Worcester’s split tax rate doesn’t add up

Full and original article posted on WBJournal.com

A few weeks before the Worcester City Council goes into its annual exercise of setting the property tax rates, the Worcester Regional Research Bureau released a report in mid-November detailing the pitfalls of the city’s split rates for residential and commercial payors, a system first introduced in 1984 as a response to Proposition 2 ½.

The report “Tax Classification: Passing the Buck$” makes a strong case for a single tax rate.

• Commercial and industrial property owners contribute a significantly disproportionate amount of the city’s taxes, paying for 39 percent of tax revenues while accounting for only 29 percent of tax value.

• That split rate has made Worcester a less attractive community to operate a business, and more businesses have left and fewer have come into the city (tax-paying commercial and industrial properties decreased from 3,959 in 1992 to 3,421 in 2016), so the tax burden is spread out among fewer entities. Today the average annual tax payment for a commercial property owner is $30,513, the highest among Worcester and its border communities.

• This reduction in the number of businesses to shoulder the tax burden has left residential property owners to cover a larger portion of the tax revenues. The portion of tax revenues coming from them rose from 55 percent in 1984 to 60 percent in 2016, with the peak at 69 percent in 2011.

• Over the last few decades the city’s top industries have switched from manufacturing to health care and higher education, which have higher barriers to entry-level positions and lower average annual salaries ($74,642 vs. $53,490).

• Organizations in the higher education and healthcare industries are typically nonprofits, meaning they contribute nothing, or in some cases a small payment in lieu of taxes, to the city coffers. The value of tax-exempt property in Worcester more than doubled in the last 13 years, going from $2 billion in 2003 to over $5 billion in 2016.

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