I tuned into the debate late so I did not hear the question, which I gather was about the economy.
Coakley set up her reply by referring to Wall Street “gambling” with our money, with the result that many lost their homes and homes lost value. Deft enough way to claim some Elizabeth Warren cred, and kudos to the team that prepped her. But then she said,
Cities and town are suffering from a lower return on their property taxes because of that.
This is fundamentally wrong and suggests that the likely next Governor of the Commonwealth is ignorant of perhaps the most basic fiscal fact of state government.*
Local property-tax revenues do not rise and fall with property values. If property values appreciate, the tax rate declines. If the values drop, the tax rate grows.
Cities and towns are where the Commonwealth delivers most of its services, including schools, sanitation, and protection from crime and fire. Each municipality in Massachusetts is responsible for executing important state programs and mandates.
It boggles my mind that any serious candidate for governor, let alone the frontrunner, could be so completely wrong about how those services are paid for.
We are not talking about fiscal minutia but about the heart muscle of Massachusetts. And she is exactly wrong.
I do not want Charlie Baker to make mincemeat of Martha Coakley, but I cannot escape the feeling that if he does it will be justified.
*I was not taking notes, but when I recovered from my astonishment I wrote down what I’d heard. I may have misremembered a connective phrase or preposition.
Update: Pablo, a Coakley partisan, says she was actually describing how a few communities have hit the infamous Prop 2-1/2 levy limit (most “cities and town” are nowhere near).
I’m not sure sure, but read the comments, which are pretty good.
If a town is at its limit under prop 2 1/2. wouldn’t its ability to raise more revenue be constrained by a drop in property values?
the total amount of the aggregate dollar levy (excluding new growth), not the rate. So the taxes could still go up despite falling values and in many places nationwide they did.
But I don’t know how this works in various towns. Rates are a percentage of assessed values, so I imagine the municipality would have to reset rates (once annually?) to maintain revenue in the face of falling values. Some towns where taxes is a four-letter word might be more reluctant to do so, but I don’t know what various towns have done. The towns I know of, the dollar amount has not gone down or stayed flat, it’s gone up as usual.
Town of Anytown, MA, had a budget from town tax payments of $100 million last year. Under Prop 2 1/2, this years property tax receipts cannot exceed $102.5 million without a debt exclusion or override vote, but as luck would have it, they only need the same $100 million this year (keeps the math simple).
Last year’s tax rate was $10 per $1,000 of assessed value, so the $100 million budget represents 1% of the total assessed value of $10 billion for all the property in town. However, the bottom dropped out of the real estate market since last year, and this year’s total assessed value of property is $8 billion. In order to get the $100 million they need, the rate would be increased to $12.50 per $1,000 of assessed value. Prop 2 1/2 doesn’t enter into this equation, it would only apply if the town needed more than $102.5 million from property tax receipts.
I am not a tax lawyer, but that’s my understanding of how it works. If anyone can correct me, please show me where I am wrong.
(Brought to you by the famous BMG hive mind…)
What you’ve listed is correct, but incomplete: Proposition 2 1/2 does enter in to it: The total amount of the levy (as you’ve described) is limited; however the year on year change is also limited to 2 1/2 percent. So in your above example the town cannot, actually, raise the rate from $10/1k to $12.50/1K as that would represent an increase of the levy of 25% percent. Under proposition 2 1/2 the most Anytown, Ma can increase to, in one year, is $10.25. There are provisions (some say loopholes) that allow the temporary levy of greater than 2.5% but a permanent raise of greater than 2.5% takes an override.
The levy is the dollar amount raised – the rate is the mechanism by which we get to the levy. I believe you are wrong about the rate being limited to a 2.5% increase, but again, I am not a tax lawyer. Are you?
… but the tax lawyers at the Mass DOR agree with me.
the tax lawyers at Mass DOR
It’s at http://www.mass.gov/dor/docs/dls/publ/misc/levylimits.pdf if it don’t work…
Is the operative concept. I wonder if there are communities not close to it. As I understand it a city like Springfield has major problems with this issue and would in fact be affected by decreasing values. Of course that’s where values took the biggest hit, while values hardly budged in some affluent suburbs.
are nowhere near the levy ceiling.
if, as Pablo suggest downthread, Coakley meant to address the few benighted communities that are, then good for her.
