Please review the budgets (available online at http://cityofwestfield.org/312/Auditor), attend the City Budget Public Hearing tonight at 6PM in City Hall, and reach out to your City Councilors and Mayor to suggest cuts or express your opinions about the budget and taxes.
Ever since posting my previous articles in the Westfield News and online, and engaging in polls on The Westfield Community Forum on Facebook, a common question I get (even from other councilors) is “how can taxes possibly be going up 6% – don’t we have Prop 2 1/2 that limits the tax increases to 2 1/2%?”
The answer is complicated to explain, but the biggest misconception is that your individual Property Tax increases are limited to 2.5% per year. That’s not true. Prop 2 1/2 has two places where the 2.5% comes in to play. First is the LEVY CEILING. This is the maximum we can collect in Property Tax unless there are very specific voter approved debt exclusions (such as if we wanted to approve the building of a new school and we couldn’t, or didn’t want to, handle the debt payments withing the Levy Ceiling). The Levy Ceiling equals 2.5% of the total value of all taxable property in the city. In Westfield last year, the value of all properties was $3.106 Billion, so the Levy Ceiling was 2.5% of that or $77.656 Million. That’s the upper limit or the maximum we’d be able to charge in Property Taxes. However, there’s also a lower threshold from year-to-year that we’ll talk about next.
The second time the 2.5% comes into play is the the LEVY LIMIT. The Levy Limit is calculated by taking last year’s Levy Limit and adding 2.5%, New Growth (the tax value of new development), and overrides or underrides. This Levy Limit is limited by the Levy Ceiling – the Levy Limit can never exceed the Levy Ceiling. Last year’s Levy Limit in Westfield was $71.768M. Note that this Levy Limit isn’t tied to any property values (another misconception about Prop 2 1/2), it’s only tied to the previous year’s Levy Limit. Changes in Property values don’t affect the Levy Limit – expect for the New Growth.
The actual bill you get for Property Tax is based on the LEVY. The Levy can never exceed the Levy Limit. The Levy can move up and down by any percentage as long as it stays below the Levy Limit. This is where there is great confusion. There is no 2.5% anywhere in this Levy calculation. It’s basically whatever the city government wants or needs to tax as long as it doesn’t exceed the Levy Limit.
In Westfield, we calculate this Levy by adding up all the expenses and offsets, subtracting all the local fees and other taxes, subtracting state aid, subtracting grants, subtracting the use of local savings accounts (called Free Cash and Stabilization), and whatever is left is covered by the Property Tax Levy – subject to the Levy Limit discussion above.
So, this year in Westfield, the Mayor has proposed spending $126,790,816 for operating expenses. There are another $5,241,659 in State offsets and overlay. Therefore, the total budget is $132,032,475.
Take away $14,634,416 in Local Receipts (vehicle taxes, fees, charges, tuitions, and several other local revenues), take away $41,507,137 in State Aid, and $878,662 in School Building funds, and take $450,000 out of Free Cash. That leaves a balance of $74,562,260 that needs to be covered by the local Property Taxes.
The City Assessor is estimating the we’ll get $1M in New Growth (we’ll know for sure later in the Fall). So, if we assume that’s coming, the total Property Tax Levy needs to be $73,562,260.
Last year’s Levy Limit was $71,768,059 as mentioned above. Multiply that by 1.025 and add the $1M in New Growth, and you get a new Levy Limit of $74,562,260 – a perfect match to what the Mayor needs to tax to balance the budget.
However, the kicker for taxpayers is that in the last couple of years the Levy was never raised to the Levy Limit – it was kept lower by spending less money, using one-time sources of money, or using savings accounts to reduce the tax burden.
Last year’s actual Levy (that drove your tax bill) was $69,395,443. The new Levy needed to balance the budget as it stands now is $73,562,260 plus the $1M New Growth. So, the Levy compared to last year’s tax base is increasing by $4,166,817 ($73,562,260 – $69,395,443) or 6% ($4,166,817 / $69,395,443).
There isn’t any arguing this, the math is what it is. The only ways to reduce the 6% Property Tax increase are as follows: reduce the budget; get more state aid; generate more local revenue (in time for tax setting time in the Fall); or use some of the very limited Free Cash or Stabilization (we currently only have about 3 weeks worth of money in there).
Budget reductions are needed. The other options are limited and/or unlikely.
Some of you may have heard about supposed “budget cuts”. That phrase isn’t used correctly. In reality, the total spending on the City Operating budget (that $126.7M above) has increased by $3,667,269 since last year – hardly a cut.
Some of you have heard that not all Property Taxes will go up by 6%. This is true in an exact sense, because some property values don’t change the same as the average across the city. Some home will see small increases in value, some may decrease in value. This will affect your individual tax bill a bit, but blended all together, the average will increase by 6% unless we change the spending, find additional revenues, or use up some of the limited Free Cash or Stabilization as discussed above.
If you want to learn more about Prop 2 1/2, the State has prepared a nice document explaining everything. You can find it here: http://www.mass.gov/dor/docs/dls/publ/misc/levylimits.pdf
Of great concern to me is that we are approaching our Levy Ceiling, and could hit it within 2 years if the real estate market stays relatively flat. With a Levy of $74.5M and a Levy Ceiling of around $77.7M, we’ll be at 95+% of the Levy Ceiling. Last year we were at 89+%. Note: this Levy Ceiling will hopefully move up a bit when new valuations come in in the Fall, but according to the Assessor, the new valuations are looking relatively flat, so the Levy Ceiling isn’t looking like it’s going to change much.
When we hit the Levy Ceiling, our ability to bring in new Property Tax revenue each year will be limited to New Growth and the tax associated with the ups and downs in the total valuation of properties in Westfield – which has been pretty flat lately. That means instead of being able to increase spending in the $2.5-3.0M range each year, we’ll be roughly limited to the New Growth which is generally in the $800K to $1.2M range. Looking at our budgets and obligations, that much and more is committed each year in pension and healthcare cost increases. Therefore, other parts of the budget are going to have to find ways to operate with less. You’ve seen this situation happening in Holyoke in recent years.
Again, please review the budgets, attend the City Budget Public Hearing tonight at 6PM in City Hall, and reach out to your City Councilors and Mayor to suggest cuts or express your opinions about the budget and taxes.
Regards,
Dave Flaherty
Westfield City Council
