Letter to Editor: alternate tax rate proposal

by beth on July 8, 2013

Resident Carl Guyer has requested the opportunity to share his tax proposal with Southborough residents.

Guyer’s plan is a revision to Southborough’s current single property tax rate. As of last week, Guyer had submitted a version of the report to the Board of Selectmen and was in process of sending it to the Advisory Committee.

This weekend, Metrowest Daily News reported on his proposal. The story includes some background about the differences between Southborough’s policy and policies of neighboring towns. You can read MWDN’s article by clicking here.

Guyer’s letter to Southborough is below with a linked attachment to his report.

Dear Fellow Residents;

As the elected officials and department heads of Southborough work to manage our town budget, the Board of Selectmen are warning of impending revenue shortages and potential increases in taxes and fees if dire budget reductions are not made. As residents we should be willing to consider all strategies capable of sustaining our town as a successful residential community through these difficult times.

One strategy capable of helping residents through this difficult period is discussed in the attached report. It is a strategy with a proven record of financial benefits for residential taxpayer. The tax policy identified in the report is in employed at 2 out of 3 municipalities in Massachusetts with economic demographics similar to Southborough. Residents of within these cities and towns see an identifiable benefit in their real tax rates.

The report uses data from the Massachusetts Department of Revenue to build a case for why Southborough should modify the existing tax structure to align the town with the majority of cities and towns in Massachusetts with a substantial commercial and industrial tax base.

If, after reading the report, you would like to support implementation of this strategy in Southborough, please contact me. The report is a singular effort on my part to identify an opportunity for Southborough residents. Implementation will require a diligent effort by many residents to convince the majority of residents this strategy is in their best interest.

Yours truly,

Carl Guyer
146 Middle Road
Southborough, MA
(508) 481-3770
carl.guyer@gmail.com

Attached Report: Tax Rate Policy Alternatives Benefiting Residential Tax Payers

1 Carl Guyer July 8, 2013 at 10:25 PM

The Westborough Paradox

There can be an instant in time when what you have considered a normal everyday experience is suddenly transformed by the discovery there are others who are living in similar circumstances but with entirely different results. This experience is called a paradox. For the people of Westborough and the real estate taxes they pay every year, there is a parallel but very different experience in Burlington, MA. The circumstances are similar; the results are very, very different, as you will see. For Westborough residents this paradoxical experience is not limited to Burlington, there are 110 other cities and towns in Massachusetts that could be used for comparison, Burlington just happens to the community that most closely matches Westborough demographically and best illustrates what could be in Westborough.

To bring this paradox into focus, data from the Massachusetts Department of Revenue year 2012 is used. The key parameter making Westborough and Burlington a closely matched pair is the nearly identical commercial and industrial tax base. Westborough’s tax base is 37 % commercial/industrial while Burlington has a base of 36%. Compared to most communities this is a large percentage of the tax base and is commonly considered a benefit to the community.

For Burlington the residential tax rate in 2012 was $11.55 per thousand dollar of assessed property. Burlington, unlike Westborough, has a split tax rate structure with the commercial/industrial rate at $ 30.95. Westborough has a single rate tax structure of $19.15 for all property in the town. Knowing just the information provided here, the equivalent single tax rate for Burlington can be calculated; it would be $18.53. With the single tax rates of $19.15 and $18.53, the two towns again have similar characteristics.

Another common characteristic of the two towns is the average assessed value of the residential property. Westborough’s average is $405,000 and Burlington’s is $381,0000. Now, using the average assessed value of a residence in Burlington, if the single rate of $18.53 per thousand were used to calculate the average annual tax bill in Burlington, it would create a $2,651 tax increase for the average homeowner in Burlington. Clearly the residents in Burlington would have no interest in a single rate tax structure.

Now flipping the calculation and using Burlington’s split rate residential to commercial tax rate ratio, not the actual rates, the equivalent tax rates in Westborough would be $10.27 (residential) and $ 34.61 (commercial/industrial). The applying these rates would represent a savings of $3,620 for the average residential taxpayer. This would be a $300 per month savings for the average homeowner in Westborough.

So now the paradox is clear. The residents of Burlington see an annual savings of $2,651 in their tax bills while homeowners in Westborough pay $3,620 with the same basic demographics. Homeowners that are experiencing different existences under similar conditions.

