21.350 Tax Classification Hearing PresentationFY2022 Tax Classification HearingCity of NorthamptonNovember 4, 2021 Marc Dautreuil II, Principal Assessor/Charlene Nardi, Finance Director
MGL C.40, s.56 (excerpts)“The selectmen or town council of each town and the city council together with the mayor's approval in each city, which city or town has been certified by the commissioner of revenue to be assessing property at full and fair cash valuation, shall annually first determine the percentages of the local tax levy to be borne by each class of real property, ….”“In determining such percentages, the selectmen, town council or the city council, together with the mayor's approval, as the case may be, shall first adopt a residential factor; provided, however, that if the mayor vetoes the city council's factor, in a city, the city council may override such veto with a vote equal to two‐thirds of the members elected.” “Said factor shall be an amount not less than the minimum residential factor determined by the commissioner of revenue in accordance with the provisions of section one A of chapter fifty‐eight and shall be used by the board of assessors to determine the percentages of the local tax levy to be borne by each class of real and personal property. “Prior to the adoption of such percentages, the selectmen, town council or the city council, as the case may be, shall conduct a public hearing on the question of their adoption. At such hearing, the board of assessors shall provide all information and data relevant to making such determination and the fiscal effect of the available alternatives.”
Tax Classification Hearing The Classification Act passed in 1978 requires municipalities to classify real and personal property into one of four classes according to use:ResidentialCommercialIndustrialPersonal PropertyMunicipalities that are certified by the DOR as assessing property at its full and fair cash value may elect to shift the tax burden among the major property classes within certain limits established by law.
Definitions:Residential –Includes all property containing one or more units used for human habitation. The class includes accessory land and buildings such as swimming pools, tennis courts, garages and sheds. Single‐family homes are in this class, as are large apartment buildings. Commercial –Includes any property held for the purpose of conducting a business, such as stores, office buildings, hotels, and all vacant land classified as forestland (Chapter 61), farmland (Chapter 61A) and recreational land (Chapter 61B).Industrial Properties ‐Includes any property involved in manufacturing, processing or extraction. It includes utility real property used for storage and generation purposes.Personal Property –Contains all taxable personal property of individuals, partnerships, associations and certain corporations. A large portion of this class is owned by public utilities.
Distribution by Property ClassificationResidential as % of Total LevyCommercial/Industrial/Personal Property as % of Total Levy79.9879.7979.5079.7779.8780.2280.3780.6480.6981.0920.0220.2120.5020.2320.1319.7819.6319.3619.3118.912013 2014 2015 2016 2017 2018 2019 2020 2021 2022City of Northampton ‐ Distribution by Property ClassificationFY2013 ‐ FY2022R Levy as a % of TotalCIP Levy as a % of Total
FY2022 Distribution by Property Classification$56,848,966$9,261,513$2,027,774$1,968,594City of Northampton –Tax Levy by Property ClassificationTotal Tax Levy $70,106,847FY2022Residential LevyCommercial LevyIndustrial LevyPersonal Property Levy
Northampton Property Values$$0.00$10,000,000.00$20,000,000.00$30,000,000.00$40,000,000.00$50,000,000.00$60,000,000.00$70,000,000.00$80,000,000.002013 2014 2015 2016 2017 2018 2019 2020 2021 2022City of Northampton ‐10 Years ‐Property ValuesFY2013 ‐FY2022 Residential LevyCommercial LevyIndustrial LevyPersonal Property LevyTotal Levy
Definition of New GrowthThe additional tax revenue generated by new construction, renovations and other growth in the property tax base during a calendar year. It does not include value increases caused by normal market forces or by revaluations.New growth for FY2022 is based on new construction, renovations and additions that occurred between July 1, 2020 to July 1, 2021.
