I want to share with community members and especially those in the business community here in Newburyport the thinking that has gone into the decision to set a split-tax rate this year.
As we are facing a challenging and uncertain economy, it is difficult to hear that taxes will rise, and I can assure all members of our community that I will continue to look for ways to provide stability and evenly carry the burden of rising costs.
I will always look for new and creative ways to support residents financially, like the recently announced Community Choice Power Supply Program, so they may better endure economic downturns and continue to enjoy the services that our business community provides.
Setting the tax rate can be thought of as the last stage of the annual budget process. Before the fiscal year starts in July, the city decides how much they are going to spend in the next year and on what.
Then, we close out the fiscal year and receive our free cash classification and other reports that inform how much money needs to be collected through taxation. The city then sets the tax rate by the end of the calendar year so tax bills are ready to be sent to property owners.
One of the biggest drivers of the tax rate is the increase of assessed values of all properties. This year, residential property values increased considerably, with the average single-family home seeing an increase in their assessment of around 18%.
While not all residents will see an increase of this magnitude, we need to consider how this affects the majority of homeowners. At a time when costs are rising everywhere, we want to provide some relief to those who would see their tax bills increase the most.
One tool available is to designate free cash to reduce the amount of funds needed to be raised by the levy. We proposed using a little over $400,000, which will reduce the amount that taxes need to be raised.
This is a good start, but the city needs to be careful in the amount of free cash used, both to set it aside for other important uses and to avoid future tax rate hikes.
Another tool we have is to shift the percent of property taxes paid to the city by commercial, industrial and personal (CIP) property owners away from the amount paid by residential and open space property owners.
The city has not taken on a CIP shift since 1986, but it is a common tool used by many municipalities to even out the tax increases seen through residential property assessment rises.
Without a shift this year, the average commercial property owner would see their tax bill fall by 8.4%, and the average industrial property owner would see a 6.7% decrease.
We want our businesses to be successful and would never want to push an undue burden onto them, but a tax cut for businesses when residences will see unprecedented increases is not advantageous for the city as a whole.
At the City Council’s Budget and Finance Committee meeting on Thursday, Nov. 17, we discussed this issue at length and city councilors weighed in with their concerns and considerations.
The council proposed adding further free cash, and the current amount targeted is just over $550,000. At the end of the discussion, the council agreed to move forward with the proposed CIP shift.
This decision was not taken lightly, and the council will vote on whether to adopt the shift and the proposed tax rate at its Nov. 28 meeting. We believe this offers the most balanced approach.
It limits the increases for residents, while only raising the average commercial property’s taxes by 0.6% and industrial by 2.5% over last year. While the CIP shift may raise concerns about precedent setting for those in the business community, this is not something we intend to do annually.
We are reacting to a specific and hopefully transitory occurrence, as we saw significant jumps in residential assessments that were not mirrored in commercial assessments.
This plan results in very small tax increases for the business community, versus the increases seen by residents.
We believe this is a fair solution, and we will continue to look for ways to make this situation easier for all.
If you still have questions, please come by my office and I would be happy to discuss this with you.
Sean Reardon is the mayor of Newburyport.