2 Rob July 9, 2013 at 7:43 AM

Really great report Carl. It’s unfortunate that most people in town don’t seem to care enough about these things until they see the rise in taxes. Our elected officials might just have to make a decision for us all on which way the town is going. Our past few voting nights have really said it all.

3 Al Hamilton July 9, 2013 at 8:01 AM

Carl’s plan is certainly worth of public debate and I welcome that discussion. However, I believe that a split tax rate, where inevitably commercial and industrial property will pay more is fundamentally unfair, unjust, and unwise.

The fundamental reality is that it is the residents of our community that drive the cost of Government with their demand for services. Roughly 2/3’s of our tax dollars go to pay for schools. Businesses (except for the private schools) do not send children to our schools Residents do. Business do take advantage of roads, water, police, health, and fire services but that is about it. Businesses do not use our libraries, Rec Services, and a host of other services that are there because residents demand them.

It is UNFAIR because it taxes a broad class of property at a higher rate with no expectation that the owners of that property, as a class, will receive any benefit.

It is UNJUST because it places a higher burden on those that do not have a voice in our government (commercial/industrial property owners) in order to benefit those that do (residents). From my perspective, it is borderline immoral to demand a service and then stick someone who has no say with the bill.

It is UNWISE because it will not force us to confront the substantial waste and inefficiency in our public institutions. Make no doubt about it, this represents a new revenue stream for local government. It will permit us to avoid facing the Towns fiscal problems. These include the rising costs of benefits and labor, a very inefficient school and municipal infrastructure, and our unfunded pension and retiree benefits obligations.

Carl has done us a service by placing this item in the public square for debate and discussion. For this he deserves our thanks. However, at first blush I think we should give this a pass. The bottom line is that if we are not willing to pay for a public service we should not expect someone else to pay for us.

4 Carl Guyer July 9, 2013 at 5:37 PM

Al, did you read the end of the report that shows rising commercial and industrial property levels correspond with rising real estate tax rates. This is demonstrated by the last graphic. Split rate taxes are a response by communities that have been hard hit with development. They go to a split rate to control costs for residents after commercial and industrial developers made the promise of lower taxes and have failed. The higher tax rate is not only fair, it is just dessert.

5 John Butler July 9, 2013 at 8:44 PM

First a clarification. In an important sense it is not a “new revenue stream”, as for example, new growth is. Splitting the rate is merely a shifting of the tax burden from one class of property to another. The Prop 2.5 cap on the tax levy is unaffected by any decision to adopt a split rate, so maximum revenue is not changed. It is possible to suppose, of course, that citizens might be more prepared to vote for an override if a split rate had recently reduced their bills, but, unless they do so vote, revenue and spending maximums remain as before.

The fairness question is more complex than your comments would suggest, Al. A good case can be made that, when all taxes are considered in aggregate, the taxation system is unfair, and merely the product of the interplay of political and historical forces. In this case, unlike for example in the national taxation of oil and gas extraction, the political power may be broadly dispersed, making businesses vulnerable to residential voters preferences for dumping some burden on them. Why should our weeping begin with this, the umpteenth unfairness in the tax system?

To me the only relevant data bearing on the question, potentially gleaned from State databases, is whether a shift toward higher commercial rates adversely affects the taxable base of commercial property in Towns that adopt a split. Do occupancy rates drop, for example? Opinions abound, of course, but I haven’t seen any good data-based analysis of such questions. If the commercial market actually measurably responds to this, then that would be an argument against, to some degree.

After that it, is all politics. I would not assume, with Mr Ellis, that the Town’s policy cannot change.

6 Al Hamilton July 10, 2013 at 8:03 AM

John

Do you really believe that the proposition that we can vote for more spending because my taxes will not go up, we will just shift the burden on to those who have no right to attend town meeting, is good for fiscal discipline?

Taxes are by definition not fair. They are compelled payments enforced by the power of the state rather than bargained transactions. They are a means of spreading the cost of collective services. A change in the tax policy means that the burden will be spread differently there will be winners and losers. In this case it will typically be small business that is the loser. If you think that is fair explain it to your barber, plumber, and mechanic.

