the year-over-year 2.5% guidelines that LARalls points out.
Thanks, You were much closer than most. Par for the course with my name. Raul, Roll, Rawl, Rail, I pretty much answer to anything.
Chris almost had me at hello. If this election were simply about projecting intelligence and nuance, today’s article would have it locked up. I would give it an A-plus for spin and draftsmanship. (Extra credit for getting the Globe to do bold face subheaders, which makes it a great campaign reprint and betrays the Globe’s bias because they never do that for other op-ed contributors.)
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But what about the content?
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This piece perpetuates the idea that rolling back the tax rate to 5% is achievable and “keeps a promise” to the voters. A promise by whom, exactly? The long-departed state leadership from the 1990 fiscal crisis? The also long-departed state leadership from 2000 (prior to the last fiscal crisis) when the tax cut referendum was passed? What about the false promise by Gov. Cellucci and other tax cut boosters in 2000 that the income tax rate could be cut to 5% without eliminating state programs and services?
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The brilliance of the op-ed piece is that Gabrieli gets credit for supporting a tax cut while taking a self-described “responsible” position on how to pay for it. But how responsible is his proposal, really? First, it makes tax cuts automatic based on how much revenues exceed the rate of inflation, not in relation to the state’s economic growth as proposed for many years by moderate voices like the Mass. Taxpayers Foundation. So a one-time surge in the stock market or corporate profits could result in an automatic tax reduction even if the state expects major budget shortfalls in subsequent years. Second, it commits only 20 percent of growth revenues to replenish the state’s stabilization (rainy day) fund, which is the only thing that saved us during the last downturn. A number of fiscally responsible voices (Tom Finneran and his proposed constitutional amendment among them) proposed that the stabilization fund always take first priority over tax cuts. Third, it treats the state operating budget like chopped liver by scooping up all revenue growth that exceeds inflation. “Investment” is a great catch-word but to the legislature it means pork. So let’s get this straight: it’s okay to use 40% of state revenue growth to pay for pet projects (I could name a few from the recent state budget and “stimulus” bill), but NOT okay to use that revenue to support the basic functions of state government? Do we really think we can implement health care reform with a rigid inflation cap? Provide decent public higher education? Maintain our neglected state facilities? Pay our energy bills?
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As a political gesture, today’s op-ed was a walk-off home run. As an exercise in leadership it was a great, great disappointment.