December 4, 2016

Randell: Worcester, we have a spending problem

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Worcester City Hall

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I had a chance to review the Mayor’s Tax Policy Committee Report and, before I get into my reactions, I wanted to take a moment to thank all the people who participated.

Bill Randell

Bill Randell

Many years ago I was on a task force for then-Mayor Tim Murray on payments in lieu of taxes (PILOT), and I know how much time these people spend on these reports.

But enough with the pleasantries.

The first thing that jumped out at me was this particular line:

Our cities do not have a spending problem, but rather a revenue problem. … In short, we are no longer cutting the fat out of government, but we are cutting into the bone.

There is nothing to cut in the city of Worcester? How about the divesting in these nonessential businesses that cost us millions of dollars per year to operate:

  • Convention center
  • Golf courses
  • Train station
  • Parking garages

Not to mention the $20 million to $25 million that we are going to need to invest in skybridges, driving ranges, fixing water leaks, and technology and infrastructure upgrades. Don’t get me wrong, I think dog parks and mounted horses for the police would be nice, but I would consider these expenses as “fat.”

So, that line I quoted above made me a little skeptical about what I was about to read, but it turns out there are a couple really interesting things in this report.

GOOD

Revisit state PILOT payments: Under this plan, the commonwealth provides payments to municipalities based on the assessed value of state-owned, tax-exempt land. And given how that land is being valued, it is certainly time to rethink this program. Take a look at how these property values — not calculated by our city assessor, but by the state — have plummeted:

PROPERTY FY05 FY09 FY13
Blackstone River Park 373,500 192,300 110,400
Regatta State Park 5,020,700 2,415,700 2,458,000
UMass Med School 25,529,000 19,805,200 7,188,200
DYS 7,361,100 5,728,600 1,918,900
Worcester State University 4,720,000 1,297,100 2,009,000
Worcester State Hospital 28,745,500 21,229,900 7,641,300
TOTAL 71,749,800 50,668,800 21,325,800

The values have dropped more than $50 million dollars since 2005. How is that possible?

Capitalizing on New Growth: Currently, new growth from new buildings, renovations and redevelopments is added to the annual 2.5 percent increase to the tax levy, which expands the budget and hikes our taxes.The city could instead use new growth revenue to instead decrease the tax rate on all owners.

This is a really good one. Let’s hope the City Council finds a way to make this work. Unlike many of the other recommendations in the report, we do not need a change in Massachusetts General Laws to enact this. The council could do this right away and provide relief to all taxpayers!

Imagine that? Quick, decisive action and tax relief.

Consolidation: This makes too much sense. We basically have two municipal companies being run in Worcester, one headquartered at City Hall for the nonschool employees and the other on Irving Street for school employees. Each has many of the same departments: human resources and purchasing, for example.

Chapter 70 Funding Reform: This one is very interesting, but outside anything the City Council can change.

Tax Relief Programs: The report states, “Under current law, the City has the ability to offer various tax abatements to limit the tax burden on certain individuals or classes.” There are currently four: a residential tax exemption, a small commercial exception, a senior tax work off, and a veterans tax exemption. All of these make sense.

NONPROFITS

Worcester Real Estate Investment Trust: This would target, among others, the endowments of the colleges to invest in a REIT that would “promote growth in the downtown, build on the quality of life in our neighborhoods [and] provide opportunities for new jobs …”

At first, this sounded really interesting, but I really do not hear many people complaining about not having access to capital when investing in Worcester. Keep in mind the people who run these higher-education endowments have a responsibility to enable a significant return on these funds and won’t be lending money for free.

On the other hand, I do hear people complain all the time about commercial assessed values/taxes and fees to develop in the city of Worcester. To that end, it would have seen a Philly Plan versus a Worcester REIT, which we did for the Hanover Theatre, that targets underutilized commercial properties with:

  • Locked-in assessed values for 10 years
  • Waived all permitting and water/sewer connection fees

Expand the PILOT: I think we would all want this and probably did not need a task force to recommend it. The question is how do we make it happen? The amounts the city receives are much lower than I expected.

Maybe Tim Murray, now the head of the Worcester Regional Chamber of Commerce, should reconvene our task force from a decade ago.

NOT GOOD

Move Multi-Unit Housing from Residential to Commercial Tax Rate: This is one of those ideas that sounds good at first — to target buildings with five or more units and hit them with a commercial tax rate. Not only would you need to get approval from Beacon Hill, but even if you did — which you will not — what happens when the owner of that five-unit building turns them into individual condos to get back to the residential rate?

Chapter 40B Housing Exchange: This has no chance of receiving state-level support. The whole purpose of 40B is to get affordable housing; this exchange would in essence allow rich communities to buy their way out of it without having any affordable housing.

Let’s assume for a second it were to get approved and Worcester was able to trade the 2,553 units that exceed the 10 percent threshold (as required under 40B). What do you think our current developers of affordable housing in Worcester would do?

They would keep building more affordable units in Worcester under the premise it is a “good deal” for the city of Worcester and we will have even more affordable units in the city, the last thing we need if the end result is a disincentive to build market-rate housing. This would further cripple our tax base where there already is no market for houses over $400,000.

Any added fees (gas tax, sales tax, car rental tax): If you were to buy the premise that the current budget is down to the bone, then I would consider additional fees and taxes. Since I believe there is still fat to be cut, I cannot support any additional fees or taxes.

LOCAL RECEIPTS

This has nothing to do with the task force, but it is important. There are two major revenue numbers in the FY17 budget:

  • Property tax levy
  • Local Receipts

In FY16, there was $40,750,100 budgeted for Local Receipts. At a recent City Council meeting, the city auditor reported that revenues outpaced estimates by $5,400,000. In particular, check out:

  • Motor Vehicle receipts exceeded estimates by $2,100,000
  • License and Permit receipts exceeded estimates by $1,100,00

In FY17, the same number ($39,649,500) was budgeted for Local Receipts. If the estimates for FY16 are coming in higher than we expected, should we not increase the estimate for FY17?  This is very important because, if we were to increase the estimate for FY17 by $3 million, we would be able to reduce the tax levy by that amount — just like we did earlier this year with North High — and provide immediate relief for all taxpayers.

Again, I want to thank the members of the task force for their time. We all owe it to them to discuss these results. In the short run, I hope to see City Council discuss capitalizing on new growth recommendations and to review the Local Receipts recommendation in the FY17 budget.

Bill Randell started and operates the local news website Worcester Herald, and is the owner and author of FlyORH, a website dedicated to Worcester Airport. He is also president and founder of Worcester-based businesses Advantage Benefits and ABG Real Estate.

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