7 Carl Guyer July 10, 2013 at 9:30 AM

First, you are confusing issues here. Prop 2.5 is not in play here. We are talking about shifting the tax burden, not raising it. FYI, if we continue to increase the level of commercial and industrial property, the residential property base will likely erode faster than the commercial and industrial property rises. I have looked at the data and that rings throughout the state. That will raise taxes without a 2.5 override.

You also sound like the Town Manager in Westborough pining about the need to maintain commercial occupancy rates through taxpayer support. Read my post at the top about the mess in Westborough.

8 resident July 9, 2013 at 8:44 AM

LOVE this idea. It’s time for us to get a break! I know the BOS think that this will hinder business coming into town but how many residents are getting run out of town because of more taxes for less service? Enough already, give the residents a break. I am all for this!

9 Neil Rossen July 9, 2013 at 9:00 AM

Maybe it’s simply the schools. What is the Southborough cost per pupil vs other towns? That is the real nub of the issue.

10 resident July 9, 2013 at 11:29 AM

Same old same old

11 Rob July 9, 2013 at 2:40 PM

I would also like to know that cost. Does anyone have that info, or know where to get it??

12 Dean Dairy July 9, 2013 at 10:44 AM

Any chance, Carl, that you can post your raw data set for the 50 cities and towns?

13 C. Nicholas Ellis July 9, 2013 at 11:34 AM

This issue was raised once before by Selectman Rooney very early in his term. It was heavily discussed and roundly shot down by the residents of this town, most of them small business owners who both live and operate their business in Southborough. The discussion is worth having, but ultimately I am sure history will repeat. Al’s thoughts mirror my own on this subject.

14 Carl Guyer July 9, 2013 at 5:38 PM

Which residents turned down a $750 to $1500 tax break?

15 Dean Dairy July 10, 2013 at 8:57 AM

This is classic “no tax for me, tax the man behind the tree”.

16 SB Resident July 9, 2013 at 3:24 PM

Not pretending to know enough about the topic, but thought it might be nice to hear what others think: Has any thought been given to the fact that the commercial/industrial properties generate cash/profit for those folks whereas residential properties do not for the homeowner thus commercial/industrial? Does this justify why they can be taxed differently? Does any of the state taxes paid on the revenue find its way back into the town economy and how is that accounted for in greater discussion?

17 Carl Guyer July 9, 2013 at 5:40 PM

Read the end of the report that shows rising commercial and industrial property levels correspond with rising real estate tax rates. This is demonstrated by the last graphic. Split rate taxes are a response by communities that have been hard hit with development. They go to a split rate to control costs for residents after commercial and industrial developers made the promise of lower taxes and have failed. The higher tax rate is not only fair, it is just dessert.

18 Al Hamilton July 9, 2013 at 6:59 PM

Let’s be clear about the type of taxes we are talking about here. It is more than just taxing the office buildings on Rt 9. It is called the Personal Property Taxes but it applies to the assets of many businesses. Large businesses (Like EMC), particularly if they engage in manufacturing, receive broad exemptions. Smaller businesses are less likely to be exempted.

Your mechanic will pay more for the tax on his/her tools.

Your plumber will pay more for the taxes on his/her tools

Your doctor will pay more for the taxes on his/her Xray machine and exam table.

Your favorite restaurant will pay more for the taxes on his/her stove and tables.

Your local convenience store will pay more for the taxes on his/her coolers and inventory.

Your dry cleaner will pay more for the taxes on his/her washing machines.

Your gas station will pay more for the taxes on his/her pumps and tanks.

Your day care provider will pay more for the taxes on his/her facilities.

So, If you really believe this is a good idea I challenge you. The next time you visit any of these establishments in town ask to speak to the owner. Look him or her in the eye and say “I do not want to pay any more for the town services I receive. I do not want to make hard decisions. I think it is a good idea for you to pay more for those services instead.” At least then you will have had the courage of your convictions.

19 Resident July 9, 2013 at 9:45 PM

Let’s also be clear about how businesses would adapt. It wouldn’t be as simple as you state it, that they would just accept it and pay more for their capital goods. They would raise the prices of the services that they offer to offset the tax increases. This would lead to people paying more for the services in town, or choosing other places to purchase those services.

If you were to lower resident’s tax rates, what would that do for consumption for those businesses as well? People would have more disposable income to spend, to hire the plumber, the mechanic, to use the restaurants, etc…so there are not just negatives to this proposal if you look at it holistically.

