August 20, 2010
You're All Missing the Point on Central Falls
I don't know if it's a Rhode Island municipality v. municipality thing or massive frustration with the insider v. outsider structure of our civic culture, in this state, but the commenters to my Central Falls post are marching all around the point. Patrick writes:
... I understand the point that you're making, but I think it's quite a leap to think that Cumberland, Lincoln, Coventry, North Kingstown is going to receivership anytime soon. If a city goes into receivership, it means it has been so badly managed that this is what it deserves. Clearly the voters don't want good representation, they don't know what's good for them.
This is true under normal circumstances, but the trampling on principle that the General Assembly has done in Central Falls is at least somewhat likely to start wheels turning in different directions. That brings us to commenter riborn:
You are missing the first costly misstep that was taken down this path Central Falls now finds itself on - the filing of the receivership. At some point the question has to be asked why receivership in the state court and not bankruptcy in the federal court. The estimated fees of Savage and Larisa may shed light on that decision. Do you have any inkling of the fees they would have reaped had they terminated union contracts and battled it out in state court? Do you think either of them cared if they won or lost that battle? It's about the money - nine lawyers and five staffers, and a firm spokesperson, all being paid by those CF taxpayers you are so concerned with now. In receivership Savage and Larisa would get paid whether they won or lost that battle with the unions, whether they benefited CF or not. And while it presented an interesting intellectual exercise to keep nine lawyers busy for a good long time and many billable hours - who decided it was a good move on behalf of CF? Did the elected officials have any idea of the costs that were going to be incurred in that exercise? In RI, receivership is primarily a money making business for a small group of receivers/lawyers.Yes, the GA absolutely protected their main constituents, the unions, in drafting and passing the Pfeiffer appointment bill, what is the news in that? It was begging to be done when CF was advised to seek and then filed for state court receivership. And Mr. Savage, who can't seem to speak to the media now and must hide behind a spokesperson, was front and center on the TV and ProJo front page telling everyone he was going to terminate union contracts. Did the elected officials think that was a good strategy? This is RI, who didn't know the GA would come in and save the unions?
So far there appears to be one "winner" in the CF receivershp debacle - after 60 days the $191,000 prize goes to Mr. Savage. Second prize to Mr. Larisa, who probably never made $54,000 in two months in his life.
Patrick's point only holds if receivership is an unattractive end of the line for badly run town and city governments. But as riborn highlights, the General Assembly's version has plus sides for important constituencies. With the judicial receivership, the power brokers of a municipality are rolling the dice that the self interest of the lawyers involved won't turn against them. With the new legislative receivership, unions and their elected and appointed government pals are protected, giving the decision a strong plus for a powerful constituency.
There is now, in short, a safety net for the union–municipal-government scam. Don't be surprised should the next example fall far short of Central Fall's degree of mismanagement.
ADDENDUM:
Contra riborn, I think the first costly misstep was allowing Central Falls to be so thoroughly state subsidized in the first place — at least without some pain involved. Had the state funds come with the requirement that Central Falls must match the highest tax rate in Rhode Island, the locals might have had reason to put more competent people in office.
Justin,
You grew up in NJ! You should be accustom to the charades and politics played up on RI’s Smith Hill. The old blue blood of New England and Uncle Raymond; cousin Vinnie will always be protected. That is the way life is in RI regardless if you are Democrat or Republican; union or nonunion.
Learn to live with it as the longer you live in RI the more quick special legislation passed (with a lot of loop-holes) you will see supposedly benefitting the people of the state or to create new higher paying jobs and also so called non-special interests.
There is no logical reason for the smallest city in the USA located in the smallest state in the nation to go belly up due to shortfall of financials especially when the State of RI took over the financial management and daily operations of the entire school system which was close to 50% of the city budget.
Except if you are an investor or current/former banker and running the operations like private industry!
In the state of Hawaii the Counties and Cities set the minimum real property tax which all homeowners must pay in order to provide basic government services and regulate any income changes via tax rate and exemptions every year as the constitution requires any excess income be returned to the taxpayers.
ADDEMDUM:
Patrick sorry; I miss quoted the Maui 2010 Real property tax rate which in fact it is $2.50 per $1,000 at 100% assessed value.
