Letter: The Case for Voting NO for a Split Tax Rate (Article #24 Annual Warrant)

by Beth Melo on April 2, 2014

[Ed note: My Southborough accepts signed letters to the editor submitted by Southborough residents. Letters may be emailed to mysouthborough@gmail.com.

This particular letter is in rebuttal to a previous post sharing resident Carl Guyer’s presentation asking residents to support a split tax rate.]

To the Editor:

At Town Meeting 16 & 17 April, residents will be asked to vote on a non-binding Article #24 in the Annual Warrant. The purpose of this Article is to influence Selectmen’s future vote for a Split Tax Rate for FY15. A vocal minority in Southborough has suggested that the Town should adopt a Split tax rate and tax business at a higher rate to reduce the tax burden on residential property owners. Part of the rationale for those who oppose the Town’s long-standing single tax rate is that increased business in Southborough will cause home values to decline. For a variety of reasons, we suggest that such an approach is misguided, shortsighted, and, in the long run, will undermine the character and financial well-being of Southborough.

First, a Split tax rate would put Southborough in the minority of Massachusetts municipalities and place our Town at an economic disadvantage. Of the 351 cities and towns in Massachusetts, more than two thirds (68%) have a single tax rate. Most of our neighboring communities have a single tax rate, including Westborough, Northborough, Hopkinton, Shrewsbury, Natick, Ashland, Holliston, Sherborn and Wayland. Area municipalities with a Split tax rate include Framingham, Auburn, Hudson, Marlborough and Worcester.

Second, adopting a split tax rate does not increase the gross tax revenues to the Town. It simply shifts the tax burden from one group to another.

Third, a split tax rate is detrimental to the short- and long-term financial stability of Southborough. Currently, business provides 19.35% (CIP – Commercial, Industrial and Personal) of Southborough’s total tax revenues. One of many benefits of growing our business tax base is that it will provide new taxes that will help to improve our core services, develop our infrastructure and help keep residential taxes manageable. In conjunction with fiscal prudence, the Town will create a sustainable model that encourages additional growth (with additional tax revenue) without the corresponding expenses that residential growth causes.

Fourth, property values are not driven by small variations in the proportion of a town’s commercial tax base relative to its residential tax base. Home values rise and fall as a result of many factors, including fluctuations in the financial and credit markets, interest rates, land values, location, the available housing stock, community quality of life and services, and most importantly, the quality of schools. Appropriately located business and commercial uses increase the desirability of a community.

Fifth, a Split tax rate asks our neighbors, friends and colleagues who provide jobs in our Town to bear a disproportionate share of the tax burden. Many of these jobs are held by other neighbors, friends and colleagues in Southborough. The business community in Southborough is a strong partner in the overall well-being of our community. Approximately 85% of the businesses located in Southborough are small. If a Spit tax rate is adopted, this would result in increased costs to our small businesses, making them less competitive and undermining their ability to prosper and to hire and retain employees. A Split tax rate also increases the risk that these businesses would leave Southborough altogether for a neighboring community with a single tax rate, such as Westborough or Northborough.

Julien Mininberg, President, Kaz, Inc. (125 employees) and John Beasley, Principal, Beals &Thomas (35 Employees) each indicated that they would “reconsider their leases in Southborough if a Split and unfair tax is implemented.”

The contributions our businesses and their employees make to our community are enormous. They provide critical jobs, products, and services that enhance Southborough’s quality of life. They provide leadership, make generous donations in money and time, help fund youth programs, and participate in our government by serving on key committees and boards. A healthy and engaged business community is crucial to our Town’s long-term sustainability. In a global economy, many of our businesses have a variety of options available about where to locate, invest and expand. While businesses may not vote at the ballot box, they will vote with their feet and take their goods / services, their employees and their property tax revenue to a more business-friendly environment. Many of their employees are residents of Southborough. If the employees of these businesses depart, there will be a critical loss of high quality jobs. It will also have a negative consequence on spending in our retail establishments and will negatively affect other companies within their particular industry cluster.

