The City budget season is wrapping up. Next week the City Council will be voting on the FY17 City Budget. This budget determines the level of services received in the city, and it’s a major component of determining the property taxes for the coming year.
For the past few months, I’ve been receiving calls, emails, and social media posts about the budget, the challenges in the city, and the tax burdens. Many people stop me while shopping, at ball games, or out to eat to say “Thank you” or “keep up the good work”. Many are very concerned about taxes and road and schools. I appreciate their support and encouragement.
We are now at critical point in the process and we need your involvement. To balance the proposed budget, the Mayor is proposing raising taxes by about 3.5%, instituting new taxes on meals and hotels, and draining over $980,000 from our dwindling Free Cash account. This sounds bad, but even worse is that the budget doesn’t include several capital investments we need to make (roads, facilities, parks, technology, vehicles, etc…), and it doesn’t include any payment, nor plan to address, the snowballing obligations related to employee retirement.
DAVID FLAHERTY
We need you, the man in the mirror, to let the councilors know your concerns and priorities. As mentioned last week, you can’t have it both ways. You can’t ask us to reduce the tax burden, and at the same time say you want us to protect the growing budgets for Schools, Fire, Police, DPW, and IT. I met with a business group earlier this week. They have major concerns about commercial property taxes and how it’s affecting our ability to attract and retain businesses. I asked them to speak out at our Public Meeting next week. They may attend, but they wanted to keep their comments about taxes in general – not take a position on any particular department or line item. They don’t want to make it look like they are opposed to schools, fire, police, or DPW workers. That’s great, and I’m thankful that they’ll make an effort, but what we really need is people to say “we’ve had enough, and you have to make tough choices and live within our means – even if it means reducing budgets for important departments”. There are ways to improve efficiencies and reduce costs. Businesses do it all the time. You probably do it at home. There’s only so much money, and you adjust what you do to live within your means. The City Departments can do it too. Yes, it would take some tough choices. Yes, it might mean changes in services, roles, or in staffing levels, but it needs to be done. Please don’t sit on the sidelines and then complain about taxes when the rates are set later in the year. We need you to take action now, and speak out about the budget. Remember, that’s what drives your taxes. There will be a Public Hearing on Monday at 6PM in City Hall. Please attend. If you can’t attend, please reach out to councilors by phone or email.
There are some that say “Dave, you’re full of hooey. We’ve been fine for 300 years, and it’ll all work in the long term”. To that I say, “No, you haven’t been fine for all those years. The city is living beyond its means and has promised employees benefits year after year without actually paying for them. They’ve passed on those obligations to us, and to future generation of taxpayers”. If you operated like this at home, you’d be spending 15% more per year than you make and putting it on a credit card that you expect your kids or grandkids to pay in the future.
One things that’s confusing for some – even some councilors – is the Prop 2 ½ limits. Many people wonder how the taxes can go up by 3.5% when supposedly the law says it can only go up 2.5%. I’ll try to explain. There are three key terms you need to know: LEVY – this is the actual amount charged for Property Taxes in a fiscal year; LEVY LIMIT – this is the maximum amount the city can charge for Property Taxes in a fiscal year based upon the prior year’s LEVY LIMIT and new growth; and the LEVY CEILING – this is the maximum amount the city can charge based on the total valuations of all of the properties in the city. The LEVY cannot exceed the LEVY LIMIT or the LEVY CEILING. The LEVY LIMIT cannot exceed the LEVY CEILING.
The way Prop 2 ½ works is that the LEVY CEILING equals 2.5% of the total values of all taxable properties in the City. In Westfield, our total value for 2016 was $3.073 billion, so the LEVY CEILING is 2.5% of that, or $76.8 million. This changes every year based on the values of property in town. The total values for the last few years were: 2009: $3.243B, 2010: $3.212B, 2011: $3.172B, 2012: $3.182B, 2013: $3.187B, 2014: $3.047B, 2015: $3.072B. As you can see, these values are slightly declining or flat – even with the new development.
The LEVY LIMIT is based on the previous year’s LEVY LIMIT plus 2.5% increase, plus new growth. Last year’s LEVY LIMIT was $68,967,726. Adding 2.5%, or $1,724,193 gets us to $70,691,919, and this year we’re projecting certified new growth of $1,000,000, so our projected maximum allowed LEVY LIMT for FY17 is $71,691,919. Note: if after doing this calculation, the LEVY LIMIT was higher than the LEVY CEILING, the LEVY LIMIT would be reduced to the LEVY CEILING. That is what’s happening in Holyoke.
It’s important to note that the LEVY LIMIT is where the 2.5% annual increase is applied – not the actual LEVY or the LEVY CEILING. Sometimes the actual LEVY is less than the LEVY LIMIT. We did this last year in Westfield. When setting the tax rates in December, we voted to use about $650,000 of Free Cash to reduce the LEVY. So, the actual LEVY was $68.319 million – lower than the LEVY LIMIT of $69.967 million. Lots of people didn’t think last year’s tax increase was “reduced” when they saw their tax bills, but it really was.
So, rolling forward to this year, unless we make cuts, the City Budget requires raising taxes to the LEVY LIMIT in order to balance (not considering the deferred obligations I mentioned above). This maximum LEVY assumes new hotel and meal taxes, and the use of $982,000 from Free Cash. When compared to last year, this year’s LEVY (before new growth) would be $70.691 million vs. the actual LEVY last year of $68.319 million – an increase of 3.47%.
