Thursday, April 19, 2007
Springfield's Destructive Taxrate
Continuing to go through some old stuff, I came across this essay I wrote years ago. Tragically, it is still as relevant today. The truth is, any long term plan for Springfield's fiscal recovery has got to come to grips with the city's self-destructive taxrate. Here's what I said back then, and which still needs to be said today.
You have to go back to the administration of Theodore Dimauro to find a competent mayor of Springfield who was capable of making decisions with some degree of wisdom - or at least common sense. That is why it pains me to point out that it was Dimauro, in an uncharacteristic lapse of judgement, who made (or was pressured into making) one of the most damaging decisions contributing to the decline of Springfield.
That disastrous decision was to create a two-tiered tax system which forced the business community to be taxed at a much higher rate than the city's homeowners. At the time the phony "Massachusetts Miracle" was in full swing with Downtown Springfield supposedly undergoing a 'revitalization' although it was considered impolite at the time to notice that this revitalization was almost totally dependent upon taxpayer subsidies.
In any case, the value of Downtown real estate was being artificially inflated due to all the spending of public money, so shifting (or should I say shafting) the tax burden to the business community was said to make sense, at least to greedy politicians and special interest groups. The resulting two-tiered system, with a high tax rate for businesses and an artificially low one for homeowners, had the dangerous effect of misleading the public about the true cost of government. The high taxes that might have alarmed and alerted the homeowners to the soaring levels of government spending was thereby disguised by putting a greater burden on the business community.
For example, in the December 23, 1998 edition of the Union-News Mayor Albano admitted that in 1993 out of a two million dollar increase in government spending, the business community was forced to pay all but $100,000 dollars of it. In his State of the City address of January 16, 2001, Albano conceded that, "In 1994, Springfield had the highest commercial and industrial tax rate in the entire Commonwealth of Massachusetts." That kind of ruthless fiscal assault on the business community was temporarily sustainable for as long as the economy was healthy, because thriving businesses could, at least for the moment, afford the higher tax rate.
However, once the debt fueled fraud of the Massachusetts Miracle collapsed beneath the weight of its own excesses, the two-tiered tax rate acted as a destructive vice squeezing the business community to the point that it forced businesses to move out of the city or shut down completely. With the economy in a downward spiral, few new businesses were being created, so every time a business vanished in the recession, all of the remaining businesses were forced to assume a greater share of the tax burden. This phenomenon was further exacerbated by the fact that many of the grand projects of the taxpayer subsidized revitalization, like Monarch Place or the Bank of New England Building, had special tax deferments that placed an extra burden on those older businesses whose existence predated the revitalization.
The result was a nightmarish situation where the failure or departure of any business placed increased pressure on every business that remained, helping to push them in the direction of also moving out or closing down. None of this was helped by the city's policy, even during the depths of the Dukakis Depression, of always raising taxes by the maximum amount permissible under Proposition 2 1/2.
Even worse was a series of very controversial property value evaluations that increased the assessed value of resident's property for taxation purposes at the same time that the market values of homes and businesses were falling. (Yet some politically connected property owners, such as Mass Mutual and the Springfield Newspapers, mysteriously found their property values declining). Homeowners and businesses were outraged to realize that they were paying taxes on their property based upon estimated values that were laughable in the real market.
For example, if a homeowner had their house appraised at $100,000 for taxation purposes, but then tried to sell their home for that price, they might well find it impossible to get a real-life offer of $75,000. There was the widespread perception that the city government, despite the depths of the economic downturn, was essentially looting the middle-class homeowner and the business community in order to artificially preserve the high-flying, big spending culture of the 80's enjoyed by Springfield's political elite. The result was a wave of public outrage, the likes of which I haven't seen since. I'll never forget the near mob scene that erupted at a City Council meeting in the Spring of 1992. I described it at the time in The Baystate Objectivist as follows:
"The tone of the evening was set from the moment Mark H. Stevens, a key organizer of the tax protesters, stepped up to the podium and declared, "This city is on the verge of collapse!" As it turned out, that was actually one of the more cheerful remarks made to the Council as speaker after speaker rose to denounce the Councilors in harsher and harsher terms. Finally one woman, her voice rising almost to a scream, cried out to the Council, "If anyone wants to buy my house for what the city says it's worth, I'll sell it right now and move out of this corrupt city!" All that was needed to complete the evening was for someone to arrive with a guillotine."
The city government's ignorance and arrogance in refusing to address this righteous anger had the following results: First, there was the highest amount of unpaid taxes that year in the city's history (higher even than during the Great Depression). Second, many of those outraged taxpayers voted with their feet, leaving the city in droves and causing Springfield to finish number seven in BusinessWeek's 1993 list of the top 10 cities in the nation whose residents were moving out. Lastly, the sudden mass exodus caused a wave of empty and abandoned buildings, resulting in citywide blight.
The city's so-called leaders at the time, many of whom remain in important positions to this day, not only were never held accountable by the public, but refused to even acknowledge their mistakes. Hopefully, someday the city will see to it that justice is done by equalizing the rates of businesses and homeowners. Of course that may send the homeowners into a rage as they realize what their city government really costs them, but that will be a useful insight that the voters would hopefully express their opinions about at the polls - by throwing out the looting politicians and replacing them with fiscally responsible Republicans and Libertarians.