But her answer was pretty weak on that score, if her solution is to wait for property values to climb in Springfield.
I’d love to hear the candidates talk about what should be done for Springfield, and for cities and town generally. Deval Patrick did and it got him elected.
The city no longer functions as the regional hub of western Massachusetts. No one ever built a transit system that treats Springfield like a true commerce center (e.g. a high-speed connector between downtown and Bradley) and it’s largely off-the-grid when it comes to rail transportation. Supposedly it’s a special permit from hell if you want to build anything that looks like it belongs in a city in downtown Springfield as well … unless it’s attached to a casino of course.
My wife and I stayed at the Sheraton in Springfield, arriving on a Friday night before attending a wedding on Saturday nearby. We checked in at 6:00 and I asked the desk clerk if there were any good little restaurants within walking distance. He said there were none and that the hotel had two nice restaurants. I figured he was just trying to drum up business for the hotel, so I said, “Maybe we’ll just take a walk and see what’s available”. He looked and me and said, “I don’t recommend that. If you do want to look around, please take your car and be careful.” We decided to eat at the hotel.
That morning, as we left for the wedding, I saw what I almost ran into if not for the warnings of the desk clerk. If anyone thinks that a “casino” is the cure, they are delusional. If a casino does land there, it will just be like the hotel, a place to go to and not leave. How does any of this help anyone?
Springfield need real help, not the “help” that Atlantic City and Niagara Falls is going through.
Springfield has suffered from massive middle-class flight. You can buy a decent-sized house in Springfield for about $60k right now. Taxes are low.
Despite that, people choose to spend $200k+ on a house in Springfield’s suburbs, with a tax bill that is likely 50% higher. Why? No poor brown people there.
It is not an issue with “a special permit from hell if you want to build anything that looks like it belongs in a city in downtown Springfield “. There is absolutely, positively no demand to build anything in downtown Springfield. There are plenty of empty lots, plenty of empty buildings, but no customers. The vast majority of housing in downtown Springfield is low-income restricted because low income tax credits are designed for Boston, and in Springfield, they are gravy for developers because the developers get free money to renovate, and the rent caps they have to agree to are higher than the market rates. Housing vouchers, those are higher than market rates too because they are an average of urban and suburban rents.
Springfield has been at the levy ceiling for about 3 years now. It’s about time that someone in Boston noticed that we need some help here.
I understand that, generally, social services would help. More resources for education, for housing, etc.
But what should the State House do that would fundamentally help Springfield? drikeo mentioned rail transportation, and maybe that would help (fn 1). The state could figure out how to procure some additional purchases from Springfield, but that would likely be pretty slim pickings.
Just reallocating more of the budget to Springfield, each and every year, isn’t a long term solution. I wouldn’t oppose it in the short term, but what’s the vision for how the state helps Springfield get back on its feet?
fn 1 I’d point out that Acela has stops at South Station, Back Bay, and 128 — would the rail stop in the suburbs, thereby obviating much of the benefit to Springfield proper?
stomv, that question is too complicated to answer in a reply here. I have made a whole separate post that addresses the problems that Springfield faces, and how the state could help.
http://vps28478.inmotionhosting.com/~bluema24/2014/08/how-to-help-springfield-and-cities-like-it/
I don’t think that transportation is a top issue right now. It could be viable long-term, but only if it could like Springfield with world-class cities like Boston or New York in a much more reasonable trip length. If those cities were 30 to 60 minutes away, Springfield could benefit.
Coakley’s solution would seem to be, Wait until real estate rebounds in Springfield so the city can raise taxes.
I read that document you linked to last night after I saw Pablo’s comment about the levy ceiling, and that’s why I questioned you about the tax rate. Nowhere in that document does it say anything about a 2.5% limitation in the tax rate, it’s always about the levy, the total dollar amount raised by municipal property taxes.
It’s exactly as I described it, When values appreciate, the tax rate falls proportionately. If they tank, the tax rate increases. Revenues do not change.
