Manchester-by-the-Sea Town Hall
The calculation of the town’s tax rate happens every fall. There are a series of steps prescribed by the state that every municipality must follow that result in the state certifying the tax rate. Once the rate is certified the final third and fourth quarter tax bills for the remainder of the current fiscal year are prepared and sent out. (The first and second quarter tax bills are preliminary amounts.)
The budgets that voters approve drive the calculations. The annual operating and capital budgets that are approved at the Annual Town Meeting plus any additional spending voted on at any Special Town Meeting determines how much money must be raised, including any debt service on borrowings that voters have approved.
Another major element in calculating the tax rate is the total amount of taxable property we have in town. This total value is determined by our Assessing Department and is reviewed and certified by the state. Adjustments to existing home values are made yearly based on recent market sales activity. Total values increased over 2.5 percent to $2.5 billion.
In addition, total valuation includes the value of new construction. We are seeing a slowdown in new construction. In recent years we have seen annual new construction in excess of $25 million resulting in over $275,000 in new annual tax revenue. This is in addition to a 2–2.5 percent increase in revenues from existing homes. This current year we had new growth of under $15 million with the resulting new tax revenue coming under $170,000. At this point we do not see a resurgence in new growth in the foreseeable future and are anticipating an even lower amount in FY21.
Non-tax revenues are subtracted from the total town appropriations before setting the tax rate. In the past we have been very conservative in estimating our non-property tax revenues. This conservative approach has led to an increasing reserve fund or rainy day account. We have tapped into this reserve account for various capital projects recently and will be doing so going forward. But the Board of Selectmen and the Finance Committee feel we should be less conservative in estimating our local receipts given that our reserves are above our targeted range (10–12 percent of total annual expenditures). Thus, as part of the tax rate setting process this year, we increased the amount of non-tax revenue we expect to actually use. This has the effect of reducing the total needed to be raised through property taxes. This was timely for this year as we are able to reduce the full impact of the new elementary school project on taxpayers. And if we can continue this approach for a few more years, we will not have to assess the full amount of taxation originally projected for the school project as we will have lowered our debt payments enough on the middle high school to offset some of the new elementary school debt payments.
We take the total expenditures voters approve, subtract non-property tax revenues to determine the net amount of funds needed to be raised through the property tax and divide this number into the total amount of taxable property we have. For this year, voters approved the expenditure of $38.6 million. We expect $9.3 million in non-property tax revenue. Thus, we need to raise $29.4 million from the property tax on $2.5 billion worth of property. This yields a tax rate of $11.70 per $1000 of property value. The new tax rate is a 4 percent increase over last year. This is higher than the normal 2.5 percent increase because of the new school debt voters approved for the new elementary school. The actual taxes homeowners will pay will be, on average, increased by about 6.5 percent (factoring in the increased property values). However, this is 2.5 percentage points (250 basis points) lower than projected when we debated moving ahead with the new school project.
(There was a typo in last week’s article: the projected tax increase for the next year’s preliminary operating budget is 2.5 percent, not 25 percent! No new debt is anticipated.)
