The votes necessary to seek approval from the Massachusetts Department of Revenue of the tax rate for FY2018

To The Honorable, the City Council:

The establishment of the FY18 property tax rate by the Board of Assessors, subject to the approval of the Massachusetts Department of Revenue, is the final step in the fiscal process that begins in the spring with the submission of the annual budget to the City Council. With this memo, I am transmitting to you my recommendations for the required votes necessary to minimize taxes on residential properties. In addition, you will find analyses of the FY18 property tax levy, property values, and other supporting information.

OVERVIEW

I am pleased to inform you that the actual FY18 property tax levy is $389,080,359. This is an increase of $16,406,272 or 4.4% from FY17 and reflects the longstanding City Council goal of evaluating “City expenditures with a view of maintaining a strong fiscal position and awareness of the impact on taxpayers while providing a high-quality array of City services”. This increase is lower than the estimated increase projected in May 2017, and what was presented to the rating agencies in February.

The FY18 Budget adopted by the City Council in May 2017 projected a property tax levy increase of $22 million, or 5.99%, to $395,007,870 in order to fund operating and capital expenditures. The FY18 adopted operating budget increased by 4.97% over the FY17 Adjusted Budget.

The City has been able to control budget growth and property tax levy increases, while at the same time expanding services and adding new initiatives such as the commitment to building a comprehensive early childhood system, expanding the Curbside Organics program city wide, Vision Zero, cycle four of the Participatory Budget program, supporting information technology initiatives and our multi-year Municipal Facilities Implementation plan.

In addition, the FY18 budget included $2.8 million in funding for Affordable Housing initiatives, which is a City Council priority. The FY18 adopted budget also includes 27 new positions to provide support for the growth in programs throughout the City.

The 4.4% property tax levy increase is below the FY17 increase of 5.1%, and slightly above the five- year annual average (FY14-FY18) increase of 4.19%. With approval of these recommendations, the ten-year annual average (FY09-FY18) increase will be 4.85%.

Based on a property tax levy of $389.1 million, the FY18 residential tax rate will be $6.29 per thousand dollars of value, subject to Department of Revenue approval. This is a decrease of $0.20, or -3.1% from FY17. The commercial tax rate will be $14.81, which is a decrease of $1.31, or -8.1% from FY17. This is the fifth consecutive year that the City has reduced tax rates for both residential and commercial taxpayers, which mitigates the increase in property values.

In May, the City Council was informed that the actual tax levy increase was likely to change. This was based on the possible use of additional non-property tax revenues, which would become available based on FY17 actual collections and final Cherry Sheet distributions.

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As we previously projected, the use of additional non-property tax revenue and other adjustments have allowed an overall reduction of $6,000,000 from the original projected property tax levy for FY18.

This is due to the use of increased non-property tax revenues based on FY17 actuals, which include $400,000 in Motor Vehicle Excise, $750,000 in Payment In lieu of Taxes, $1,000,000 in Investment Income, $800,000 in Room Occupancy Excise Taxes, $250,000 in Meals Excise Taxes, $3,250,000 from increases to building permit revenues, and ($450,000) in other excise adjustments. The final Cherry Sheet had a net negative impact of $52,349 on the property tax levy. Table 1 reflects these changes and other minor adjustments:

TABLE I

Summary of Tax Levy Changes from Adopted Budget

Tax Levy Changes

Property Tax Levy As Adopted

$395,007,870

Net Cherry Sheet

$52,349

Non Property Tax Revenue

$-6,000,000

Overlay Adjustment

$20,140

Actual Property Tax Levy

$389,080,359

This recommendation includes the use of $14.2 million in reserve accounts to lower the property tax levy: $2.0 million from overlay surplus and $12.2 million in Free Cash. The certified Free Cash amount of $211,093,529, an increase of roughly $8.6 million over the previous years certification, is inflated by $2.3 million in unappropriated mitigation receipts.

According to MGL Chapter 144 Section 53, these receipts must flow through the Free Cash certification process before being available for appropriation by the Council. Excluding mitigation receipts, net certified Free Cash will be $208,818,700 City Manager will be coming before the City Council with a recommendation for the appropriation of mitigation receipts later in the fiscal year.

This recommendation also includes the use of $2 million from the City Debt Stabilization Fund and approximately $0.5 million from the School Debt Stabilization Fund to offset increases in debt service costs that would otherwise have been funded from property taxes. Prudent use of reserves allows the City to maintain stability in our taxes while investing in significant capital and infrastructure projects.

This strategy of using an increased amount of non-property tax revenues and reserves to lower property taxes will not jeopardize our long-term fiscal health. However, if the City used too much of its reserves in one year to artificially reduce property taxes, it would mean that in the following year, the City would be required to either increase taxes significantly or dramatically reduce expenditures.

This prudent and planned use of the City’s reserves has been positively recognized by the three major credit rating agencies and is reflected in our AAA credit rating.

IMPACT ON TAXPAYERS

This will be the thirteenth year in a row that a majority of residential taxpayers will see a reduction, no change, or an increase of less than $100 in their tax bill. In fact, in FY18, 68.9% of residential taxpayers will see a reduction, no increase or an increase of less than $100; and 91.5% of residential taxpayers will see an average increase of less than $250. This is an increase from FY17, where 67.3% of residential taxpayers saw no reduction, no increase, or an increase of less than $100. Over the past ten 3

years, the City has seen an average of 72.6% of residential taxpayers see a reduction, no increase, or an increase of less than a $100 to their residential tax bill, and 73.9% over the past five years. We have been able to consistently achieve these results while maintaining and expanding City and school services that citizens have come to expect and while providing a robust capital improvement program.

TABLE II

Change in the Residential Tax Bills*

Change in Tax Payment

Number of Parcels

Percentage Cumulative %

Less than $0