It’s been about a month since the City Council approved the budget for FY17 which began on July 1st. This budget will result in the highest
DAVID FLAHERTY
tax increase in recent history.
I was one of the several who voted against the budget for several reasons. First, it requires 3.47% in property tax increases ($2.372 million), assumes $1 million in new taxes due to “new growth”, assumes over $400,000 in new hotel and meals taxes (with the meals taxes earmarked for additional road work), anda $500,000 draw from Free Cash. Even worse, the budget as passed is still almost $1 million short, and that shortage will have to be covered by using Free Cash, Stabilization, or new Local Revenues (fees).
Second, the city made no real attempt to reduce operating costs or address the snowballing debts and obligations. The tax and spend philosophy has to change. Taxpayers have had enough and can’t afford these massive tax increases. As mentioned in my last couple of articles, there are no easy budget reductions. Any real attempt at controlling expenses has to affect the budgets for Schools, Police, Fire, and DPW. There just isn’t enough money in the other budgets. I don’t want to be the bearer of bad news, nor do I want to be the one proposing all of these cuts, but the reality is that these departments have to find ways to operate within the budget constraints. Not only weren’t the budgets reduced, but the operating costs will be increasing due to recently executed labor contracts.
Third, the city is quickly approaching our Levy Ceiling (the maximum we’re allowed to tax under Prop 2 ½). Based on this budget, our Tax Levy will be about 93% of the Levy Ceiling. Based on projected spending and property valuations, we could hit the Levy Ceiling in 18-36 months. I can’t say with certainty when we’ll hit it, but I can say with certainty that we will hit it – it all depends on property values and spending. The attached graph shows the likely trend lines. The dashed lines create a cone of likely scenarios. When the lines intersect, we will not be able to raise the Tax Levy beyond the Levy Ceiling. This will create great challenges for the city.
As you can see above, just to balance the budget this year, we needed $2.37 million in property tax increases, $1 million in new growth, $400K in hotel and meals taxes, and about $1.4 million in draw from Free Cash or Stabilization – and that’s with only a 1% salary increase for most employees. The new contracts call for higher percentage increase in the coming years. Where’s the money going to come from? If we hit the Levy Ceiling, we’re not likely to be able to increase taxes $2.37 million from one year to the next. The meals and hotel taxes are at their maximum. Where’s the money going to come from to pay the operating cost increases – nevermind pay for our long-term obligations related to retiree health care benefits. Some will say “what about new growth?”. The new growth varies from year to year based on new development and property improvement. $800,000 to $1.2 million is the typical range. That amount of money will be consumed by the required increases in Pension costs (5% per year compounded) and Health Insurance (3-8% likely) alone. That leaves the rest of the budget with great challenges. We may have to find ways to operate with no annual increases in departmental budgets.
One of my colleagues has floated the idea of “growing” our way out of this problem with new commercial development. This is a nice sounding concept, but in reality it is much harder than it sounds, and the math just doesn’t work. Westfield has had a real challenge attracting new commercial development. Our taxes are high when compared to neighboring cities and towns, and our infrastructure isn’t really in the condition that it needs to be. We seem to have a bunch of available land, but a lot of it is wetlands, above the aquifer, or in remote parts of town that don’t want, and wouldn’t be attractive for, commercial development. More importantly, the math doesn’t work because of Prop 2 ½ and our split tax rate.
To get $1 million in “new growth” tax revenue, we need about $40 million in new development (depending on what type of property it is). Because of our split tax rate, commercial development actually shortens the timeframe when the Levy Limit intersects the Levy Ceiling. This is a little known mathematical reality of the Prop 2 ½ calculations. Why? The Levy Ceiling is based on the total assessed value of all property times 2.5%. The “new growth” calculation, that is part of the Levy Limit, uses the split tax rates. For commercial development, the rate used is 3.668% (last year’s rate). So, for example, if we had $50 million in new commercial development, and everything else was equal, the Levy Ceiling would increase $1.25 million, and the Levy Limit would increase $1.834 million. So, that gap between the Levy Ceiling and Levy Limit would decrease by $584,000 meaning we’d likely hit the ceiling faster than we would without this development.
Once we hit the ceiling, new commercial growth won’t help us all that much. We’d get some new revenue based on the new growth, but because of the Levy Ceiling constraint, we’d only see 2.5% – not the 3.668%. One benefit I guess is that the new growth will have a dilutive effect on the tax rates. We won’t be able to raise taxes much (due to Prop 2 ½), but since the total valuations would be going up, the rates would come down. This is happening in Springfield.
We’re certainly facing great financial challenges in the next couple of years.
On a good note, the downtown creative and community development groups have put on some great events. The art show and concerts have been a great success. Open-mic night seems to be getting some attention. And, the Pokeman folks have been having fun on the Green and in other parts of town. Kudos to all of the organizers and volunteers. In the coming weeks, TUSK will perform on the Green on August 25th, and the Westfield Food Fest will be held on August 26th through August 28th.
In about two weeks, Westfield Babe Ruth will be hosting the 14 Year-Old Babe Ruth World Series at Billy Bullens Field. I’d like to thank the hundreds of volunteers who have helped make this a wonderful event. Hundreds of players, families, coaches, and fans from around the country will be in Westfield from August 10th to August 18th. The opening night game on Thursday the 11th will feature Westfield’s team. Over 2000 fans should be in attendance. Please attend the games to support our local team and watch some great baseball. If you would like to volunteer, please visit the website http://www.WestfieldWorldSeries.com to register.
Have a great summer.
Kids, don’t forget to do your summer reading and other prep for next school year. There’s only a few weeks left.
Dave Flaherty
City Councilor
[email protected]