New Growth Value by ClassificationResidential: $31,925,949Commercial: $31,393,711Total Growth: $63,319,160$0$10,000,000$20,000,000$30,000,000$40,000,000$50,000,000$60,000,000$70,000,0002013 2014 2015 2016 2017 2018 2019 2020 2021 2022New Growth Value by ClassificationFY2013 ‐FY2020Residential New Growth ValueCommercial Industrial and Personal Property New Growth Value
Tax Revenue Generated by New Growth$488,041.00$716,719.00$916,881.00$938,241.00$733,076.00$963,629.00$931,482.00$1,063,084.00$1,039,584.00$1,099,854.00$0$200,000$400,000$600,000$800,000$1,000,000$1,200,0002013 2014 2015 2016 2017 2018 2019 2020 2021 2022Total New Growth Applied to Levy LimitFY2013 ‐ FY2022
Major Construction Projects that contributed to New Growth for FY2022Value added between 7/1/2020 to 7/1/2021 on selected large projects:Emerson Way Development–15 New Homes –value added = $5,552,700Village Hill Residential –7 Homes,20 condos, 53 units affordable apartment complex– value added = $7,097,800547 Easthampton Rd–Storage Facility –value added = $5,138,200SyncarphaSolar PILOT–Solar Farm–value added = $3,367,896325 King St–Shopping Center– value added = $1,057,100209 Earle St–Addition to Industrial Site–value added = $964,915Village Hill Commercial–Office Buildings and Retail –value added = $966,800
The Levy Limit for Northampton for FY2022 is $70,129,409.The Actual Levy for FY2022 will be $70,106,847.This leaves unused levy capacity of $22,562.Overlay voted on in 21 to go into effect for FY22 billing.Debt Exclusions $620,476: (represents $.158 on tax rate)Police Station –last debt service payment is in FY203259,108,9501,477,7241,063,0840061,649,7692,019,8861,649,7661,649,76602,0080000
Single Versus Split Tax Rate: This is what this hearing is about……Note: The total amount that can be raised in taxes stays the same, whether there is a single or split tax rate. A split tax rate does not raise more revenue, it simply shifts the tax burden among the taxpayers. FACTOR OF 1.00: Selection of a single tax rate means that all four property classes will pay the same tax rate. This is the recommendation of the Principal Assessor and the Mayor. FACTOR LESS THAN 1.00: The law allows the option to shift the tax burden among the classes by reducing the share of the tax levy paid by the residential property owners and shifting/increasing those taxes to commercial, industrial and personal property taxpayers through the adoption of a residential factor of less than 1.00. FACTOR OF GREATER THAN 1.00: Conversely, a factor greater than 1.00 may be adopted, which would have the opposite effect, reducing the share of the tax levy paid by commercial, industrial and personal property taxpayers and shifting/increasing those taxes on residential property owners.
Single Tax Rate: The factor of 1.00 will result in an estimated FY2022 tax rate of $17.89 per $1000 for all property classifications, which is an increase of ($0.52) or a 3% increase.For comparison purposes, this is where Northampton’s FY21 residential rate ranked with our neighboring communities FY21 rates.For comparison purposes, this is where Northampton’s FY21 commercial/industrial rate ranked with our neighboring communities FY21 rates. $40.63$36.55$34.86$32.48$31.46$24.74$23.22$21.82$17.37$17.54$0.00$5.00$10.00$15.00$20.00$25.00$30.00$35.00$40.00$45.00Commercial Tax Rates ‐FY2021$24.79$23.22$21.82$19.27$18.88$17.61$17.54$17.37$16.90$16.800.005.0010.0015.0020.0025.0030.00Residential Tax Rates ‐FY2021
Split Tax Rate:The Minimum Residential Factor (MRF) is 88.3394 for FY2022. This is the maximum allowable shift determined by the DOR. This would result in a split tax rate of $15.80 for Residential and $26.84 for Commercial/Industrial and Personal Property. Residential ImpactAverage Single Family Home Value: $352,329Single Tax Rate: $352,329/$1000 x $17.89 = $6,303Split Tax Rate: $352,329/$1000 x $15.80 = $5,567Decrease of $736Commercial and Industrial ImpactAverage Commercial Value: $606,479Single Tax Rate: $606,479/$1000 x $17.89 = $10,850Split Tax Rate: $ 606,479 /$1000 x $26.84 = $16,278Increase of $5,428Average Industrial Value: $760,717Single Tax Rate: $760,717 /$1000 x $17.89 = $13,609Split Tax Rate: $760,717 /$1000 x $26.84 = $20,418Increase of $6,809