You could also look at the Island of Oahu where I live 3rd largest Hawaiian island in the state of Hawaii where the 2010 real property tax rate is $3.49 per $1,000 assessed value at 100% with a starting homeowner exemption of $80,000.00 and a minimum property tax of $300 per year. Age exemptions go up to $200,000.00.
You can purchase a condo on my island for $130,000.00 and up or a single famly house for $300,000.00 and up.
Oahu is where the seat of state government resides, the most jobs, lowest unemployment and the most visitors visit (tourist).
I agree Justin. The state should not have been subsidizing Central Falls without more oversight and direct state control of the finances of the city - including contracts - and ensuring CF taxpayer were not getting a free ride on the backs of the rest of the state's taxpayers. But would the state's involvement have left CF in any better shape contract-wise? Does it matter if it's the unions' local friends vs. the unions' state friends playing the negotiator role?
When it comes to elected officials, how many of them win election on anything more than special interest support? What financial or business background, experience or savvy do they have? Who do they rely on to provide them with the tools and advice necessary to make good decisions? Political committee hacks? Union leaders? And even if they are getting sound advice from hired finance directors or outside consultants, are they taking it? (See the federal investigation into West Warwick Pension Board - think anyone will be held accountable for that deal?)
Posted by: riborn at August 21, 2010 2:53 PMKen, why do you continue to compare HI's finances with RI's, especially with regard to taxes. HI has one huge advantage: tourism. I'd estimate that the number of tourists on the islands at any one time outnumber the citizens. That's a huge advantage for the taxpayers.
My point is why are people of CF going to complain about paying an extra 10% in property tax. That's all of about a dollar per thousand of value. And what is the value of most of the property in that city? Not a whole lot. So they're not really raising taxes so much, especially when they haven't been paying much in the past anyway.
Justin, I agree with your addendum completely. That should be the case for other cities that get a ridiculous percentage of funding for their schools.
Posted by: Patrick at August 21, 2010 9:02 PMPatrick,
You asked for the name of a city or town that had taxes lower than CF and I at first misquoted the tax rate and then followed it up with current proper tax rate of $2.50 per $1,000.
As far as your assumption the tourist outnumber those of us living in HI is wrong. There are about 1.3 million in population and at any given time there are about 150,000 tourists. There is a supply (airlines and cruise ships); demand (hotel/resort/B&B available rooms) and right now the supply cannot fill the demand (falling short by about 240,000 flight seats). Tourism is not the prime business in HI.
HI has a very vibrant expanding international economy of high-tech, fashion designer, research, design and testing, financial management, bio-technology, astronomy, NASA and alternate (green) energy supplemented by the movie and entertainment industry.
The CF receivership problem I believe was caused by the State of RI taking over the school system. The takeover put the CF property taxes into an imbalance. Couple that with the recession and foreclosures the property tax base just dropped out of the bottom leaving CF with no income.
A 10% property tax increase is not going to help CF. CF is mostly 3-story tenements charging near welfare rents. The property owners will need to raise rents thus maybe driving tenants out to cheaper resources. The multi-family home prices average $99,000 to $130,000 while condos average $200,000 in CF.
With the recession I saw my house that I sold (at average neighborhood price) in Woonsocket lose $100,000 in value which means the couple that purchased it better be in for the long haul on their 30 year mortgage. They might recoup the value in about 20 years. Until then they are paying a mortgage that is worth more than the house.
I think HI has the solution to the tax problem by fixing a minimum property tax everyone must pay regardless of exemptions or discounts to maintain basic government services. The exemptions, discounts and tax rate are adjusted as needed but the minimum is always paid thus stabilizing government services.
Case in point. City of Honolulu indicated there would be a budget shortfall but they did not want to raise taxes or the tax rate because of the recession or play with the exemptions and discounts so at the last hour city council changed the minimum tax from $100 a year to $300 a year to balance the budget. I pay the minimum tax so I and all the rest of minimum taxpayers got hit with a $200 tax increase to balance the budget!
Posted by: Ken at August 22, 2010 6:29 PM