June 25, 2012

Narrow The Tax-Rate Gaps


Worcester's recent commercial property revaluation and its effect on the business community shed new light on an ongoing issue: the dual tax rate.

The obvious benefit to this tax structure is to reduce the burden on homeowners. But the problem is the burden it places on owners and tenants of commercial and industrial properties. Most businesses in Central Massachusetts are small to mid-sized, and are very sensitive to changes in overhead; occupancy costs are one of their greatest expenses.

The split rate provides government officials an opportunity to exploit the commercial and industrial tax base by generating revenues and spending them on residents. But it opens the door for commercial and industrial property owners to consider moving, and could stall future developments.

In Central Massachusetts, there are 13 communities with split rates. For many, it may never go away, since it would place a huge burden on the residential base and would be politically devastating for any city councilor or selectman — especially in communities with dense populations and lower-than-average incomes — to support its elimination.

While closing the gap would reduce cost pressures on commercial and industrial property owners, it would also reduce the friction between business and residents, as well as the disparity between the two. That would force towns to be more careful about raising revenues and determining how to spend them. It may also spur growth, benefitting everyone.

Attracting business to communities with high commercial tax rates is becoming increasingly difficult. As transportation options improve, such as access to the Massachusetts Turnpike from Route 146, places such as Worcester and Auburn lose primary competitive advantages. Overnight, towns such as Sutton, with a single tax rate of only $14.53 per $1,000 of valuation, become viable options.

Not all dual rates are necessarily problematic. Webster is a good example of a community that adopted a dual rate system ($11.78 residential; $18.47 commercial) but managed it wisely. As a result, developments such as the Town Forest Business Park near Route 395 have enjoyed tremendous success, with easy access to the turnpike.

Competition for business growth is very high in Central Massachusetts. Smaller communities with limited resources have reasoned that without commercial growth, they can't continue to provide required services. In 2009, for example, Boylston formed a committee and rezoned sections of Route 140 to attract new business.

Given the recent outcry by Worcester businesses and some residents, it's fair to say that Worcester is trying to make life easier for business. It's a wonderful city, with 16 colleges and universities, and skilled labor. It cannot be done overnight, but within time Worcester can close the tax-rate gap, which will benefit both businesses and residents.

Peter Kovago is a principal owner of Glickman Kovago & Company of Worcester.

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