PROPERTY TAXATION

Property taxation is taxation on ownership. It is favored by States in that it taxes something that is largely unmovable. Land, houses, cars, business inventory are all property that is susceptible to this type of taxation.


Rhode Island has made efforts to reduce these types of taxes, having reduced car taxes and inventory taxes, but it is still far too reliant on the property taxation mechanism to fund local government and education.


Suburban communities largely support their education through local property taxes. Urban areas, probably due to their strength in the Legislature, have an extraordinary large portion (if not all) paid for by the State through various other taxes, much of which is from residents of suburbia.


Urban centers argue that they provide some nebulous off-set to the people who live outside the city and therefore, they deserve this education money in that they are using their property tax base to fund the basic operation of the cities. Interesting argument but not so clear cut.


Cities are terrible in controlling a purse and as such, these education “subsidies” are really bandages for mismanagement of city government and its labor relations. The reason why property taxation hurts is that it is not properly applied.


As I have written in the past, much of the property tax burden should be shifted through a statewide education employee contract negotiated by the General Assembly before adjournment in election years. My proposals that were submitted in legislation in the 2007 session, would allow local taxation to be used for no more than 10% of the operational budget with a cost of living increased pegged to set rate.


Given the nature and make up of the Assembly, it died. Not even Mayor Cicillini, a supposed advocate of a statewide teacher contract to eliminate property taxes, came to testify. While he claims that he favors such a system, such talk is mere talk. He would never take a stand that would upset any chance of support from the teacher unions. Who is he kidding?


Property taxation to fund education is no longer a viable funding source. It can barely handle the payment for local government. The costs related to poorly negotiated contracts for public service, especially in their generous nature in retirement benefits and pensions, have created a nightmare by having delayed the cost of government. These local bodies have obligated the taxpaying base of the community to decades of future costs just because they preferred current placating of interests during their administrations.


But it is not all local blame. The General Assembly and its leadership are well versed in governmental buck passing. By the use of unfunded state mandates, the Assembly requires by law certain actions. The locals, forced to fund, increase the taxes. The State then says they want local property tax relief and that communities could re-negotiate contracts (knowing the most are not up for renegotiation and not giving the locals authority to force re-opening of such contracts). It is a somewhat sophisticated game of three card monte, little more.


As early as my first campaign for Governor in 1986 I advocated for the need to reform the property tax system. Then, it was an observation of an impending train wreck. Now, the train is approaching the stalled vehicle and there is little chance that anyone will escape unscathed. The sad part of my political efforts is that by not getting elected, the only option for me is to demonstrate how I had the foresight to govern, if only I had been given the chance.


Property taxation is an easy to implement tax that doesn’t require any heavy lifting by the elected officials. When imposing a tax increase, the locals simply throw up their hands and say that they are strapped by the Legislature. The Legislature can point fingers at the locals. Meanwhile, both are guilty of failing to address the basic foundation of the problem.


To minimize the property tax system requires real legislative leadership. If, for example, the education funding were the responsibility of the state, it would most likely be raised by income taxation. That said, the Legislature would be required to work much harder to make Rhode Island friendly for economic development. It would force the Legislature and the Governor to actually work for Rhode Islanders. It is often harder to light a candle than to complain about the darkness.


Property taxes discourage economic development, especially when the state must compete with other states that do not have such taxation. Why would a business person, acutely aware of expenses, locate a business in a place where it needed to pay a yearly tribute to the city or town in order to locate a business there? Business people do not get rich by being stupid.


Rhode Islanders want provincial governance and so they maintain 39 cities and towns in the smallest state. Okay, but if that is what you want, you must suffer the tradeoffs. This peculiarity of Rhode Islanders is an embracement of inefficiency, but it is arguable. But the enhancement of such an ineffective system of governance should not be tolerated. We know it denies us the ability to purchase everything from labor to toilet paper in bulk. We know it creates a multiplication of efforts in having 36 to 39 of everything. Fine, but why should this be allowed to grow?


Since the education budget impacts most communities the hardest, it needs to be addressed first in any effort to minimize property taxation. Local property tax caps, such as those passed by the General Assembly, need to be implemented without exception. These caps are traditionally put in place only to be exceeded by exception or exemption or court order related to a labor contract. Why bother with the caps if they are not mandatory in any significant manner? If the General Assembly were serious, it would have declared that any contract of the city or town that created a cap violation was void under law. It would make the cap meaningful, but that is not what the union lap-dog Legislature wanted to accomplish.


In future discussions of property taxation, I intend to demonstrate the need to address the education budget aside from local property taxes in a meaningful manner, I will also discuss the operation of a local budget that creates inefficient, albeit politically expedient, government, and I will look at how the state could allow more effective local government instead of encouraging wasteful spending.