Finally, many communities with a Split tax rate have found that it undermines their ability to attract and retain businesses and causes higher taxes for residents in the long run. Framingham has one of the highest dual tax rates in the state. As a result, its businesses are leaving. In critical situations such as TJX, Framingham had to offer a Tax Incentive Financing Agreement to incentivize the company to keep at least one of its offices in town. Framingham’s residential property owners have been left to make up the shortfall. Since 2010, the residential tax rate in Framingham has increased 39% (from $12.83 to $17.84). During the same time period, Southborough’s single tax rate increased 17% ($14.06 to $16.54). Even with Framingham’s business tax rate more than double the residential rate, Framingham’s residential tax rate is still one of the highest in the state at $17.84 which is 8% percent higher than Southborough’s single tax rate of $16.54.

Similarly, in Worcester, Marlborough, Ayer, and Auburn, the Split tax rate has caused a high level of departures of existing business and turned many new businesses away to seek towns with a more favorable business climate and a single tax rate.

The Split tax rate has had a negative impact on tax collections, retaining and attracting business. In response, many of these communities are making progress to reduce the Split tax rate on business and in some cases return to a single tax rate.

From Governor Deval Patrick’s Office to many Boards of Selectmen across the Commonwealth, it is recognized that the business community is a vital partner in our towns and cities. They are a critical part of a team that enables our communities to grow, prosper, provide jobs, and give our families the resources to sustain our quality of life.

As we have for many years, and recently our Board of Selectmen, Dan Kolenda, John Rooney and Bill Boland, plus residents and businesses have supported the single tax rate in Southborough. Please join us in supporting the continuation of our single tax rate and vote No for the Split Tax Rate, Article #24 Annual Warrant.

Very truly yours,

Christopher Robbins
Southborough, Economic Development Team; Board of Directors, Corridor Nine Chamber of Commerce
chrisr2346@verizon.net

1 mike fuce April 2, 2014 at 9:15 AM

I don’t think you should post letters unless they are signed and the author is also on the letter on your blog. I agree with one tax rate but… Carl has some good points as well. This is important for this reason. I know Carl Guyers politics and world view and I would no subscribe to very much that Carl does. He does have some good ideas albeit limited. If for instance Mitt Romney had some ideas I would tend to agree with him more than Carl. Not that Carl is a bad guy because he is not and not to say Mitt is better than anyone else but the person’s politics and world view are generally known and it helps to know who they are. I always have signed my name to the demise of my name at times. I am ok with that and anyone that has the back bone to stand up and be counted should be as well. If not I think they should continue to keep to themselves. You never know, you may find more like minded folks on your issue if you state your name and have more backbone. You should always be proud to say who you are! Whatever side of the isle you may be on.

2 Carl Guyer April 2, 2014 at 9:35 AM

Please come to the Southborough Library on April 10th at 7:30 PM to see and hear a presentation of the demographics behind split rate implementations in Massachusetts and why Southborough should consider implementation of a split rate tax structure. I will address the specifics of the issues presented by the EDT concerning Framingham and Worcester. Come see why Westborough is a terrible example for the EDT to use for continuing with a single tax rate.

3 SB Resident April 2, 2014 at 10:08 AM

Mr Robbins, Thank you for taking the time to contribute to this issue, as a member of the economic development team, your opinion is certainly relevant. However, your arguments weren’t clear enough to convince me that the split rate isn’t the way to go.

Your first point isn’t that meaningful, more than 2/3’s of the cities and towns in ma don’t have the same commercial/residential ratio that we do, so it isn’t apples to apples. Your second point tends to highlight the entire point of the split tax rate and why I would support such a thing. The rest of the points just suggest in different ways that increasing taxes on businesses will obviously hurt those businesses and may force them to leave negating the desired effect. The million dollar question is, is that true? This is where I would like to see some data.