Prop 2-1/2 adds a cap on the total amount that can be raised, is all.
You do have it exactly right, and Coakley is exactly wrong. Coakley supporters, what say you?
I say cast your vote for Don Berwick on 9/9, and GOTV!
The way you describe it sounds automatic. How is this set? The taxes are based on a rate per thousand of assessed value. By what mechanism do the rates reset to account for fluctuations on value?
But I’m wondering if the town has to vote each year to recalibrate the rate or if there’s some preexisting meta-law that establishes this automatically.
I’ve been a town meeting member for years here in Milford. Every year when it comes to budget time, we go right up to the limit on Prop 2 1/2. The tax rate is adjusted based on Prop 2 1/2 rules and the changes in assessed value.
This usually leaves us with between $500,000 and $1 million to add to our rainy day fund, after granting tax relief to deserving citizens, and we always sock that money away. That’s why we have over $12 million in our rainy day fund, and why we are well positioned for some big capital projects this year, including a new school and a renovation of our youth center.
Typically the story is the business rates vs the residential.
Total budget divided by total valuations. Town Meeting sets the budget (within 2-1/2 constraints) and the assessor determines total valuations.
(That’s why if total valuations decline, the rate increases to make up the difference.)
It can get more complicated when there are multiple classes of property. In towns, the Selectmen vote on the rate or rates each year.
But other than multiple classes, there is not really any discretion. Rates are also vetted by the state.
johnt001:
I’m glad your community is “running a surplus”. How do your town’s pension and OPEB obligations look? My community seems to be trying to bite off that problem now, alongside annual shortfalls due to school enrollment far outpacing new property growth.
and recommend the tax increase. The select board then accepts it.
My town is no where near the levy limit–I think we have $30 million to go. Our budget is slightly less than $20 million.
Red Mass Group was all over this, and reposted trickle-ups comments.
Seems that Rob Eno is trying to walk this one back. Notice the disclaimer he added:
Most cities and towns are nowhere near the levy limit, but she said
It’s possible she misspoke. I’d like to think so. No big deal if she did—public speaking is hard, people stumble.
But she did say, “Cities and towns are suffering….” Okay, here is how they are not suffering, except in 3 cities: by hitting the levy ceiling of Prop 2-1/2.
Here’s how they are suffering: The legislature does not give them enough money to do their jobs.
What would she, or any of them, do about that? That’s what I’d like to know.
… the problem you have is two fold.
First, you do not understand the TWO ways in which proposition 2 1/2 limits taxation. You clearly understand the ABSOLUTE limit, insofar as Sprinfield and Holyoke are concerned. You do not understand the RELATIVE limits that place constraints on the year-to-year change in taxes.
Secondly, you do not understand that levy is the ‘ask’ from the government, ‘receipts’ are the take. Receipts are down, in an economic downturn, even as the ask sometimes increases.
On the matter of relative limits proscribed by proposition 2 1/2: From the official state document prepared to local officials to understand the impact of prop 2 1/2 on their respective cities and towns.
First, a community cannot levy more than 2.5 percent of the total full and fair cash value of all taxable real and personal property in the community. In this primer we will refer to the full and fair cash value limit as the levy ceiling.
Second, a community’s levy is also constrained in that it can only increase by a certain amount from year to year. We will refer to the maximum amount a community can levy in a given year as the levy limit. The levy limit will always be below, or at most, equal to the levy ceiling. The levy limit may not exceed the levy ceiling.
So those cities and towns that are well below the levy ceiling cannot directly increase the levy limit to get to the levy ceiling without an override… it’s not a pile of possible money waiting to be tapped tomorrow. In a community that is well below the levy ceiling they may take several years to get to the levy limit, theoretically, but unless they are about 2.4 % below the levy ceiling they cannot get to it all at once without an override. So even cities that are a great deal away from their levy ceiling are not able to tap into all those possible funds all at once.
