Worcester City Council sets tax rates for 2022- Dual Tax Rate
On Tuesday night, the Worcester City Council had their annual tax rate hearing.
You can see my personal thoughts on the topic in my testimony at that City Council Meeting starting at 14:20 - 17:50 of this attached video. Alex Guardiola, VP of Government Affairs for the Worcester Chamber, speaks after me.
Commendation for City Councilors
I would like to commend those City Councilors who voted to make the taxes more equitable between businesses and residents. This will not happen overnight, but the city is beginning to make strides in the right direction. Those councilors are:
Khrystian King
Sarai Rivera
Sean Rose
Kathleen Toomey
Matthew Wally
Mayor Joseph Petty
They understand that lowering the tax rate for Commercial and Industrial properties is good long term for their constituents.
Tax Rates Overview
Rates in a quick table:
Year | Residential | Commercial |
2021 | 16.28 | 36.20 |
2022 | 15.22 | 33.34 |
Yes, both rates went down, but all values of all classes of properties in the city went up. As you can see, the average residential taxpayer will pay $105 more a year, and the average commercial/industrial taxpayer will pay $143 more a year.
Impact on Residential Income Properties
For those who have invested in Residential Income Properties, you are probably disappointed, but you should not be. If Worcester is able to grow the value of the Commercial/Industrial properties through the lowering of the tax rate, then taxes will ultimately go down on residential taxpayers.
Currently, a residential building that makes $10k a month is worth over $1 million, and a Commercial Building that makes the same $10k a month is probably worth only $850k.
Understanding Tax Disparities
Why is this so? If both buildings have an assessed value of $1 million, the residential tax is $16,280 a year and the Commercial building is $36,200, which is $20k more in taxes and takes $1,660 more a month out of your NOI, thus reducing the value.
With the new tax rates, it is $15,220 and $33,340 respectively, for only a difference of $18,120 or $1,510. This raises the value of that Commercial property by at least $15k. The reduction in taxes on the commercial property owners allows them to keep the rents stable.
If the tax rates were the same, then the buildings would be worth the same, providing an equitable playing field and more choices for investors.
Conclusion
Unfortunately, businesses do not elect the city councilors, so they have to rely on people like Alex Guardiola and the Chamber to explain their case and how this will help the residential taxpayers in the future.
I am glad to see that these councilors were able to see the long game, and hopefully, this trend will continue until we have one tax rate for all types of properties.
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