Good Morning G Nutt here. This coming Saturday March 8th Saturday Morning Live will be hosting Berniefest a 2 hour look back at the Lynch Administration with City Manager Bernie Lynch Here is a Post I did where the City Manager explains Property Taxes: Ive heard a couple conflicting statements made about the property tax rate and higher taxes when there is supposed to be no increase, so I emailed the Manager and asked if he could explain it better. He was kind enough to supply the following: Gerry, Thanks for the question seeking an overview of how property taxes work and an explanation of how individual property taxes can go up while we indicate that taxes arent increasing. Hopefully, the explanation that I have prepared will help. Property taxes are the predominant form of revenue for local governments across the United States and particularly here in the Commonwealth of Massachusetts where local sales and income taxes are not authorized as they are in other states. It should be noted that Massachusetts, through its laws and regulations, strictly manages the manner in which property taxes are administered. The concept of property taxes is generally very simple. A property owner’s tax bill is calculated by the assessed value multiplied by a tax rate per $1,000 of value. The assessed value is calculated by methods dictated by the state using sales or market data for residential properties, income data for commercial properties, and occasionally construction or replacement value. The tax rate can be calculated in a couple of ways. First, it could be arbitrarily set at a certain level. At one point in time, this method was widely utilized in localities. Government officials preparing a budget could determine how much money was needed or wanted, and by knowing the total assessed value of the community, calculate the rate to be charged per $1,000 at value to generate the determined level of revenue. Under this method, it was common to retain the rate from one year to the next, while still seeing large increases in tax revenue as aggregate and individual values climbed. Property owners would often hear officials boast of no rate increase while bills went up by an often large amount based upon rising values. The second and more commonplace method, especially here in Massachusetts since Proposition 2 ½ was put into effect, is to calculate the amount of total taxes needed or allowed under the 2 ½ law, and then calculate the rate necessary to attain that level of revenue. For example, a community may need $1 million in tax revenue to fund its operation. If there was $1 billion of value the rate would be calculated by dividing the $1 million levy by the $1 billion of value or $10 per $1,000 of value. With this methodology, the focus for controlling taxes is to maintain, or restrain, the level of total taxation. In this scenario, if values rise the rate decreases and if values decrease the rate increases, but overall the level of taxation will remain the same. This is the action that we have taken the past two years with developing the City of Lowell budget. In FY12, the City raised $107,525,116 in property taxes. In FY13, the level of taxation was $108,866,882 which included the level from the prior year plus new properties that were developed within the City. In FY14 we are holding the level of taxation at the $108 million figure plus an estimated $1.6 million of new development related taxes. In neither year did we increase total tax revenue beyond that generated by new developments. In making these decisions, local government controls the total level of taxation, however, it cannot control the other key variable of market value. While total value influences the rate it does not impact the total to be collected which is determined by budget decisions. On the more focused property by property basis, annual changes in market value do impact individual tax bills. While the total amount to be collected remains fixed, it is conceivable and in fact likely that one property owner’s bill will rise while another property owner’s bill falls. Similarly, differing classes of property can be affected by changes in market value. Specifically, commercial values can increase at a greater rate than residential values or vice versa. Over the last twenty-five years it has occurred both ways. A shift towards the residential class can be mitigated by having a high commercial tax rate. In Lowell, there is a split tax rate in which the commercial rate is set by the City Council at the maximum differential allowed by state law. At this point in the budget process for FY14, we have proposed no tax increase, meaning that total taxes will not increase. Once the total value of the City is finalized in the fall, we will be able to set a rate and then have a decision of whether to retain the maximum commercial differential and then determine tax rates. At that time, individual tax bills will be determined on a property by property basis with the calculation of assessed value multiplied by the established tax rate. At this point it is far too early to project specific tax bills since total and individual values have not yet been determined.
Posted on: Wed, 05 Mar 2014 10:44:36 +0000
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