On the matter of receipts: foreclosure proceedings often entail either a temporary loss or an ultimate lessening of the receipts. Foreclosed homeowners either rarely pay the tax due in the year it is due (there is a three year process of unwinding foreclosures) or they pay less sales tax on a short sale to avoid a foreclosure. In an actual foreclosure the bank might become responsible for the tax but they can often negotiate a lower property value and pay less taxes. In the end the house may get sold at a lesser value.
What Coakley said was absolutely true: because lawmakers are constrained in what they can raise and because property values have been falling there is a disconnect between what was collected last year and the full and fair cash value of all taxable real and personal property leading to a shortfall. An economic downturn means an economic downturn and not even mathematics can create taxable wealth where none exists.
So, know that you know that Martha Coakley was not, actually, speaking incorrectly… will you offer an apology? Or will you double down on your spite?
That’s just not how it works with the property tax.
If that’s how Coakley sees it, I am genuinely alarmed. I’d rather believe Pablo’s explanation, tortured as it is.
See the in-thread discussion, most of it very good.
…I’m eager to find out, exactly, how it does…
Please… Enlighten me. Comfort the poverty of my comprehension. Enlarge the smallness of me view.
I thought it was calculated the same as excise tax on cars, a certain amount per $1000 so if the value goes up so does the amount you pay even if the rate stays constant as a percentage or even falls. I also thought this is how some communities fudge Prop. 2.5, by conveniently reassessing property values hoping there will be worth more and thus a greater source of revenue.
The aggregate dollar amount is subject to Prop 2 1/2, at least that’s my understanding of it.
Does that mean inflation doesn’t come into play since it was passed in 1980 or is 2.5% supposed to cover it? Full disclosure – I absolutely cannot stand this law. It has shackled the town I grew up in, directly affected the quality of my public school education, closed schools, police and fire stations, and even our public library for six months in 1992. I have always supported overrides, which have never passed in my town, but debt exclusions have, the first instance of which I am proud to say I chaired the campaign for and remains one of the highlights of my political “career”.
Whether it does is another matter. As noted above, most towns need to charge up to the limit and sock the money away in rainy day funds in order to pay for big projects. Towns that follow a hand-to-mouth policy inevitably run into unforeseen expenses (major building damage, a brutal winter, big lawsuit, bad year for health claims) and that’s when essential services start to get cut.
Where 2 1/2 gets sticky is where you’ve got a shrinking tax base. Mind you, that’s a problem even without 2 1/2. Everyone has to pay more to keep the lights on.
With the collusion of both left and right, Massachusetts has built a revenue system that is GUARAN-DOUBLE-DAMN-TEED to shrink its tax base.
The agenda of the right-wing (of both parties) has been to dismantle government. We have followed that agenda for decades. It is at best a happy accident (and at worst a planned strategy) for the right wing that our tax policy guarantees that the government will eventually starve to death — “starve the beast” has been the mantra since the early 1980s.
Here’s how it works:
1. Guarantee that the personal income tax cannot be graduated.
2. Jump handsprings and tell lies to keep the taxes that hit the wealthy (capital gains and estate/gift) low, and complain loudly about the “business climate” even at those rates.
3. Ensure that no local or regional surtax can be applied to the state income tax
4. In the interest of “tradition” and “preserving character”, insist that individual school, police, fire, water, and similar essential services be provided more-or-less independently by each of the 351 cities and towns. Note that this is a HUGE portion of overall government spending in Massachusetts.
There are several consequences of these steps:
1. Ever-increasing wealth and income concentration.
2. An ever-decreasing tax rate (wealth/taxes or income/taxes) paid by the very wealthy
3. An ever-increasing dependence on local property taxes for those 351 cities and towns.
4. An ever-decreasing tax base as the once-robust economy shrinks from starvation, destroying property values and therefore the tax base.
I note that each and every one of the several band-aids that have been slapped on this problem — sales taxes, sin taxes, gas taxes, lottery revenue, and now casino revenue — are inherently and actually regressive.
The net result of all this is a self-sustaining spiral that plunders the ever-expanding ranks of the destitute, poor, working poor, and nearly-poor in order to accumulate ever-larger amounts of booty and wealth in the bank accounts of the very wealthy.
