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Woonsocket Budget Commission may favor chopping homestead exemption

February 19, 2013

Woonsocket City Council President John Ward

WOONSOCKET — Given several options for raising $2.5 million in supplemental taxes, the Budget Commission appears to be leaning toward in favor of one that would place the burden squarely on owners of single-family homes and condos.
The supplemental tax increase would be raised by cutting the homestead exemption from 39 percent to 27.6 percent, and sparing all other property classes, including commercial property, motor vehicles and business equipment.
The shrunken exemption would be permanently lodged in the tax base, representing an additional $547 in new taxes for single family homeowners before the end of the fiscal year, an increase of nearly 19 percent over 2012 tax bills. That wouldn’t include the normal increase in taxes of 4 percent, the maximum allowed by law, that the city envisions raising for each of the next five years to avoid a staggering deficit forecast to top out at some $96 million by 2017.
“I know a lot of people would be shocked by the bill, as I would be,” remarked Commissioner John F. Ward, president of the City Council. “It’s going to be a quicker way of getting where we need to go. It’s going to be painful.”
The theory behind the proposal is that Woonsocket’s tax structure has morphed into a system that protects residential properties owners at the expense of commercial properties, which now pay higher taxes here than anywhere else in the state – $38.75 per thousand dollars of assessed value.
“We’re not doing our job if we say these commercial rates should go up an equivalent amount as single-family homes because they’re already so high,” said Commissioner Peder Schaefer, the deputy director of the Rhode Island League of Cities and Towns. “The equitable thing to do is take care of this now rather than over a long period of years.”
Schaefer said Woonsocket’s residential property rates are about 20 percent lower, and commercial rates up to 28 percent higher, than those of Pawtucket, a city with virtually the same income demographics and property values.
While there appeared to be a general consensus among commissioners on what’s come to be known as “Proposal B,” Mayor Leo T. Fontaine, also a member of the state-appointed commission, is pushing for an amendment to draw at least a portion of the supplemental taxes from motor vehicles.
Fontaine said it’s unfair for single-family homeowners to pick up the entire cost when occupants of rental property, including a good deal of subsidized housing, pay nothing in property taxes.
“Sometimes their vehicles are nicer than the ones you and I drive,” the mayor said. “The least we can do is make it as fair as possible. Individuals who don’t contribute in other ways could at least be part of the process by including this provision.”
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One hitch if a portion of the supplemental gets shifted to motor vehicles: That portion of the revenue stream would vanish after a year because the motor vehicle tax rate is already fixed at $46.59 per thousand under a 1998 state law. The city would have to return to the drawing board in 2014 to find yet another way to fill the gap.
The plan designed around cuts in the homestead exemption was one of five methods for raising supplemental tax revenues that were presented to the commission Tuesday by Tax Assessor Christopher Celeste. But only two were accompanied by prepared copies of draft legislation that were ready to be handed off to state lawmakers.
The other – Proposal A – called for shifting the burden across residential real estate and motor vehicle with all existing exemptions in place. As a result, the average single-family tax bill would increase about $183, or about 6.3 percent.
Technically, the legislation is to be forwarded to state lawmakers through the state Department of Revenue. Suzanne Greschner, director of DOR’s division of municipal finance, told commissioners she’d like to get moving as soon as possible, but the panel must endorse one measure or another before she can do so.
“I think we need agreement from the budget commission,” she told the panel. “You’ve got two proposals. We can only forward a bill if the commission is in agreement with one of these two proposals or a third one.”
None of the other plans were discussed at all during yesterday’s meeting in Harris Hall, but they included proposals to spread the tax hike across all classes of property, with and without existing exemptions, as well as a fifth option of streamlining the tax rate for all classes of property while eliminating all exemptions, including those for veterans and senior citizens.
If the supplemental were applied evenly to all classes of property at the same rate with existing exemptions in place, commercial ratepayers would face an additional $1,087 in new taxes, single-family homeowners about $132.
Chairman William Sequino called a special, limited-agenda meeting of the commission for 2 p.m. next Tuesday to iron out the specifics of a legislative proposal. The panel is expected to vote that afternoon on a draft bill to be forwarded to state lawmakers. A similar request for a 13 percent supplemental tax bill, put forth by a divided City Council in 2012, was rejected by state lawmakers, led by State Rep. Lisa Baldelli Hunt (D-Dist. 49, Woonsocket).
The supplemental tax bill is just one facet of a multi-pronged, five-year plan the commission has embraced to make up the city’s massive deficits. It also includes millions of dollars’ worth of contractual concessions from union employees, restructuring the unfunded liability in the police and firefighters’ pension system, elimination of cost of living adjustments for pensioners, shifting all retirees from Blue Cross to Medicare when they turn 65, and other items.

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