The tax rates on businesses are not going to impair their business models as much as you think. Many businesses often don’t own the buildings that they operate in, so not all are directly affected. Sure, they pay rent and their rents could rise, but not likely immediately since many leases are long-term with contractual annual adjustments. For those that do own their properties, the costs could be passed on to consumers. Probably not immediately, but more likely over time so as to not impact customer demand. Businesses will adjust and consumers will still feel some impact as a result. But with the reduction in residential tax rates would offset that and likely increase business demand.

These are just some other aspects to consider. I’m not decided on a position on this issue, just offering another point of view.

20 John July 10, 2013 at 7:03 AM

The real issue is not the tax rate, it is SPENDING ! Reduce the spending and you reduce the need for new taxes. How, you might ask? Look at the budgets that grow every year. It is not the fire police or town budget that is draining the coffers. Guess which one grows regardless of population or numbers?

21 Tim Martel July 10, 2013 at 11:13 AM

Agreed. We have a cost problem, not a revenue problem. If we grow our revenue without first managing costs, then the cost problem we have today will just grow to match the new revenue.

Case in point – the transfer station. The BOS actively debated different revenue models but they did not once question the underlying cost figures. There was a statement by the BOS at one point that (paraphrase) the DPW manager’s expertise was greater so we shouldn’t question it. It should have been questioned (to be fair, perhaps this is Advisory’s purview?):
1) we pay more for the personnel than we do for the actual trash.
2) I **suspect** there are significant non-transfer station DPW costs that are sneaking into the transfer station accounting and thus are being paid for by stickers instead of taxes.

Anyway…I’m not trying to turn this thread into a transfer station debate but rather just using it as an example of fundamental operational/cost problems.

22 Al Hamilton July 10, 2013 at 7:49 AM

Resident

” Many businesses often don’t own the buildings that they operate in, so not all are directly affected. Sure, they pay rent and their rents could rise, but not likely immediately since many leases are long-term with contractual annual adjustments.”

This is not correct. The most common form of a commercial lease is a “Triple Net Lease”. The tenant rents space and agrees to pay a share of the actual maintenance, utilities and TAXES. If the taxes go up the tenant pay more right then and there.

23 Carl Guyer July 10, 2013 at 11:11 AM

Let’s go….

24 Carl Guyer July 12, 2013 at 8:17 PM

Al, I have been thinking about your challenge and I think it is a good idea. If you, or anyone, would like to organize a meeting of business owners, I would be glad to go over the information in the report that makes the case for a split tax rate. My intent is not to be confrontational, but let them know that a reasonable case can be made and the possibility of a split rate is not unthinkable. Understanding the motivation for towns to implement a split rate may enable them to avoid what would be a pitfall for them.

25 Carl Guyer July 10, 2013 at 9:22 AM

OK Al, you like to issue challenges, so here is one for you. How would you like to go with me to Andover, Bedford or Burlington, just to name a few, and argue your points to the tax payers there. Tell them they are being unfair, unjust and need to pay $1000 to $3000 more in taxes to support local local industry. Tell them all the local stores and industry are gone as the result of their tax structure. I know all the tired old verses, I can help you. Of course not, you would be laughed out of town. Have you ever been the center of Andover, it is a thriving success story?

Of course my other offer is for you to accompany me to Lowell, where I was born, and walk the streets to see the wonders of industrial development. Actually the textile museum is very interesting, my ancestors had a lot to do with this. We can visit my aunt, who still lives in the Acre, we can do it at night when things are really interesting. I can take you to a few very interesting bars to meet people similar the ones I grew up with. Don’t wear anything that says “LLBean”, if you want to come home.

You are throwing the hard working residents of Southborough under the bus. Did you read my posting at the top of these comments about Westborough and the ridiculous situation there?

The people of Southborough work hard to maintain a civil and peaceful community, let us not put this town on the mistaken track taken by so many in the past.

How about a solution, not the same tired grips that don’t withstand inspection.

26 Al Hamilton July 10, 2013 at 12:45 PM

Carl

Like you I have strong experiences from my youth that inform my opinions. I grew up in Upstate NY during the 50’s and 60’s. In the early 50’s New York State was a manufacturing hub. By the time I was ready to enter the work force in the early 70’s Upstate NY was already turning into an economic wasteland. Why? Nelson Rockefeller who was Governor for a long time wanted to turn the state into an European style welfare state.