This is an important aspect of the rank stench of hypocrisy that emanates from an allegedly “progressive” candidate for governor who claims to be “standing up for the little guy” while refusing to pursue any of the steps needed to break this death spiral. It is no accident that as AG, she took extraordinary (and ultimately unsuccessful) steps to block the casino referendum. It is no accident that she hedges every question about tax increases with weasel-words about “working with the legislature” — a legislature famous for its steadfast refusal to support or allow necessary tax increases. It is no accident that she does all in her power to avoid discussing these fundamental bread-and-butter issues during the campaign.
It is no accident that, as all this has been building, the state has been juicing up law enforcement agencies with guns, ammo, military assault vehicles, and the rest. It is no accident that when given an opportunity, the state government made sure that EVERYBODY saw how quickly martial law could be imposed — just in case anything got “out of hand”.
If we don’t do something, here’s how I think it ends: the handful of wealthy Massachusetts residents ultimately — when the host has been bled dry and there is nothing more to plunder — moves their wealth offshore and departs the state.
The carcass that remains looks a whole lot like Detroit and Michigan.
I am not sure I see Detroit and Michigan as an example of what happens due to low marginal tax rates on the wealthy, so much as it is an example of what happens when a one-industry economy goes bust.
It certainly would make sense for local services to be regionalized, but I do not exactly see any political support for that at all, anywhere.
The GOP loved to bleed Detroit dry, and the Dems couldn’t get out of their own way to actually improve the city.
In the end, the people left in Motown were the soul band going down on the Titanic.
White flight was the problem, prior to the decline of the industry.
Historically, a lot of African Americans moved North in the Great Migration for better jobs and lives. They moved to Detroit. So did–to put it simply–a bunch of rednecks from Appalachia with some very redneck racist attitudes. Plenty of cities had riots in the 1960s. There were also a lot of burnings. But whites in Detroit were particularly motivated to move out of Detroit.
While the racism was always there, it was the riots in the summer of ’67 that put it front and center and caused a lot of people to get moving. I observed the riots on TV as a child in a white suburb (which often referred to with the suffix “-tuckey” added, confirming Mark’s Appalachia note). Although we were some distance away, my dad kept a loaded shotgun behind the couch, just in case. Afterward, he took me for a ride through the affected neighborhoods. The sad thing is a lot of what I saw then I can see now in Detroit.
Some people thought the 1968 World Series victory would help bring everyone back together, but it was only a temporary “cease fire” and, in actuality, everyone was never together to begin with.
White flight is exacerbated by economic distress. People facing economic distress are often vulnerable to scapegoating, and minorities (and “liberals”) make excellent scapegoats.
I really like the second half of your first sentence — THAT is the dangerous similarity I see in Massachusetts today. Anybody willing to look at the facts knows that Springfield (and Lowell, and Lawrence, and New Bedford, and …) is in a deep and dangerous death spiral.
Election seasons are, in my naive view, the VERY BEST time to address important issues like this. This is time when we choose the seeds that we will be harvesting for the next few years.
This is the time when we must choose between flowers (look beautiful, sometimes smell nice, and are only occasionally edible and often poisonous) and vegetables (always edible, occasionally beautiful, and generally odor-free).
When we don’t choose, we end up with a garden full of weeds … generally filled with thorns, inedible or worse (except to the very careful), and — worst of all — eager to spread like wildfire and engulf EVERYTHING.
I prefer to plant tomatoes, red cayenne peppers, green beans, and cucumbers myself.
I live here and things don’t look too bad. In fact, I’ve lived in the area almost my entire life and Lowell has steadily improved during that time.
I know young professional people that moved into Lowell.
Lots of people go out to eat in Lowell.
It’s physical condition is not that bad at all.
There are both athletic and cultural activities galore.
This is quite different from Lawrence, for example.
I guess I’m comparing the Lowell of today to the city I worked in (at the Wannalancit Mill complex just after its renovation), hung out in, and lived near in the early 1980s, during and just after the Paul Tsongas era.
Some of the rebirth of that era seems to have taken root, and that’s a very good thing. Some seems to have withered.
My fundamental point, though, remains that the systemic issues that control government spending throughout the state work to the disadvantage of Lowell and cities like it.