One major concern of mine is that we’re approaching the LEVY CEILING. The $71.691 million LEVY is 93% of our LEVY CEILING (assuming values stay fairly flat). With LEVY’s going up 2.5%+ every year, and the CEILING staying rather flat, it’s not going to take long to hit that CEILING. If property values decline a bit more, we’ll hit it sooner – we only have 7% to work with. The economy is not booming in Western Mass, and there’s a lot of chaos in the United State and the world. Look at what’s happening today in the world markets due to the Brexit vote in Britain. I don’t think our Presidential election is going tocalm things, and many people feel that no matter who wins, we’ll have quite challenging years ahead. Declines in real estate values are certainly very possible.
The follow-up question I get about taxes is “how come my taxes went up by more than 2.5% when my house is worth less than before”? As discussed above, Prop 2 ½ only applies to the LEVY CEILING and the LEVY LIMIT. The City can raise taxes every year until it reaches the LEVY CEILING –regardless of the values of property. The City can charge $71.691 million in taxes this year if the total valuation is $3.1 billion, $2,9 billion, or $4 billion. It doesn’t matter as long as we’re under the LEVY CEILING. Your individual tax bill is based on the tax rate and your valuation. The tax rate changes based on the LEVY, the total valuations, and the shift. For example, using last year’s valuation of $3.073 billion, and a LEVY of $68.319 million, the flat tax rate was $22.23 per thousand. The “shifting” process moves more of the tax burden to businesses and gives residential taxpayers a break (it also complicates the math and the explanation of all this). Last year, the City Council voted a shift factor of 1.65 (businesses paid 65% more, and those dollars were used to reduce the residential burden). That “shift”taxed businesses about $7.2 million more, and gave homeowners a break of $7.2 million. That changed the residential tax rate to $19.44 per thousand, and the commercial rate to $36.68 per thousand. Your actual bill varies based on your value relative to all the values in town, the LEVY, and the shift. The LEVY is the most influential factor since your percent of value compared to the whole city is rather small. A $10-20,000 swing in your value compared to $3 billion total value in the city really won’t change your taxes too much. Same with the shift. A move from a shift of 1.65 to 1.66 would only save the average homeowner about $11.
The LEVY, and your tax bill, is driven by the budget. That’s why it’s so important to get involved in the budget process.
This year, if the property values stay flat, and the shift stays about the same, the average residential tax bill will go up $28.7 dollars per hundred thousand dollars of home value per million dollars of tax increase. So, for a $2.3 million property tax increase, a $250,000 home would see an increase of about $165. A $350,000 home would see an increase of about $231.
Besides cutting the budget, what can we do? The Finance Committee has several ideas to improve efficiencies and generate new non-tax revenues. Many of these ideas have come from previous City Councils, Mayors, and department heads. Several have been lingering for years. We need to start taking action. Right now, it looks like there’s maybe $1.0-$1.5 million per year in potential. That’s really good, and it needs to be pursued, but it’s not a silver bullet that’s going to solve all the problems.
Please speak up and get involved.
Please don’t fall for lines like: “you’re balancing the budget on the backs of kindergarteners” or “teachers” or “firefighters” or “police”. We’re all in this together. We need to fix our roads and infrastructure. We can’t keep passing the buck to the next generation. We can’t keep asking moderate income families to pay higher and higher percentages of their income in property tax (40% of Westfield students qualify for free or reduced lunch – that should give you an idea of the financial challenges facing a huge portion of our residents). And, we shouldn’t be taxing limited income seniors out of their lifelong homes (there are about 8,000 seniors in town – roughly 20% of the population). The reality is that this budget isn’t balanced when you consider the obligations, and if anything it’s the taxpayers who are taking the burdens, and the taxpayers who are on the hook for the massive snowballing obligations. We have to learn to live within our means. It’s definitely hard, and there are definitely tough choices that need to be made, and I don’t like being the one who takes these positions publicly any more than
any of you would. But, there is no choice. It’s the right thing to do for the long-term best interest of the City and everyone who lives, works, and enjoys Westfield.
Regards,
Dave Flaherty
Westfield City Councilor
[email protected]
- I mention the Mayor here because he’s the Chief Executive. But, just so you know, Brian Sullivan is doing his best in a very tough environment. I’m not picking on him, nor trying to make him look like the bad guy. All of the City Councilors, department heads, and concerned parties will tell you that he’s been great to work with and that he’s truly trying to do the right things, juggle things around, and keep all of the competing interests happy. The finances are a major obstacle, and I understand that. No matter who is sitting in that Mayor’s seat, the financial challenges and constraints would still be the same. It’s not easy.
PPS. If you happen to want to do some math: what happens next year? This FY17 budget has 1% salary increases in it, and the Mayor is asking us to tax to the max, create new taxes, and using a bunch of our limited Free Cash. What happens next year when there are 2+% raises, another 5% in insurance costs, another 5% in Pension obligations, higher energy costs, and higher wages (due to steps, longevity, and education benefits)? We can’t get new revenue from hotel and meal taxes if we do it this year. We can’t increase property taxes as much because we’re already going to be at the LIMIT. Won’t have as much Free Cash available. And, we’ll still have massive snowballing unfunded obligations. How do we get that math to work?
