'LOWEST RESIDENTIAL TAX' DOES NOT MEAN YOUR TAXES DON'T GO UP!!!

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We hear it over and over again: I am voting the 'lowest residential rate' because our residents can't afford to pay more. Our current city council, claiming the best interest for our citizens continually votes the 'lowest residential tax rate'. Contrary to what it sounds like, it does not mean your taxes won't increase. In fact, as businesses leave and we are not able to attract new ones, the tax burden eventually will shift to all the residents. The chart below reflexts the rise in both the residential and commercial tax rates. Keep in mind that your property value is also changing each year.

Table 1: Historical Tax Rate - per $1000

DUAL TAX RATE VOTE BRINGS UNDESIRABLE RESULTS

In 1984, the Worcester City Council voted to split the property tax rates as a way to increase revenue. Sadly this decision was very short sighted. Essentially, instead of all property paying the same tax rate, residential property owners would pay one rate and commercial/industrial property owners would pay another. The designated rate multiplied by the current property value is how your annual tax bill is determined. In general, commercial properties are usually higher in cost and value than residential so even at a single tax rate; the commercial property owner ultimately has the higher bill but the dual tax rate increases the commercial/industrial bill dramatically.

Example of tax rate of $13.50 per $1000 value (FY 2009 residential rate):

Property valued at $250,000 equates to 250 x $13.50 = annual tax bill of $3,375.00

Example of tax rate of $28.72 per $1000 value (FY 2009 commercial rate):

Property valued at $250,000 equates to 250 x $28.72 = annual tax bill of $7180.00

The real estate tax we all pay akes up more than one third of what the city administration has to spend on city services such as public safety, public education, public libraries and street and sidewalk maintenance.

DISADVANTAGES OF DUAL PROPERTY TAX RATE

• The number of businesses that are able to sustain long term health in the city declines.
• A dual tax rate is an impediment to attracting new businesses and 'staying competitive' with surrounding towns.
• Councilors feel pressure to vote for the 'lowest residential tax rate' to get votes.
• Residents and businesses are often fighting against each other even though many represent both.
• The tax burden eventually shifts to the residents as businesses fail and move.

This shift is very real. In the early 1980s, before the dual tax rate, residential and commercial property owners had a very equal split in makinig up the cities property tax revenue. Heading into fiscal year 2009, our residents will be making up 80% of the property tax revenue which put the city in a never ending spin of reducing services before the economic downturn.

DECLINE IN BUSINESSES IS ALARMING

Even before the economy took a turn for the worse, the trend was already happening. In the eighties, 36% of Worcester's tax base was business property. That number has increasingly dropped. Currently it is at about 20%. Less businesses paying real estate taxes but that is not all. Businesses pay personal property tax on all their equipment and furniture; the city receives a portion of the payroll taxes from businesses and excise tax on vehicles.... imagine a manufacturer with a fleet of 50 trucks to deliver its goods.... the city benefits from all of it. Fees for inspections, sewer and sewer hookups and licenses from businesses all help make up the city's budget. All of these things and more make up the money that the city has to provide us with city services. As businesses go away, the shift of responsbility will ultimately go to the residents. We must stop this cycle before it's too late.

WORCESTER REGIONAL RESEARCH BUREAU KEY FACTS

These are a summary of key facts provided by the the Worcester Regional Research Bureau:

• Over the last 25 years, the value of the commercial/industrial portion of the tax base has declined from 35% to 19%.
• Paying the lowest residential tax rate does not mean that property taxes decrease. In fact, property taxes for homeowners increase every year since the departure of businesses shifts more of the tax burden to the homeowners.
• Worcester has the highest commercial/industrial tax rate in the region leaving it at a competitive disadvantage in attracting businesses.
• According to the Mass High Tech Council, a dual tax rate is one of the most important factors in determining location decisions of high tech employers. According to the Council's rankings of all 351 cities and towns in Massachusetts, Shrewsbury and Grafton, with single tax rates rank 2 and 4, respectively. Worcester, with its dual tax rate, ranks number 240 on the list.
• No new office building has been constructed in downtown Worcester since 1990.

For more information, see the Research Bureau's report 'Benchmarking Economic Development in Worcester:2008' http://www.wrrb.org/documents/Report08-07EconDvpt.pdf.