Dear Michael [Wise]:
I’m writing you an open letter to applaud you publicly for not being afraid to think “outside of the box” about Great Barrington’s tax situation, but also to take issue with the policy conclusions that you draw from your numerical analysis.
As you probably know, I’m a bit of a spreadsheet geek myself, but in this case I want to rely on simple logic to convince you to disavow your proposals [to read Michael Wise’s proposal for a residential tax exemption, click here. ] to apply a higher tax rate to second homes and more expensive homes, and to commercial and industrial properties.
Let’s start by agreeing that retaining and broadening our tax base is a good thing. Great Barrington has a big budget to finance each year, and the larger the base of taxable property, the less burden there is on each taxpayer. Moreover, expensive residential properties and second homes tend to be much more “profitable” for the town than average, because they generally don’t cause the town to incur expenses any higher than those for an average property, and often less.
A thriving business community brings benefits beyond property taxes: employment opportunities and – for certain kinds of service businesses – additional income to the town in the form of occupancy and meals taxes.
You acknowledge in your analysis that you don’t want to “drive away business and jobs” and that the residential exemption would “make the town less attractive for expensive second homes,” but you seem to believe that by making fairly modest increases in the taxes paid by businesses and expensive and second homes (ALL second homes would be impacted, not just expensive ones), any negative effects on our tax base would be minimal.
I strongly disagree. Markets often over-react to price signals. What prospective employers and well-heeled residential buyers will see is a signal that Great Barrington – alone in the Berkshires – is discriminating against businesses and more expensive residential properties. If you doubt that, I suggest that some conversations with local real estate agents and local business people would be instructive.
Assessed value in Massachusetts is based on market value. Currently, the total assessed value of all residential properties in Great Barrington is $1.1 billion, and 44 percent of that total (and, therefore, 44 percent of all residential taxes collected) comes from properties valued at $450,000 and up, all of which would be negatively impacted by your proposal. Considering that there are probably a fairly sizable number of second homes assessed under $450,000, and that all of them would also be impacted, it’s reasonable to assume that at least half of the residential tax base would be penalized by your proposal.
Let’s further assume that the tax discrimination against these properties would cause their values to decrease by an average of 10 percent. That means that next year’s projected tax rate of $14.33 per thousand would have to increase by 5 percent, or about 70 cents, to keep the town’s tax revenue the same. That would depress high-end and second home valuations further, particularly since the increases would be higher than 70 cents for those categories under a residential exemption regime, and everyone’s tax rate would have to be increased again to compensate for the loss of tax base. See? It’s a slippery slope.
Now, I know that one might argue that the residential exemption cuts both ways, and that it would increase the taxable value of more modestly valued properties. Really? That’s probably true, but having those homeowners pay higher taxes wasn’t the intention of your proposal.
Beyond the likely consequence of degrading our town’s tax base, the enactment of your proposal would – in my opinion – degrade the civic spirit of our town by unwittingly emphasizing class distinctions among neighbors and fostering class resentment.
There is a serious flaw in your working assumption that property values are a reliable measure of income, but your proposal to make property taxes progressive only works fairly if property values and personal income are in sync. You are aware of this problem, writing that “for taxpayers living in expensive homes on low incomes, the residential exemption creates a problem. For some, the mismatch is a signal that they should move. For seniors on reduced, fixed incomes trying to stay in their homes, though, that looks unfair.” Also, you acknowledge that renters, who tend to be less affluent than homeowners, may be hurt: “Because rental properties cannot take the exemption, landlords might try to pass through their higher tax payments to apartment dwellers, so rents might increase.”
There are currently 619 residential properties in Great Barrington assessed at $450,000 or greater, and it would not be unreasonable to assume that maybe 200 of them would have a mismatch between value and income. Add in the renters, and there might be 400 or more families that would feel victimized by the unfair consequences of the enactment of your proposal.
I believe that you have been forthright in acknowledging that these unfairness problems must be addressed, but too cavalier in implicitly assuming that they can be addressed effectively. The tax relief programs that you cite are already being used by a number of our citizens, and they are for only modest amounts. Your suggestion to establish a “voluntary local fund” to help low income people pay the higher taxes should be read as confirmation that your proposal would be bad public policy. After all, if a tax change hurts people that it’s supposed to help, and that effect needs to be offset by ongoing annual private donations, why would the town make that tax change in the first place?
The uniform residential tax rate that is the overwhelming practice in Massachusetts and the unanimous practice among Berkshire towns is perceived as being inherently fair. If my neighbor resides in a house twice as valuable as mine, he pays twice the property taxes that I do. But if we shift to a residential exemption, fairness issues will immediately come to the fore and will not go away. And there is no going back once we take that step and then have regrets about having done so. As you note, “Although most taxpayers would benefit from the residential exemption, if the town decided later to stop using it those beneficiaries would then face an unpleasant tax increase. Perhaps because that after-shock would be unacceptable, only one town has adopted the residential exemption and then dropped it later.”
Michael, I’m asking you to reconsider your proposal and disavow it. I understand that’s highly presumptuous of me, but it would spare the town a rancorous debate. If, upon further reflection, you still believe that your proposal should be adopted, then let’s have the debate and appeal jointly to our neighbors for civility.
Respectfully,
Chip Elitzer
39 Alford Rd.
Great Barrington
