Wednesday, December 01, 2010

PILOTs hit the Ceiling...

*Correction: In an article in the Republican on 12/5/10, the $1 million dollars used to facilitate Springfield's tax cut is described as coming from one of the city's savings accounts.


For those like us whose ears are bolted to the ground, the first shots in next year's mayoral election in Springfield have been fired in the last month or soa whole year ahead of Election Day.  The two most obvious candidates are incumbent Domenic Sarno and City Council President Jose Tosado.  While neither has formally announced their candidacies, AT LEAST those two are all, but certain to run.

Both men are in a position to broadcast and facilitate opinions and policy helpful to a mayoral bid.  Taxes are in vogue this year and they appear to be such for Sarno and Tosado.  Each has gone about a different way to get the attention of Springfield's otherwise lethargic electorate.  It's a good strategy, especially since some of the highest turnout is in the wards with the highest owner-occupied numbers.  If only their plans actually accomplished what they were promoted to do.

Sarno announced some weeks ago that the city's tax levy would actually fall by $4 million dollars.  Put another way, the city was taking in more money and at a faster pace than it expected when the budget was passed in June.  This is not uncommon.  In fact, it happened last year and part of the money went into bank.  Part of it went to expenses left out of the budget that started this past July.  Some of that money that went into the bank went into plugging holes in this year's budget.  So the mayor announces a $4 million dollar tax cut to shared among businesses and residents must mean we are on track to over-collect from our tax base by that much.  WRONG.

Mayor Sarno (campaign site)

Rumor has it that when the plan was explained at a recent city council meeting, the facts were not so simple.  Implied in the mayor's own words quoted in the Republican and more or less confirmed at the same meeting, only a million dollars of the plan is actually arising out of extra money.  The other $3 million is coming out of an unexpected calculation.  In June, the city expected property values to fall more than now projected.  In other words if the City Council passed tax rates projected in June, the city would collect another $3 million more than it needs.  In a way it is like the first million except the City Council would have to know under present disclosure laws that they were overtaxing property owners by $3 million.

The real question is whether or not the city could actually collect all $3 million.  Springfield may have already reached its Proposition 2 1/2 ceiling.  Most often we hear about the levy limit, which prohibits municipalities from raising more than an additional 2.5% in property tax revenue from the previous year excluding new growth.  The ceiling is the lesser known part of 2 1/2, which prohibits a community from collecting in net property taxes, more than 2.5% of the value of all taxable property.  If the city has hit that ceiling, Sarno has not choice, but to ask the council for a lower rate.


Some Councilors might be upset that the mayor put the city through this even after many rightfully put up a stink about rising taxes, particularly the business tax, back in June.  However, the mayor did deliver a fair reason: Question 3, which, had it passed would inevitably have found its way to local aid cuts.  Local aid makes up a substantial part of the city's non-school budget.  The mayor's proposal will create real tax cuts and the first cut in the levy since the 1980's, however, the results could be varied if some taxpayer's property has actually gone up in comparison to how much properties elsewhere have declined (as has happened in the years when the rate was cut in the past).  Still, Sarno should have delivered the Council the information it asked for when it sought to create additional budget cuts then to facilitate a tax cut.

Pres. Tosado w/ wife (Campaign site)

Tosado's proposal is more theoretical and, while valid, too, is largely toothless.  To be fair, Tosado is not really proposing anything, but analyzing an issue.  While Tosado can establish committees, he is no more powerful than any given councilor in making fiscal policy without the mayor's express consent.  So Tosado has established a committee that will investigate PILOT's or Payment in lieu of Taxes.  Springfield presently collects no PILOT's of any consequence.  Bay State Medical Center used to pay one, but their contribution was made during the city's darkest financial days five years ago.

As non-profits have become an increasingly important part of the Bay State's economy, they have also eaten up a larger part of communities' tax base, especially the cities.  While it is difficult to measure how or even whether these non-profits, particularly large institutions like hospitals and colleges, should contribute to their communities' budgets.  The short answer is yes, since they use city services, but the longer-term answer is maybe.  We'll save the merits of the issue for another time, however.

At the risk of being cynical, Tosado's goal is really the same as Sarno's--lessen the burden on property taxpayers.  Even more cynically, he wants the money to spend it.  However, Tosado could not impose PILOTs on non profits with or without the mayor's support.  It would require an act of the legislature and despite the efforts of others, Beacon Hill has been reluctant to allow such a revolutionary change in the tax code and non-profit laws.  The non-profits, particularly the largest ones like Harvard, Massachusetts General Hospital, and other hospitals and colleges in Greater Boston and Greater Worcester, will use their sway to keep it off the agenda (many legislators are alumni of these schools or friendly with these hospitals).  A home rule petition to this effect just for Springfield would never happen as it set a precedent the non-profits do not want to see.

Mayor Tom Menino of Boston (wikipedia)
Many non-profits do pay PILOTs in Massachusetts that, while far below what they would pay if taxed fully, are not small.  The only rough dollar figure WMassP&I can confirm is a $1,000,000+ PILOT Boston University pays to Boston.  However, Boston has far greater leverage than Springfield or most communities have for extracting PILOT's.  Mayor Tom Menino's Boston Redevelopment Authority must approve virtually any expansion or construction schools and colleges in Beantown want to develop.  That gives the mayor incredible leverage to get PILOT's from the schools.  Still, if a school has no plans the mayor can do nothing.

Springfield's institutions are nowhere near the same size as Boston's and none have expansion plans on par with their Boston counterparts, possibly Bay State excluded. However, Springfield's government is not setup to make those Menino power plays with the non-profits even if they have huge plans.  It may be possible to get Bay State to renew their PILOT, but the others may be much harder to wrangle.

So what do we have?  Two politicians promising, either implicitly or not, to lower your taxes.  What else is new?  But this is Taxachusetts!  I thought we were beyond such things?

Well, truth be told, both are right about taxes, but neither's plan on their own will appreciably solve the city's revenue problems.  Unlike the federal government, Springfield is not experiencing historic lows in tax rates or the yield from those rates.  Moreover, while some more could be safely trimmed from the city budget to offer some much needed tax relief, Springfield, like the feds, simply needs to collect more of its own revenue.  That can only be done with a boost to the tax base and neither Tosado nor Sarno have any effective long-term answers or engage in far-reaching possibilities that will grow the tax base to the degree the city needs.

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