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Supplemental taxes loom for this year

February 27, 2013

WOONSOCKET – The Budget Commission unanimously approved a draft bill for state lawmakers Tuesday that would raise about $2.5 million in supplemental taxes drawn from two sources: single-family homes, including condos, and motor vehicles.
If the legislature goes along with the plan, $2 million would be raised by reducing the homestead exemption from 39 percent to about 29.9 percent, an adjustment that translates into a $437 supplemental tax bill on the average home, according to Tax Assessor Christopher Celeste.
The other $500,000 would come from a one-time tax on motor vehicles equivalent to roughly 6.2 percent of the tax bill vehicle owners received in July. The bill will come with a special rate that will be about $3, Celeste said.
The plan is to get state lawmakers to pass the enabling legislation by May 15, allowing the city to send out tax bills soon thereafter and begin collecting supplemental revenue in time to apply it to the current fiscal year, according to Finance Director Thomas M. Bruce III.
After the new fiscal year begins, on July 1, city officials say the homestead exemption will probably stay the same or shrink even more. Tax rates on motor vehicles, however, will revert to the normal $46.58 per thousand, which is fixed under a 1998 state statute. But all the revenue raised from both sources would become a permanent part of a new tax base, from which the commission envisions drawing an additional four percent in new taxes each year through 2017.
As recently as last week, members of the Budget Commission had been floating a plan to raise all $2.5 million of the supplemental tax by reducing the homestead exemption to 27.5 percent. But Mayor Leo T. Fontaine argued that a more equitable approach would be to capture at least a portion of it from residents who may own motor vehicles but not real estate, particularly those who live in public housing, which isn’t taxed very much.
“Obviously it’s not a pleasant situation that we find ourselves in...We don’t even like to speak of a supplemental,” said Fontaine, a member of the commission. “Everybody knew we have a difficult situation and they want to make sure everyone’s contributing fairly.”
By design, the supplemental spares commercial property in order to begin rectifying a lopsided tax structure that unfairly favors residential property, according to Commissioner Peder Schaefer. The city’s residential tax rates are comparatively lower than peer communities, while its commercial rate is higher than any other community in the state, $38.27 per thousand.
“We as state fiduciaries have to look at comparability between communities,” said Schaefer, the associate director of the Rhode Island League of Cities and Towns. “Everybody needs to understand that.”
The draft legislation also includes a provision to buffer the effects on the elderly by beefing up the existing real estate exemption for senior citizens. Under the new law, residents who are 65 years old, who have lived in the city at least five years and earn no more than $30,000 would qualify. The exemption would exclude $12,000 from the base value of their home, which translates into a savings of about $387.
Commissioner John Ward, president of the City Council, introduced the measure, which still requires approval of that panel. The guidelines are comparable to those used by the state to calculate other exemptions for seniors.
“Whatever the state deems appropriate for property tax relief ought to be appropriate for the city of Woonsocket,” he said.
In a separate 5-0 vote yesterday, the commission also approved a draft of another bill the panel wants from the legislature to restructure the payment schedule on the unfunded liability of the public safety pension system. State law currently mandates the payback take place by 2017, but with an unfunded liability of $42 million, that would require an allotment of $10.4 million a year.
The commission envisions stretching out the payback schedule, also known as the amortization rate, over 16 years, which would reduce the annual liability to about $3.5 million a year. That also assumes the suspension of 3 percent annual cost of living adjustments for beneficiaries, another proposal the commission officially rolled out during an informational briefing at Woonsocket High School earlier this week.
“The city is already putting in a million, so it’s another $2.5 million a year, which is something I think is very manageable,” Bruce said.
The assets of the pension fund were generated by investors who bought $90 million worth of bonds, issued in a 2002 voter referendum. Some have questioned whether it’s legal to change the amortization rate without another referendum, but lawyer Normand Benoit, the city’s bond counsel, told commissioners yesterday he doesn’t see a problem.
When residents voted in favor of the bond, he said, they pledged the city’s faith to honor the debt, but they didn’t approve every detail of how the debt is structured, Benoit said. Lawmakers did that, and they can change the terms if they want to.
Likewise, Benoit said, the investors who bought the bonds should be happier knowing that the debt has been restructured in a way that lessens their risk, and beneficiaries don’t have any more grounds to complain than they do now.
“The fact of the matter is the city has been out of compliance for some time,” Benoit said. “Anybody can sue anybody for anything. In my view I don’t see how they can prevail on that.”
Benoit said he would have drafts of both bills prepared within a day or two, allowing them to be introduced into the General Assembly. The only lawmaker from the city who attended the meeting was State Sen. Marc Cote (D-Dist. 24), who said later he would support the commission’s legislative requests – sort of.
“It’s not for me to impose my judgment on their judgment,” Cote said.
Cote, however, suggested that the legislative delegation might approve the bills, but decline to forward them to the governor unless the other major pieces of the commission’s budget-balancing plan fall into place. Such a maneuver, he suggested, might enhanced the city’s bargaining power as it negotiates concessions with unions, retirees and other facets of the five-year solvency plan. It’s all designed to wipe out a deficit on track to reach $23 million by the end of the fiscal year, including pension obligations and health care obligations to retirees.
“This is a package and it has to be a package,” he said. “We’re talking to retirees and local bargaining units. All those elements have to be in place.”
City officials concur that if any one element of the plan falls apart, including the supplemental tax, the city will likely move toward the most aggressive form of state oversight available under the Fiscal Stability Act.
“I would venture to say we’ll end up in receivership,” said Mayor Fontaine.

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