Car valuation bill in slow lane
Adjustments in values would cost city $7 million in tax revenues
While local officials agree that “fair” methods need to be implemented on motor vehicle valuations, they also said lowering them would most likely negatively impact property taxes.
At Wednesday night’s public hearing at the State House, the House Committee on Municipal Government heard testimony from more than 20 of the 60 people in favor of legislation drafted by Rep. Joseph McNamara to adjust automobile valuations to more accurately reflect their value. The committee held the bill for further study.
According to Warwick Tax Assessor Ken Mallette, who also is the immediate past president of the Rhode Island Assessor Association Offices (RIAAO) and the current chairman of its legislative committee, approximately 10 percent of all motor vehicles registered in the state are registered in Warwick. Lowering car taxes would cause the city to lose 30 percent of its tax base for motor vehicles, or about $7 million.
“It is a huge hit for any community to take and it is not something that we could make up other than going to residential and commercial taxpayer property owners and adding what they’re paying us currently,” Mallette said at the hearing. “If there is going to be a change in the way we are valuing motor vehicles, we can’t do it haphazardly.”
Moreover, cities and town have individual tax rates for vehicles. If values are adjusted, there will still be variations that people from different municipalities pay on the same vehicle.
Mayor Dan McKee of Cumberland, as well as Mayor Charles Lombardi of North Providence, urged the committee to consider the consequences of reducing car tax revenue, as it would result in higher property taxes and possibly push communities to bankruptcy.
Even if the loss of revenue ends up being as low as 10 percent, said McKee, it would equate $300,000 to $450,000 for Cumberland per year.
Further, Lombardi said he is concerned that the bill doesn’t address frozen tax rates. Auto tax rates were locked in about eight years ago when the state embarked on a program to eliminate the excise tax. The state was reimbursing municipalities during the phase-out program but stopped about three years ago.
“If we could get relief from that frozen rate and allow towns, cities, mayors and town councils to have the ability to set the rate, as we do with our property taxes, maybe this would be a little easier for us,” he said. “This is a form of revenue we’re going to have to give up and we’re going to have to raise it somewhere.”
Mallette also noted at the meeting that certain items are not addressed in the bill. The first he spoke of was the value for brand new vehicles. Presently, he said, the RIAAO obtains those values from National Automobile Dealers Association (NADA) at manufacturer’s suggested retail price, or MSRP.
Also, he discussed, “creating a class within a class,” as the current legislation would, without an amendment, treat rental agencies differently than average taxpayers.
“Somebody who owns a 2010 Taurus, whether they’re a rental car agency or taxpayer, should be valued the same,” said Mallette.
As far as the appeal process, Mallette said he feels the period of 10 days must be changed. He thinks it should be between 30 and 45 days. Before Mallette spoke, however, McNamara proposed amendments to remedy these issues, which Mallette agreed with.
Further, Mallette is concerned with certified appraisals because mileage and condition have never been a means of appeal. Moreover, he has an issue with the fact that maximum taxable value is not part of the bill. He said most cities and towns apply a percentage to cars that are in the “middle” range.
For example, the first four years cars are taxed at 100 percent of whatever the NADA lists or the MSRP. After that, up until the 20th year, they are taxed at a percentage formula that was devised in 1996 and the percentage decreases the taxable value. The vehicles listed in the classic and collectables in the NADA book do not have a trade-in value listed, yet the change McNamara is putting forth says they will be taxed on their trade-in value but that value doesn’t exist for such vehicles.
“There is no trade-in value,” Mallette said. “It’s either low, average or high value. We use the average value because that’s what we’re prescribed by law. The Vehicle Value Commission proposed to change that and suggested that we use low value.”
Again, McNamara introduced an amendment to remedy this discrepancy.
Rob Cote, who spearheaded the Car Tax Revolt during the summer, said it is a “complex” issue that needs to be solved “one step at a time.” The first thing he feels needs to be addressed is for the state to get away from “unethical and fictitious” methods of taxation and values on vehicles, as “it breeds contempt with the residents because they know they are getting pick-pocketed.”
In reference to revenue lost from the car tax, he said the city should review the budget and make cuts. He feels the first place to slice from is health care for union employees.
“When you have a municipality with three different unions that pay five percent towards health care when taxpayers pay 95 percent, it’s very easy to find [the difference],” Cote said. “We cannot keep putting the burden of excessive taxation on people who are the most dramatically hit in such poor economic times.”
Bob Cushman, former City Council member, as well as former chairman of the School Committee, agreed. Before the meeting, he did analysis of city spending and discussed the reduction in revenue associated with the bill. He passed out printouts of his findings.
According to Cushman, the total revenue in the City of Warwick for 2004 was $238 million. In 2012, it’s $275 million. The same year, he said, local property taxes were $162 million and today they are $214 million and noted that state aide was at $54 million in 2004 and $39 million this year.
“You hear mayors complain how the state cut aid to cities and towns but they’re raising taxes far and above the amount you’ve cut them,” Cushman said to the committee. “Where’s the money going?”
Cushman supplied his own answer and said that since 2007 local taxes to support the city budget have increased more than 50 percent, a total of $32.5 million. From 2004 to 2012, 45 percent of new revenue supports retiree pensions and health care expenses. One of his biggest issues is with sick pay bonuses, money city employees receive if they don’t use all of their allotted sick days. Last month alone, he said, the city spent $100,000 last month in sick pay bonuses, while that figure for the last three years has been more than $1 million.
“If you factor in active employee health care and put all that together, 92.5 percent of all new revenue has gone towards personnel costs,” said Cushman. “That means 7.5 cents on the dollar of every dollar has gone to every other program in the city. Cut personnel costs and that’s how you’ll be able to cut the car tax.”
When interviewed Sunday, McNamara said he views the bill as a logical starting point. In his eyes, the greater concern is that the public is losing their faith and trust in their government because of “inequitable” and “unrealistic” assessments.
“Above everything else, fairness is very important for taxpayers,” said McNamara. “When people lose faith and trust in their government, we have a problem much bigger than a loss of revenue for cities and towns.”
Steven Brown, executive director of the American Civil Liberties Union, spoke in favor of the bill and urged the committee to consider an amendment in terms of the appeal process. The concern of the ACLU, he said, is because of the current way it’s worded, an assessor could get the certified appraisal, reject it and decide to use the NADA book.
He also said, “Rather than complaining about lost revenue, municipalities should be thankful they have gotten assessment money for so many years that they never should have received in the first place.”
If McNamara’s bill passes, vehicles in Rhode Island would be valued at the NADA’s trade-in or average value, which is lower than the current value, the clean or highest value.
In an interview last week, Cote said the ripple effect should not deter this bill from going through because it’s equitable and brings trust back to the elected officials.
“The whole point of the Car Tax Revolt is the first layer of the onion to dissect the revenue problem,” he said. “The municipality contracts are strangling us and are unfair to people who are paying them.”