For some time my family lived in a suburb of Rochester, NY. That suburb was the home of Xerox. Xerox moved its headquarters out of Rochester to Ct because the taxes were so high. I watched steel and chemical plants that had been located in the Buffalo area to take advantage of cheap power from Niagara leave the state because of high taxes.

I still drive along the Thruway from Albany to Rochester and see mill after mill that were once thriving empty along the Mohawk valley.

New York to this day has high taxes and little if any economic growth. I had a business meeting with a small company in NY about 2 years ago. I was speaking with the President who grew up in NY and loved the area. His words to me were “No one in their right minds would locate a business in NY.”

So like you I am powerfully informed by my experiences from my youth. I believe that in my heart of hearts, that raising taxes on individuals or businesses provides them incentives to move. If not now sometime in the future.

Massachusetts is also a low growth state, as our shrinking congressional delegation attests. States with more business friendly policies are growing much faster.

27 Carl Guyer July 11, 2013 at 9:10 PM

Al ,did you read the report? It is the increasing in commercial and industrial property that raises the tax rate, see Graph 4.0 of the report. This is not trick, commercial and industrial property have a negative affect on residential property pushing the value down. Since the majority of the property in a city or town is residential, in most cases, what is gained by a small incremental increase in commercial and industrial property, is negated by a loss on residential value. So who should pay ?

By the way, your experience with industry leaving a wake of destruction is so common it is sad. Then they have the nerve to point at residents as an excuse to pick up and run.

28 Neil Rossen July 10, 2013 at 10:45 AM

I repeat. The real issue is the school budget. The rest is, in my opinion irrelevant. Many people are evading doing something about the schools. All of these other discussions are ultimately futile. Someone (no name of course) posted that I say the same old, same old. Well, that doesn’t make it any less true.

29 OSB Resident July 10, 2013 at 10:59 AM

Let’s not start getting too hostile. Al is right that there is a real unfairness involved here, but ethics have long ago left business, so what goes around comes around is my view.

I agree with John B. that the only relevant info here are the beyond the short term effects. Commercial real estate vacancy levels are still relatively high in the area, though they are coming down, so now could be a good time.
http://www.metrowestdailynews.com/news/x422901595/Office-vacancy-rates-declining-in-MetroWest#axzz2YZ6oJNOY
Regardless, companies can and do move, and there are lots of options available in the vicinity. We would need to make sure any change isn’t significant enough to encourage any of the big players to leave town.

Southborough (and Westborough) are not Burlington or Andover, we might be comparing fruit, which works as a proof of concept, but they are apples and oranges, so any real discussion needs to address more of the specifics for us.

In the long run, we have to switch (or the state has to address this). As soon as one town does it, the trend will be we all have to or the unfairness is spread to us. The costs of goods produced in Burlington and Andover will be passed onto consumers which in some cases is us. Why should the residents of Burlington and Andover get the break and we pay twice.

Just a thought, could we create a 40B housing complex split tax?!? :-)

30 Carl Guyer July 10, 2013 at 1:49 PM

Just tell us why Andover and Burlington are not like Southborough and Westborough or are you just hoping it is not true.

31 OSB Resident July 11, 2013 at 3:10 PM

We can start with the fact that they really aren’t even suburbs of the same city. Next population and density, with them both being about 2 – 3x bigger. If you just look at the map you can see that their commercial densities are much higher than Southborough. I could go on with a variety of subtleties which do matter, but in the end every town is very different often even from their neighbors.

Also, their commercial rents appear (after quick google search) to be 2-3x the Marlborough rates as well. Companies want to be in those towns. Burlington is generally known as the heart of the 95 tech corridor, I’m not really sure why but Andover just has a good general reputation as well. The 495 corridor reputation is ‘hey come out here we have cheap rent’. If I were a company is Southborough, I wouldn’t consider a move to Framingham/ Westborough/ Marlborough to be a big deal. This is an opinion, but for a variety of reasons, I don’t think the Andover/ Burlington companies have the same options.

I’m not saying a split rate will or won’t work for us, but just because it works for them isn’t enough to say it works for us. To be convinced that it will work, I would want to be assured that companies won’t just move. The cost to them either can’t big enough to justify it or their choices can’t buy them anything.

