WESTFIELD – One of the most common complaints voiced by both residents and business owners is the high tax rates, yet few understand the process of setting a tax rate.
That’s because it’s a convoluted process that really starts in June when the municipal budget is adopted for the fiscal year which begins on July 1 each year and concludes on June 30 the following year.
Fiscal years are named for the year in which they conclude, not when they begin. We are currently just about halfway through the 2016 fiscal year and the tax rate is being set now even through the city has collected taxes for two quarters: July through September and October through December.
The City Council is meeting in a special session tonight to ensure that the tax bills, due to be paid in January, are printed and mailed before the end of this month to give residents the option of paying early so that payment can be included as a deduction from the 2015 federal income tax.
The tax bill must be mailed to residents and businesses by Dec. 31. If the bills are not mailed, the city cannot send out a third quarter tax bill without exceptional circumstances allowed by the Department of Revenue.
The budget adopted in June determines how much revenue the city needs to generate for the fiscal year. That revenue includes state local aid, Chapter 90 funding for roads, drainage and sidewalk projects, Chapter 70 for education, circuit breaker funds for special education, and a number of other special revenue streams. State aid has declined significantly from the level of funding dispersed to local communities before the Great Recession of 2008.
State aid and projected income from revenue generating departments is deducted from the fiscal year budget, defining how much money has to be raised locally. The bulk of local revenue is generated through local property and excise taxes.
Another consideration in setting the tax rate is the amount of increases allowed under Proposition 2 ½, which allow communities to increase the taxes collected from all classes of property by up to 2 ½ percent.
The next step is to determine the value of all property in the city. The total property value for 2016 is $3,073,071,671, an increase of $902,622 over the value of all property in the 2015 fiscal year.
Westfield has a bifurcated tax system, meaning that residential property, which comprises 83.7 percent of the total property value ($2,575,462,003), is taxed at one rate and commercial, industrial and personal property (CIP), which accounts for only 16.2 percent of the total property value, is taxed at a different rate.
The resident tax rate for the 2015 fiscal year was $18.54 per $1,000 of value, while the CIP tax rate was $34.69 per $1,000 of value.
The City Council for the past five years has adopted the same residential shift factor of 1.63 which means that the tax increases spilt between the residential property class and the CIP class at the same ration during that time.
The residential shift, which the City Council will discuss and most likely adopt tonight, shifts the burden between the residential property classification and the CIP classification.
Raising the shift factor moves more of the tax burden to the CIP class of property and results in a substantially higher tax rate for the CIP class while providing some moderate relief for residential taxpayers. Lowering the shift factor provides relief for the CIP class, but increases the residential tax rate.
The fact that the residential property accounts for nearly 84 percent of the total property value in the city, means that raising the CIP shift factor results in small reductions for residential taxpayers.
If the council adopts a factor of 1.63, and without using free cash to lower the total tax levy that needs to be collected, the residential rate for the 2016 fiscal year will be $19.71 per $1,000 of property value, an increase of $1.17, while the CIP rate would be $36.58 per $1,000 of value, an increase of $1.89.
If a shift factor of 1.71 is adopted, residential taxpayers would see a tax rate of $19.36 per $1,000 of value, an increase of 82 percent per $1,000 of property value, while the CIP would see a tax rate of $38.38, an increase of $3.69 per $1,000 of value.
Conversely, if a shift of 1.59, recommended by the Chamber of Commerce, is adopted, the residential taxpayers would see a rate of 19.88 per $1,000 of value, an increase of $1.34 and CIP taxpayers would have a tax rate of $35.60 per $1,000 of property value, an increase of 99 cents per $1,000 of value.
Another consideration in setting the tax rate is the amount of increase allowed under Proposition 2 ½, which allow communities to increase the taxes collected from all classes of property by up to 2 ½ percent.
Acting Mayor Brian Sullivan, who is still serving as City Council President, has submitted an appropriation of $661,776 to the City Council tonight to reduce the total tax levy to be collected this fiscal year. The council has the option of using all or part of those funds to buffer any tax rate increase by reducing the percentage of the tax increase below the 2 ½ percent allowed under state law.