The data you do provide doesn’t really say much. Highlighting the woes of Framingham that occurred during the worst economic times since the great depression is a bit misleading to say the least, not to mention that quoting tax rates are rather irrelevant as well considering that home value declines during this recession have hit lower income towns harder than towns such as Southborough. More interesting data would be how the revenue ratio of residential/commercial changes as towns implement such a rate. What are the tax rates of the neighboring towns that our local businesses could switch to?

I keep up with the news from the Marlborough Economic Development Corporation. Marlborough who has a split tax rate is thriving. There are several construction projects going on at the moment and I have read about many new companies moving into Marlboro, I haven’t read anything about Southborough and notice the same old empty commercial properties remaining empty. Clearly I don’t want to create another disincentive for businesses to come to Southborough, but I’m not convinced that the tax rate is a reason for the difference.

4 Rami April 2, 2014 at 10:30 AM

Solid analysis, Sound arguments, Well laid out – I will be voting No.

5 Al Hamilton April 2, 2014 at 12:38 PM

This is one of many issues that should figure heavily in voters minds as the choose the next batch of selectmen/selectwomen. However, I am not in favor of the article as it is not a proper subject for town meeting. Like Rt 30, Town Meeting has no authority to make policy in this matter. So, we are going to spend a lot of time debating about something about which we have no authority to act on.

State Law leaves the decision on a split tax rate to the BOS. The proper place to have this debate, aside from informational meetings like Mr. Guyer proposes, is first at the ballot box and second before the BOS when they make the decision.

We have the unusual situation where a majority of the BOS are up for election this year. Candidates should make their positions clear on this very important issue so that voter can make a choice if this is an important factor in their decision. If the past is any guide, far more people will participate in our election than will be in attendance at Town Meeting.

We should not be clogging up town meeting with “symbolic gestures” that are not within the bodies scope of responsibilities. We have enough problems with a quorum.

For the record I am very skeptical that a split rate is a good idea for many of the reasons that Mr. Robbins has suggested and on the grounds of basic fairness and fiscal discipline. I would be happy to debate the other contenders for office on this subject. It is an important topic.

6 Rob April 2, 2014 at 2:13 PM

Al,
Please let me know your position on why the empty commercial spaces haven’t been occupied on RT9…. in what seems like years?? Our rates are already competitive. Please don’t cite the Great recession… If the current structure is better for attracting business’…. What is happening that no one wants to move into these spaces? Maybe trying to keep the tax rate low for business’ to come in just won’t be enough incentive to move the needle, and is distracting us from bigger problems as to why this is happening. Possibly, like how we lost EMC to Westborough on concerns about our infrastructure. I think it is pretty clear our town is a residential town first, and shouldn’t try to cater too much to a few small businesses. It should focus on its residential property owners who are being crushed in taxes already. Around 80% of town revs, I believe, are from property taxes. Lets cater to them. With all due respect to the Economic Development Team. We just might not have the ability to attract enough business to lower residential taxes period. Some cutting is badly needed in other town budget areas in order for this to happen.

Also, for the record. I will be voting for you despite our differences of opinion, because I believe you will do a great job and always have the towns interests in mind.
Thank you!

7 Neil Rossen April 3, 2014 at 6:58 AM

I routinely complain about our taxes, but this is not a good way to address the issue. It simply shifts the burden of excessive spending to another party that provides jobs. Consider the politics of towns with split tax rates, and the influence of unions on those towns. I’m not sure that is what we need for Southborough. I agree with Al Hamilton’s position on the matter.

8 SB Resident April 3, 2014 at 10:49 AM

From an economic standpoint, most of the shift isn’t to these “job creators”. The tax increase will be passed on to their consumers. This results in our town bringing in revenue from the outside, which is obviously a very desirable way to generate revenue. A debatable argument is that we ‘deserve it’ as a result of having to live with the costs of living in a town with a high commercial/industrial percentage that has major highways running through it. The risks are if the tax increase makes their prices less competitive in the market thus putting them out of business or forcing them to move to a competing town that has lower tax rates, which would of course then lower our revenues. Our town is a business and it should be attempting to maximize it’s revenue.

