Rep. Casey, other legislators debate new property tax rules
By Michael P. Norton and Michael C. Levenson/State House News Service
Wednesday, January 7, 2004
Municipal leaders urged lawmakers last week to spare residents from big property tax increases by shifting the burden to commercial property owners, but critics worried the change will chill the economy and lead to a permanent tax hike on small businesses.
Government leaders from 50 communities throughout the state are facing the prospect of residential property tax bills rising by as much as 40 percent due to the combination of soaring residential values, stagnant commercial values, and a statutory cap on commercial property taxes.
"This is an anomaly," Boston Mayor Thomas Menino told the five members of a commission charged with developing a solution within two weeks. "This will never happen again."
If lawmakers don't step in, Menino said, there will be a $100 million shift in the city's tax burden from commercial to residential owners.
"That's more than you can expect anyone to absorb," Menino said. "People are calling me and stopping me on the street and saying, 'How are we going to pay our taxes?'"
Menino said the elderly, young families, and renters in communities "from Dedham to Nantucket" are facing the problem and he urged lawmakers to explore broader tax reforms. The mayors of Fall River, Newton, Revere and Lynn joined him in calling for temporary residential tax relief.
But business leaders say the proposal represents a knee-jerk reaction to a cyclical problem. They said small business owners can't afford the tax increases, commercial owners will continue to subsidize residential owners, and business facing higher taxes will be forced to raise prices.
"This is about jobs, the economy, and the future of our state," said Christopher Cooney of the South Shore Chamber of Commerce.
Business leaders say a more targeted approach, perhaps increasing the residential property tax exemption, would help struggling families without handing tax breaks to more wealthy homeowners and commercial office tower owners who are coping with high vacancy rates.
In one of the few areas of agreement with city leaders, business agreed the Legislature should protect seniors and low-income residents from the increases. Beyond that, there was little common ground.
Newton Mayor David Cohen urged the Legislature to "maintain the status quo" to step in and nullify the property tax increase for residential owners. Cohen also urged the Legislature to give local officials "the flexibility to do what is best in their communities." Two hundred cities and towns make no distinction between residential and commercial properties in the application of local property taxes, he said.
Critics said that would be fatal for small businesses.
"[City leaders] are more apt to put more of the burden on the backs of business than trim municipal departments or budgets," said Cooney of the South Shore Chamber of Commerce, which represents 2,500 businesses, about 86 percent of which are considered small because they employ fewer than 100 workers. "When does it stop? When does it end?"
Several business leaders suggested they were fighting an uphill battle in the Legislature.
"Everything seems to be pulling one way in this argument, and it seems to be pulling anti-business," said James Mathes of the New Bedford Area Chamber of Commerce.
Most of the mayors made emotional pleas to the Legislature to consider the hardship for low- and middle-income residents, especially those in older cities.
"The Lynns, New Bedfords, Fall Rivers and Bostons will be crippled by this," said Chip Clancy, mayor of Lynn. "Action is required."
Sen. Dianne Wilkerson, D-Roxbury, said she nearly fell off her chair when she opened her own property tax forecast for next year. She labeled the increase "a crisis" for many city residents.
Boston City Councilor Maura Hennigan contrasted the struggles of residents with the big decreases some giant office towers will see next year. Twenty-Eight State Street will see a $1 million decrease, 175 Federal Street, a $250,000 decrease, and the Prudential Tower, at 800 Boylston Street, a $1.5 million decrease, Hennigan said.
Business leaders criticized such portrayals as obscuring the plight of small businesses, which they said would suffer from the increase.
House Taxation Committee Co-Chairman Rep. Paul Casey, D-Winchester, said not all businesses are paying less in property taxes.
"Our fear is that you're going to scare businesses away," Casey told Menino.
City officials bristled when Casey suggested that the city might not need as much local aid from the state if their property tax proposal were approved on Beacon Hill.
Alan LeBovidge, the state revenue commissioner and a member of the commission, said the trend of rising residential values and stagnant commercial values may not be an anomaly. And LeBovidge said he is aware of the effect of tax policies on small businesses.
"We are a state of small businesses," he said.
Alan McDonald, executive director of the Massachusetts Business Roundtable, said the property tax equity issue "will correct itself over time" and worried that businesses in a year or two will be "put in the position" of having to plead for the commercial tax cap to be restored to its present level.
"We would disagree that this is an anomaly," said McDonald. "This is a cyclical problem."
The tax cap proposal discourages business growth and the state needs to be doing more to attract businesses, McDonald said, adding that the supposition that businesses can afford tax hikes more easily than residents is not true. "It's certainly not true across the board," he said.
Eileen McAnneny, representing the employer group Associated Industries of Massachusetts, said the group shares the concerns about rising residential property taxes, but strongly opposes raising the commercial tax cap because it does not provide targeted tax relief, and will hurt the economy.
"It's equally important that these folks have jobs and are able to pay their mortgages," McAnneny said, referring to residents facing the steep tax increases.
Under the current proposal, she said, pizza shop and gas station owners would be subsidizing owners of luxury homes, she said.
Samuel Tyler, director of the Boston Municipal Research Bureau, said city businesses paid a $302 million tax subsidy last year, while city residences accounted for 61 percent of assessed values but delivered only 32 percent of the total property tax levy. The city's average tax bill of $1,972 is low compared to many other communities, he said. "The city does give maximum benefit to homeowners."
Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, urged lawmakers to give cities and towns the flexibility to alter local property tax policies in the interests of both homeowners and businesses.
"We are for maximum flexibility," he said. "The stakes are very high for cities and towns... This is about maintaining balance, not shifting tax burden away from residential burdens."
Massachusetts Taxpayers Foundation President Michael Widmer said 250 cities and towns have uniform property tax rates while about 100 have dual systems that assess residential and commercial property owners at different rates. Businesses statewide pay an $830 million property tax subsidy in the communities with dual tax rates, and raising the cap under state law would, he said, "further distort a distorted system."
Residents were the least represented voice during the four-hour hearing, but several waited until the invited guests concluded their testimony and then made plain their distress about the tax increase.
Joseph Chaisson, 71, a resident of the Savin Hill section of Dorchester, said he worries about passing on the tax increase to his tenant, a cancer survivor who already pays two-thirds of her income on rent. As a longtime resident active in senior issues, he said he was concerned that the increasing property tax rate would hasten the exodus of seniors from Boston to the suburbs.
"We want to make Boston a senior-friendly city," Chaisson said. "This tax increase is going to make us a senior-empty city. We just can't afford a forty percent increase at this time. We just can't do it."
Said Marianne Castellani, chair of the Neighborhood Association of the Back Bay, "Boston is at risk of becoming a city for only the wealthy."
Ronald Rakow, assessor for the City of Boston, said the city has studied the small business tax burden in its "Main Street" districts and determined that it dropped 10 percent between 1997 and 2003. The pending proposal, he said, would raise commercial rates by 5 or 6 percent, he said.
Rakow said it is critical to have the commercial tax cap raised for at least the next two years, and perhaps longer.
"There will be a determination rather shortly by this commission," said Casey. "We are on a short leash."
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