WESTFIELD – The City Council will conduct a public hearing tonight “relative to the determination of the percentages of the local tax levy to be borne by each class of real and personal property for the Fiscal Year 2015.”
The hearing allows residents and businesses to argue their case to shift some of the burden of property taxes onto the other class of tax payers.
The city has a bifurcated tax structure, with one rate for residential property and a second rate for commercial, industrial and personal (CIP) property. A residential factor of 1.00 would set one tax rate for all property classes. As the shift increases residential tax rates, per $1,000 of value, decrease and commercial, industrial and personal property rates increase.
Typically the Greater Westfield Chamber of Commerce and several business owners attend the hearing requesting that the council move the shift factor to lower the commercial tax rates, which results in a higher residential tax rate.
And typically several residents petition the council to adopt a shift factor to lower residential rates, which results in a higher commercial rate.
Those increases are not proportional because residential property comprises about 80 percent of the city’s total property tax assessment. Property in the city is divided into two classes, residential, which, in 2012, accounted for 83 percent of the total assessed property value in the city, and commercial, industrial, personal (CIP) property which accounts for 17 percent of all taxable property in the city.
The current residential tax rate is $18.18 per $1,000 of value, while the commercial, industrial and personal property rate is $33.84 per $1,000 of value.
The City Council voted to adopt a residential shift of 1.63 last year, the last factor in the formula that will be used to set the tax rate for all classes of property.
That tax rate formula includes a number of elements: the amount of the tax levy increase, up to 2 1/2 percent is allowed under Proposition 2 ½; use of stabilization funds to lower the amount of revenue needed to be raised through taxes, state and federal aid; and the residential shift which can more tax burden to one class or the other.
All of those elements fit into the tax rate formula that needs to generate enough revenue to cover the budget adopted in June.
The State Department of Revenue recently certified that the city has $6.2 million available in its free cash account, which could be used to buffer any tax increase based upon the shift factor approved by the City Council.
Mayor Daniel M. Knapik has to request the City Council to appropriate funding from within the free cash account or the city’s stabilization account. The city currently has $6.5 million in its stabilization account.
Knapik said recently that he does intend to seek appropriation to restore funds to the city’s health insurance account, funding cut last June by the City Council. The council slashed three months funding from the 2015 Fiscal Year budget, about $2.4 million
Both the city and its employees pay into that account, with the city’s monthly contribution is about $800,000.
Use of either free cash or stabilization funds to buffer any tax increase diminishes the city’s capability to collect revenue in the future. Tax revenue increases are cumulative and any increase below the 2 ½ ceiling not only benefits taxpayers in the current fiscal year, but in future years as well because the capacity can never be recovered.
