NewburyportNews.com, Newburyport, MA

December 5, 2012

Mayor rejects tax relief option

Kezer says offsetting tax rate with free cash is 'poor' planning

By Mac Cerullo
Staff Writer

---- — AMESBURY — Mayor Thatcher Kezer this week registered his opposition to subsidizing the city’s tax rate with free cash funds, saying such a move would amount to “poor financial planning.”

In response to recent suggestions that the city use unspent tax money to drive down its rising tax rate, Kezer pointed to Amesbury’s recent bond rating upgrade as an argument in favor of maintaining its reserve funds.

Earlier this week, Standard and Poor’s Rating Services announced that it had raised Amesbury’s long-term bond rating from A to A+, citing the city’s stable financial outlook due to improving reserves and its long-term projections of structural budget balance as factors for the upgrade. The higher bond rating will allow Amesbury to borrow money at better rates over the next year.

Kezer attributed the rating increase to the city’s ability to build its reserves through a stabilization fund, free cash and indirectly by staying well under its levy capacity, or the amount the city is allowed to raise in taxes annually.

“Those are the three financials I talk about often and that’s what we’re focused on watching,” Kezer said. “That’s the real metric looking at financially where we are. The bond raters look at that and it’s all positive.”

Kezer touted the bond rating increase as great news for Amesbury, but the idea of building reserve levels could be a tough sell to residents growing increasingly irate over rising tax rates.

On Tuesday, the City Council will meet for the annual tax classification hearing, at which councilors are expected to certify a new single-tax rate of $20.24 per thousand, up from $19.13 this year. The meeting starts at 7 p.m. in City Hall.

The announcement of the new tax rate has drawn renewed criticism of city officials for failing to keep the tax rate under control and has also prompted demands for meaningful tax relief measures. One solution that has gained steam recently is the idea that the city use its free cash funds to help relieve the burden on the taxpayers, an idea that directly contradicts the mayor’s philosophy.

Free cash refers to any unspent tax income left over from the previous year. Proponents of using free cash have argued that the city should take that unspent money and use it to offset tax increases similar to the way Newburyport has done in recent years. The Daily News published an editorial endorsing this position last week.

Kezer doesn’t believe that’s the right approach, and Michael Basque, the city’s chief financial officer, has also argued that using free cash to subsidize the tax levy would have hurt the city’s long-term financial stability, and ultimately its bond rating as well.

“This is why one of the reasons that I always recommend that we don’t use free cash to lower the tax rate,” Basque said. “(The fact that) we haven’t done that is one of the main reasons that we received this upgrade.”

Kezer said the city’s reserves are intended to be available in case of emergencies, adding that the city has made a conscious effort to build its reserves and to stay under the levy limit so that it doesn’t wind up in a position where it suddenly doesn’t have enough money to pay the bills.

“That creates a structural deficit because you’re using your reserves to keep your operations going,” Kezer said.

Kezer said the city’s stabilization fund was at roughly $1.3 million and the free cash account was at $1.274 million for the upcoming year. While technically not a reserve fund, Kezer noted that the city is also $1.8 million under its levy capacity.

Regardless, many residents have spoken out against the new tax rate and are demanding a solution, whether it comes from free cash or somewhere else.

Mike Buetow of Cabot Court is arguing that the city should cut spending. Earlier this week, Buetow began circulating a petition that he hopes to present to the City Council.

“We the undersigned, as residents and taxpayers of Amesbury, Massachusetts, hereby request the Municipal Council reduce the city’s annual spending by 5 percent across the board for the upcoming fiscal year,” the petition reads.

Buetow said he believes taxes are too high, but rather than simply say so, he wanted to present the City Council with empirical data demonstrating that the people of Amesbury want to see change.

“I think too often decisions are made in a vacuum or with a low number of input, and they may or may not necessarily reflect what the whole city wants,” Buetow said. “The council and the mayor have difficult jobs, I think they do the best they can given the circumstances, and I think by collecting some data, that might help make their decision a little easier. This isn’t an attempt to undermine their efforts.”

The petition was first posted on Facebook yesterday and has already garnered 89 signatures, not including signatures gathered from going door to door, Buetow said.

The good news for Amesbury residents is that the city isn’t going to have the highest residential tax rate in the state this year after all. Yesterday afternoon, updated state tax reports indicated that both Longmeadow and Shutesbury had topped the $20 threshold and were each higher than Amesbury’s proposed rate of $20.24.

“Now you can say we’re No. 3 maybe, but we’re not No. 1,” Basque said. “Not that we’re arguing that we want to be No. 3; we just knew we weren’t going to be No. 1.”

As for the bond rating, Standard and Poor’s said it based its decision to raise Amesbury’s bond rating in large part on the city’s good access to job centers along Interstates 95 and 495, an “extremely strong” tax base and strong median household income measures, good financial position and low debt burden with modest future capital needs.

Standard and Poor’s uses a ratings scale that runs from AAA down to D, with AAA representing the highest possible rating and D indicating that the entity is in default.