All this and I’m for a split rate in theory. I would love to see this happen and save some money. I sense hostility in your posts though. You obviously feel strongly on this issue, but I think you will be better served to understand the opposition so that you can come up with the arguments or data to counter the concerns.

32 Carl Guyer July 11, 2013 at 9:01 PM

You obviously have not read the report, all you concerns are addressed there.

33 OSB Resident July 12, 2013 at 1:35 PM

I did read the report and the concerns I stated were not addressed. I did however, just reskim the report and I think I finally “got it”. I think your goal is to accomplish exactly what my concerns were about, which is why they weren’t addressed. That is, the goal IS to decrease the CIP of Southborough, which is the only why to move us up on graph 3, all the while we will be taking in money to make it happen. Brilliant.

34 Carl Guyer July 11, 2013 at 9:16 PM

Sorry, one more observation… Your discussion on rents is interesting, it implies we as residents need to subsidize local commercial investments, a notion even local owners of commercial property would not appreciate you making.

35 OSB Resident July 12, 2013 at 1:14 PM

I definitely don’t follow… subsidizing commercial investment is extremely common and considered a good thing. Property owners would love it.

36 Neil Rossen July 11, 2013 at 9:10 AM

In response to Al Hamilton’s post today, I would add that a comparison of economic performance of “red” states and “blue” states reveal the obvious: Unions and welfare just doesn’t work. Southborough and MA are on the same track – down. It will take a while to sink in. Maybe we’ll all be gone by then.

37 John Butler July 11, 2013 at 9:40 AM

The rhetoric on this topic has become unappealing, but, just so that rules of this process are understood by everyone, the decision about a split tax rate belongs solely to the Board of Selectmen. Annually a majority vote of the BOS determines whether there shall be a split rate and how much of a split, up to the limits set by statute. The decision is not bound by prior year’s decisions. References in this original story to sending the report to the Advisory Committee and, in later posts, to voter turn out at Town Meeting, suggest there might be some confusion on this point. By the terms of their charters neither Town Meeting nor Advisory Committee have a formal role in this.

38 C. Nicholas Ellis July 11, 2013 at 11:38 AM

To clarify, I was not referring to Town Meeting. I was referring to the Board of Selectman meeting that was attended by a fair number of residents to voice their concerns regarding a split tax rate – the people spilled out into the hallway because there wasn’t enough space in the meeting room (let alone enough seats). I expect this year will result in the same, hence my comment. Given the number of people who showed up to voice opposition to a split tax rate (versus, IIRC, no one showing up to voice support), it was ultimately voted down by the BoS – at least in part, I imagine, due to the overwhelming voices against it by the residents. I expect – and this is just my opinion – a similar result this year. That is not a statement of fact that “town policy cannot change,” as one person put it.

39 Carl Guyer July 12, 2013 at 7:43 AM

Here is an exercise anyone can do to see the difference a split tax rate can have on the residents of a town. I again use the Westborough/Burlington comparison because these towns offer the most stark difference in tax burden on residents with similar town demographic, The reason for the difference is clearly identifiable.

Here is what you do. Go to Zillows, the real estate web site, find two homes, one in Westborough and one in Burlington, with similar assessed values and then compare the annual tax bills.

Here is an actual example.

Westborough
Asking Price : $519,900
Assessed Value : $480,000
Annual Tax : $9,121

Burlington
Asking Price : $569,000
Assessed Value : $499,400
Annual Tax : $5,768

As a reminder, if Burlington were to have a tax single rate is would be $18.53, close to the Westborough rate of $19.15. That would account for $312 in the difference.

Let the single rate supporters propose why Burlington should abandon their split rate tax structure.

A similar comparison can be made between Southborough and Andover or Bedford since they are similar to Southborough.

40 Publius July 12, 2013 at 9:57 AM

A dual rate is an aweful idea. Remember commerical taxpayers are the small business owner that makes a communtity livable, The local mechanic, coffee shop, florist, computer technician, tailor and on and on.

41 Ummm... July 12, 2013 at 2:02 PM

Carl, why don’t you just move to Burlington? Seriously — no snark intended. Is it maybe because it’s not as apples-to-apples as you would have everyone believe?

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