Single versus Split Tax Rate:240 Massachusetts Communities had a single tax rate in FY2021104 Massachusetts communities had a split tax rate in FY2021 with shifts ranging from $0.25 to $22.89 above the residential rate (favoring lower tax rates for residential property and higher tax rates for businesses)7Massachusetts communities had split tax rate in FY2021 with shifts ranging from $0.03 to $0.84 below the residential rate (favoring lower tax rates for businesses, and higher tax rates for residential property) Typically a split tax rate might be considered when:the percentage of residential property to commercial/industrial/personal property is at least at 70%‐30% the major taxpaying businesses are difficult to move such as a power plant or a shopping mallIt can be difficult for a community to revert back to a single tax rate after splitting the tax rate, as it often results in a substantial tax increase for residential properties The Mayor and the Principal Assessor recommend a Factor of 1.00 –A Single Tax Rate
Other Exemptions allowed upon Mayoral Option:Residential Exemption MGL C.59 s. 5C–The Residential Exemption allows for a shift of the tax burden within the residential class from the lower valued properties to the higher valued ones and those owned by non‐residents. However, this also shifts the burden to rental properties. MGL C.59 s.5C “With respect to each parcel of real property classified as Class One, residential, in each city or town certified by the commissioner to be assessing all property at its full and fair cash valuation, and at the option of the board of selectmen or mayor, with the approval of the city council,….”Small Commercial Exemption MGL C.59 s.5I ‐The Commercial Exemptions allows smaller businesses with an average annual employment of no more than 10 people and an assessed valuation of less than $1,000,000 to receive an exemption. Adoption of this exemption increases the commercial and industrial tax rates. The amount of the tax levy paid by those two classes remains the same, but because of exempted valuation, it is distributed over less assessed value. This higher rate creates a shift that reduces the taxes paid by owners of properties occupied by small businesses and shifts them to larger commercial and industrial taxpayers. However, this will not benefit small businesses that do not own the property that they use for their business. MGL C.59 s.5I “With respect to each parcel of real property classified as class three, commercial, in each city or town certified by the commissioner to be assessing all property at its full and fair cash valuation, and at the option of the board of selectmen or mayor, with the approval of the city council…”
Residential Exemption Pros and Cons:Pro: • A majority of owner occupied properties would benefit, this would likely help first time homeowners. Cons: • Non‐owner occupied properties would pay increased taxes. Owners of these properties may increase monthly rent to offset this increase of taxes. These properties would include apartments’ and single family homes that are not owner occupied. • Benefit is not income based• Shifts burden to higher priced homeowners who are already paying higher real estate taxes. • Additional work required by Assessor’s office to properly determine which properties are eligible for the exemption. • Increase in Overlay Reserve to allow for people to appeal their status.
Small Commercial Exemption Pros and Cons:Pro: • Reduces the taxes paid by owners of properties occupied by small businessesCons: • Adoption of this exemption increases the Commercial and Industrial tax rates• Has no benefit for small businesses that do not own the property that they use for the business.• Benefits landlords far more than actual small business owners. • Additional work required by Assessor’s office to properly determine which properties are eligible for the exemption. • Increase in Overlay Reserve to allow for people to appeal their status.
SUMMARY: Principal Assessor and Mayor recommend City Council approve a residential factor of 1.00 for FY2022 which results in a single tax rate of $17.89/$1000 valuationRecommended Residential Factor of "1" for FY2022Class Percentage Total Valuation Tax Rate per $1000 Valuation Levy by Class Residential 81.089 $ 3,177,695,139 $ 17.89 $ 56,848,966 Commercial 13.2106 $ 517,692,188 $ 17.89 $ 9,261,513 Industrial 2.8924 $ 113,346,767 $ 17.89 $ 2,027,774 Personal Property 2.808 $ 110,038,800 $ 17.89 $ 1,968,594 100.00 $ 3,918,772,894 $ 70,106,847