As things are today, the poor will get more so, and the rich will get richer.
The Spirit Level: Why More Equal Societies Almost Always Do Better.
Richard G. Wilkinson and Kate Pickett
All of us need to wake up to the fact that our growing wealth disparity is hurting all of us, not just the poor.
All means All.
But I read “How much is enough?” this week and the authors of that work referenced the one you cited above. Hard to argue with it, it’s becoming self-evident that this is the state we are in. And I fear it is becoming self-evident that Democrats will continue to be complicit and even encourage these trends due to their addiction to corporate money. Tom’s Detroit prediction is a little sure, but I think IL or CA are perfect examples of the kind of pain decades of underfunding cause to governments ability to do good. You combine that with a pension crisis , significant revenue hits due to the recession, and an even stronger anti-tax and anti-government bias on the part of the electorate.
We had regional government once – they were called counties, but somewhere along the line those got tossed aside as colonial era relics, with it seems the support of many progressives. My own opinion calls for a balance. Keeping it very local can make them agile while regional assistance can be called in for bigger jobs.
As income becomes increasingly concentrated, the ratio of “haves” over “have-nots”, expressed as a percentage, begins to be measured by the number zeros to the right of the decimal before the first non-zero.
Several important strategies for maintaining control of such situations are to:
1. Find ways to make the have-nots WANT things as they are
2. Keep a steady supply of scapegoats lined up to attract and deflect the anger of the have-nots
3. Be VERY sure that the have-nots understand very clearly that ANY attempt to assault the “haves” is futile.
The weaponizing and militarization is needed to enable an overwhelming show-of-force (see Watertown, April 19, 2012). This overwhelming show-of-force serves essentially the same purpose as the “shock-and-awe” tactics of Bush era — resistance is futile and self-destructive.
…as a lot more of a grand plan than I’m inclined to give anybody credit for.
For a house race that the DCCC is targeting. Have you been to Michigan?
I had it on the computer, but was doing chores while I listened. I didn’t hear everything everyone said.
Grossman admitted in one response that he didn’t hear the first part of a question, but decided to answer it anyways. Did your jaw drop then, too?
It’s her answer that’s wrong, unless the question was “would you please tell us how property taxes work, but get it exactly wrong?”
“The question doesn’t matter,” explains a lot…
Video here: http://wwlp.com/2014/08/27/dem-candidates-debate-questions-and-answers/
Proposition 2.5 works as others described. The levy limit goes up 2.5% plus growth, so if property values rise, the levy limit stays the same but the tax rate drops. Municipalities that want more revenue than +2.5% meed an override to raise the levy limit, or need new growth (the value of the taxes on the new growth is added to the levy limit).
However, there is also a levy ceiling of 2.5% of the total assessed value of a municipality. Override or no override, the property tax may not exceed the levy ceiling.
Holyoke and Springfield have reached their levy ceiling. Property taxes in these cities cannot go up at all unless the tax base increases, and if property values decline the authority to tax declines.
So, the situation Martha Coakley described is absolutely correct in Springfield and Holyoke, as well as any other municipality at or near the levy ceiling. As the debate was taking place in Springfield, she was literally standing on the facts.
… to say much the same. But you’ve said it well so I say “ditto”.
I would add that Coakley was also spot on about the connection between Wall Street gambling and property values: which gambling was exactly about mortgages being turned into collateralized debt obligations by people who had no understanding of mathematics. Not discussed in the preceding kerfuffle re tax rates is the rate of foreclosures, which represent a wholesale lose of revenue as well: if you are taxing a municipality of 100 units and 10 of them –*poof*– disappear then not only do you have to tax the remaining 99 more to get what you got before, but the actual, underlying property values, overall, go down.
what she said was
it sure sounds like she’s referring to municipalities generally, rather than the cities of Springfield and Holyoke.
And “suffering from a lower return” is really not close to “unable to raise taxes more than 2-1/2%.”
I would hate to have a governor who thinks that 2-1/2% is a reasonable tax burden, or that local aid can be cut if only the real-estate market picks up.
The latter is the implication of how i understood her remark; the former is the implication of how you did.