I don’t think any of us have the data to know whether or not we are in a position to raise the tax or not, but my instinct tells me we could particularly since marlboro’s rate is about 1.75x our current rate and they are currently growing very successfully.

9 Al Hamilton April 3, 2014 at 1:11 PM

The “They will just pass the cost on to their customers” argument belies the reality of competing in a global economy. Frankly, most customers do not care about what it costs a producer to make their products. They care about Price, Terms, Quality, Delivery, Specification.

Take the example of a Large Printing facility with millions invested in printing equipment and a property tax bill that comes with that investment. They might be competing with companies in Texas, China, Mexico, and NH. No company is going to say “It’s ok if you charge us a little more than the others because your property taxes just went up” The grim reality is that the printers property taxes are his/her problem not his or her customers. In a competitive economy the vast majority of this tax comes out of the business owners pocket because the business owner is a price taker not a price setter.

Massachusetts is in the middle of the pack for US states when it comes to business tax burden but our other costs are high (labor, housing, energy, facilities, health care). There is a reason why we are relatively low growth state and why mature businesses do not expand here. In order to maintain Mass as a good place to live we need a vibrant business economy to underpin our standard of living. We should resist the path of a “death by 1000 cuts” that will return us to the bad old days of Taxachusetts.

The sums under question are not vast but neither are they small. If businesses don’t like it they can move as can residents. The population that has the most at risk is our public employees. They will be relying on Southborough being a wealthy community with a strong business base 30 and 50 years from now in order to pay for the benefits they have earned but we have not funded. (Now that is a real topic for discussion)

10 SB Resident April 3, 2014 at 3:09 PM

To be fair I tried addressing what you are saying in my risks statement. I didn’t want to get to deep into economic theory. There are whole books written on this stuff. The reality is we are both right and the effect depends on the individual business/product and the burden is a shared one in all cases. Personally I think you just aren’t being greedy enough.

11 Tim Martel April 4, 2014 at 9:07 AM

If we adopt a split tax rate, and the business tax rate is still lower than the tax rates of surrounding communities – do we not retain a competitive advantage while relieving the tax burden on homeowners?

I don’t believe that a single tax rate (in itself) makes the town significantly more desirable for large businesses to choose to come here. I think only a tax break deal from the town can accomplish that.

I’d like to a breakdown of impact on: homeowner vs. small business vs. large business for different tax options, and how the town benefits long-term from each option.

12 Carl Guyer April 3, 2014 at 5:35 PM

I don’t know how many will read this posting, but I would strongly suggest you come to my presentation at the library on Thursday 4/10. Split rate tax implementations are very context sensitive. Much of what is believed about the benefits of Commercial and Industrial development in the context of tax rates and home values is not substantiated by the data from the Mass DOR. Whether you like it or not, Southborough is in the elite housing market. Data from the DOR speaks strongly about the effect of Industrial and Commercial property in the “elite” markets. Our current position is not good.

13 David Parry April 4, 2014 at 12:50 AM

I will go to hear Carl Guyer at the Southborough Library, on April 10th at 7:30 PM, to see his presentation of the demographics behind split rate tax implementations in MA, and his own arguments as to why Southborough should consider a split rate tax. He says that he will address the specifics of the issues. I am sure the Economic Development team will be there to debate him. So it should be a genuinely interesting debate format,.(unlike Town Meeting which frequently turns into a “first-to-the-microphone” game, which causes loss of chain of thought).

I am willing to listen, but it will take some serious new data to convince me that we should change from being in the majority of towns with our single rate, (68%), and when we are surrounded by similar towns with the same tax structure. Marlborough may be doing OK with a split rate, but they have a phenomenal business location off 495 and 290, with 4 interchanges, and even with that huge advantage in place, they are still having to offer massive tax rebates for years to aggressively attract new business to the City.

Thus restating my initial position, that I doubt that a split tax rate is in the best interest of the Town, I nevertheless recommend that people attend and listen to the two points of view on this topic. After listening to the debate, I will announce my final position on the topic.

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