PITTSFIELD -- Setting the ratio between residential and commercial property tax rates prompts an annual debate -- sometimes a hot one -- and sometimes those advocating a business-friendly split even win the argument.
The City Council on Nov. 27 went through that annual exercise after receiving Mayor Daniel L. Bianchi’s proposed rates for the current fiscal year. After debate and comment from business people and business advocates, councilors voted 10 to 1 to lower the tax shift from 1.72, as proposed by the mayor, to 1.68, which still represented an increase on the commercial side from the tax shift of 1.66 approved a year ago.
The tax shift ratio is used to determine the actual tax rates for residential and commerical property classifications in relation to one another. Under state law, municipalities are allowed to shift the percentages of the overall tax burden each property classification is responsible for, resulting in different rates. All but a handful of those that set different rates assign the higher one to commerical property.
As far as most taxpayers are concerned, they saw the tax rate for residential properties set at $16.70 per thousand dollars of valuation, up from $16.11 last year, and the rate for commercial property went from $32.85 per $1,000 to $34.48.
But the fact of a tax increase to help fund the $133.1 million city budget was not the focus of the council debate. That focused on how much
The bottom line was that Pittsfield wound up with tax classification rates that were closer together than those proposed by the mayor but still further apart than last year.
Giving this annual debate perspective were local business owners and Berkshire Chamber of Commerce officials, who laid out the negatives they see when it comes to attracting new or expanding businesses.
"Pittsfield isn’t business friendly," was the primary message, and a relatively high commercial tax rate is a glaring example. It is, they told councilors, what a business owner sees first when considering a move to the city or seeks to expand here.
Business advocates said the city is one of the 111 municipalities (out of 351) in Massachusetts opting to have a split tax rate, and Pittsfield is in the upper third among those communities in sporting the greatest gap between rates.
Councilor at-large Barry J. Clairmont who, with Ward 6 Councilor John Krol, led the argument before the council against the mayor’s proposed rates, said last week that he understands there are many factors to consider -- such as the effect of the property values on tax bills and the health of the regional economy. But for cities lacking overwhelming natural attractions or major institutions or employers -- such as Pittsfield once had with GE and Cape Cod communities with tourism or Cambridge with higher education and technology have today -- attracting new business is a difficult process, he said.
High commercial tax rates, Clairmont said, can cause business people to turn away without a second look.
"I think that [lowering the commercial rate] can have a positive effect -- especially when we are compared to other communities," Clairmont said.
Krol, who last year during the rate hearing before the council argued for a lower commercial rate, said he was in the minority along with former Councilor Michael Ward. But this time, his proposal for a lower shift ratio -- going from 1.72 to 1.68 -- won approval from the council.
"The point is we want to be business friendly," Krol said, adding that a higher commercial rate "does send a negative message."
The effect of a lower business rate over time, he said, would be to encourage commercial growth, new investment and employment, which in turn would spread out and lessen the tax burden for all taxpayers. Those sentiments were echoed by business leaders during the council meeting.
Krol acknowledged that lowering the commercial rate is a long-term objective, not something that "can change in one year."
Chamber of Commerce President and CEO Michael Supranowicz said, "We just ask that any increase should be fair."
As it is, he said, the commercial rate is among the highest when compared to the residential rate in Massachusetts, and businesses in the Northeast already face disadvantages over other areas of the country in terms of energy costs and other factors.
On the whole, businesses have learned to deal with the level of taxation in Pittsfield, Supranowicz said, but "the problem is, if the break-even point is crossed it could push some over the edge."
For the most part, Massachusetts cities are where optional higher commercial tax rates have been adopted. And with the mayoral form of government, there is the question of how much political considerations intrude when residential property owners are an overwhelming block of voters and business owners are a distinct minority.
The split-rate option, which is allowed through state legislation, "sets itself up as a politically convenient" one, Krol said.
A number of years might be required to see the positive effects of a lower commercial rate, Clairmont said, as it takes time for businesses to begin to recognize a more favorable tax climate. This does not make for an easy choice for a mayor or councilor who must run for office every two years.
Clairmont said he would like to see the effect of lower commercial rates over 10 years, but he acknowledged that would mean convincing residential taxpayers to pony up more before seeing the results.
"They will be rewarded in the long run, but in the short term would have to carry more of the tax burden," he said. "Maybe that is part of the problem."
Mayor Bianchi said he spoke with councilors and others after the budget total for this fiscal year was set in June, and determined that an increase of about 2.5 percent in the residential rate and 1.5 percent on the commercial side would be acceptable.
However, during its debate last week and after comments from some business owners, councilors lowered the commercial rate and increased the residential rate.
As a councilor in the past and as mayor since January, Bianchi said his philosophy has been to find a point of "equity in sharing the tax burden."
In a way, "I think it is all going to balance out in the end," Bianchi added, referring to the different amounts residential taxpayers now will not have to spend at local businesses because of the higher rate increase.
As for the political pressures, Bianchi said, "I have never found one person who says, ‘I want to pay more in taxes.’ "
The only constructive option, he said, is to send a recommendation to the council that is as fair as possible to all.
Ward 5 Councilor Jonathan Lothrop, who is heading into his 10th year on the council, said there are myriad factors for the administration to consider in setting the rates. A rate "that looks extremely high," he said, might be fair given a city’s specific circumstances. The mayor has to "balance many, many interests" in proposing rates that allow enough funding for the overall budget figure.
Those considerations include whether commercial property values are rising or stagnant and the status of residential property values; what services a city can offer companies compared to a nearby town with a single rate for both property types; what tax and other incentives a community offers to lure new or expanding businesses, which residential owners don’t receive; and whether there are key large industries or institutions that are paying the bulk of commercial rate taxes.
In Pittsfield, although not in most other communities in the area, the city also has not taxed to the limits allowed under Proposition 2 1/2. This reflects a concerted effort to keep taxes lower overall, Lothrop said, and city budgets during his tenure on the council have risen modestly, from about $118 million to $133.1 million.
Another factor, he said, is the amount of state aid the city receives, which represents a higher percentage than in many communities -- $68.6 million in the current fiscal year. And the city’s average actual tax bills are consistently found among the lower third or so of Berkshire County communities.
"I think the political dimension comes in having to balance all of these interests," Lothrop said.
Although most towns have a single rate, Adams is one that has two rates, but officials there have tried in recent years to close the gap. Those now stand at $21.67 per $1,000 for commercial and $18.25 for residential, said Town Administrator Jonathan Butler.
"It is trending lower," he said, and Adams officials are "trying to create a competitive advantage for the town."
A lot depends on factors like the overall economy, the level of state aid, and large bonded projects, such as the cost of a newly renovated Hoosac Valley Middle and High School, Butler said. Otherwise, he said, the commercial rate might now be lower in Adams.
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