For property tax watchers, last week was a book-end project. On Monday, the Massachusetts Taxpayers Foundation issued a report warning that the commonwealth’s municipalities are in such dire fiscal straits that they will inevitably have to find ways to jack up taxes on residents and businesses. By the end of the week, the city of Boston did just that, announcing an average 6.3 percent hike in the average resident’s tax bill.
The economic crevasse that the state has fallen into is taking its toll on many businesses. They are doing all they can to manage expenses and, especially, to raise revenues. But few have the constraints that Massachusetts’ cities and towns have, in that those communities have a legal limit on their ability to boost taxes, thanks to the decades-old Proposition 2½.
That legal stricture generally precludes municipalities from raising taxes more than 2.5 percent a year. But the limit doesn’t apply to new construction.
Over the past decade, that “new construction” fueled spending well in excess of what would normally have been allowed under the spirit of the voter referendum that sought to put a damper on prodigious political parceling out of taxpayer dollars. But no one was complaining as long as average taxpayers didn’t get walloped in the wallet along the way. The boom in commercial building as well as new housing developments masked a rapid ratcheting up of spending in communities across Massachusetts.
But those municipal leaders are now furrowing their brows, trying to figure out how to keep the spending spigot on even while revenue is draining away faster than they can replenish it. State aid to municipalities has been slashed. Construction on new developments has halted. And values of existing properties have plummeted.
“Cities and towns across the Commonwealth are facing enormous fiscal pressures which will only worsen over the next two years and likely beyond,” says the Massachusetts Taxpayers Foundation. “Confronted by structural deficits in good times, municipalities have had to deal with major cuts in local aid during two recessions this decade. There will be further cuts in state aid in fiscal 2011, made worse by the end of federal stimulus dollars which have been supporting Chapter 70 education aid.”
Municipal health care costs in Massachusetts, fueled by sweetheart deals to employee unions, have increased at five times the inflation rate since 2001. “The dramatically increasing costs of health insurance and the large jump in unfunded pension liabilities must be addressed,” the Foundation asserts.
Politicians are not keen on jacking up voters’ taxes. They also aren’t happy about slicing spending, which usually means nicking away at programs voters like and, sometimes, firing city employees.
“Cities and towns are experiencing extreme fiscal distress,” the Massachusetts Municipal Association wrote to Gov. Deval Patrick back in October. “Out of necessity, communities have been forced to drain what was left of their reserves, eliminate thousands of employees through widespread layoffs and attrition, shelve vital maintenance and infrastructure improvement projects, and impose deep cuts in the essential services that the people of Massachusetts depend on, including education, police and fire protection, public works, libraries and many other quality-of-life programs. The property tax has spiked higher and higher, and now makes up the largest share of municipal budgets since the implementation of Proposition 2½..”
This is clearly a painful process for all involved. But while some bemoan the sturm und drang of the situation, we can’t help but think that perhaps this will bring some much needed recognition that the development community is not the enemy of local character and community, but the provider of a tax base that’s critical to community coffers. Without an active, aggressive development community we’ll all end up – well, we’ll end up exactly where we are.
