Taxes and Budgets and Debt Exclusions, Oh My!

When it comes to taxes, town budgets and debt exclusions (among other financial issues), there seems to be a lot of confusion out there.

Rather than muddle through it on our own, Patch went to the experts. Wayland Finance Committee Chair Cherry Karlson and Wayland Town Administrator Fred Turkington sat down to clarify some of the less-than-obvious parts of town finances.

The result? Town Finances 101.

The text below is paraphrased from the conversation with Karlson and Turkington.

Q: How are my property tax rates set every year?
A: At the most basic level, this is a simple math problem. The assessed values of Wayland’s properties multiplied by the tax rate must equal the budget approved each year at town meeting.

That means that decreased property values will likely contribute to increased tax rates in order to compensate for the reduced values. Consider this: in 2006, at the height of the housing boom, Wayland’s tax rate was $12.54 per $1,000 of property value. That year the average home value in Wayland peaked at $693,259 according to a table on Boston.com. Since then, home values have decreased and tax rates have increased. This year, the average Wayland home value is $592,825 and the tax rate is $19.35.

Home values aren’t the only factor influencing the tax rate. Major capital projects, such as the construction of a new high school, will also have an impact on tax rates, as will increased expenses in general.

A table included on page of 15 of the 2011 Town Warrant shows Wayland’s tax rate, average home value and estimated average tax bill in comparison to nearby towns. The Warrant also points out that Wayland’s increased tax rate this year is largely “due to the debt service on the new high school.”

Q: What about the debt exclusion question? I hear it will lead to a tax savings, but I already know my tax rate increased this year.
A: Tax rates are set Jan. 1 of each year, which is midway through the July 1-June 30 fiscal year. What this means is that the tax payments made at the beginning of the fiscal year (actually the end of the calendar year) are estimates based on the budget the Town passes for that new fiscal year. Come Jan. 1, when tax rates are officially set, your last two quarterly tax bills for the fiscal year (due in the first half of the calendar year) could go up or down depending on how accurate the estimates were for the prior two tax payments.

So the tax savings related to the budget you are about to vote on at Town Meeting (April 7) will be realized in the tax rate that will be set Jan. 1, 2012, and will impact your last two tax bills in 2011 (which are, really, the first two tax bills of FY 2012) as well as your first two tax bills of the 2012 calendar year.

The tax savings mentioned in relation to the debt exclusion question are for the debt exclusion only – not the entire town budget. In other words, by voting “Yes,” on the debt exclusion question on the April 5 ballot, residents will earn themselves a $.03/thousand decrease in their tax rates; however, that refers only to the debt exclusion portion of the tax rate. Your overall tax rate could still go up in order to fund the many, many other portions of the town budget (such as high school construction, etc.) that go into determining the tax rate. By voting “Yes” to the debt exclusion this year, however, you will not increase your tax rate. Other parts of the budget might increase your overall tax rate, but the debt exclusion question will not.

Q: What do my taxes pay for?
A: Wayland tax dollars basically fund the operation of the town. With the exception of a few fee-based services, such as water and waste treatment, tax payments cover the expenses required to run Wayland – meaning everything from providing expected services, paying salaries, educating the children, etc. A very small percentage of tax dollars are used to pay state and county charges and fees.

Q: What is the difference between the operating and capital budgets?
A: The operating budget has several parts: The General Fund Operating Budget; the Water Fund Budget; the Septage Fund Budget; and the Wastewater Management District Budget. In addition, the town must fund non-appropriated expenses that include real estate abatements and state and county assessments among other miscellaneous fees.

As for the capital budget, this is generally reserved for items with a lifespan of more than five years and a value of more than $25,000. Items such as fire trucks, police cruisers and other lasting equipment fall under this category. The operating budget funds immediate needs, while the capital budget funds items that will be used for years to come.

In the past, school and town computers have been funded through the capital budget, but a savings in utilities created through more efficient facilities and equipment has created space in the operating budget to partially fund the purchase of computers for the school through that budget rather than through the capital budget in 2012. Ultimately, the Finance Committee wants to move the purchase of all town and school computers to the operating budget side as that is “more in keeping with the expense and lifespan of the equipment,” according to the Warrant.

Q: What about Proposition 2 ½? How does that figure in?
A: Here is a PDF from Mass.gov that does a very thorough job of explaining Prop 2 ½. There are two kinds of Prop 2 ½ overrides – operating budget overrides and debt exclusion overrides for capital items. When it comes to Wayland specifically, for the third straight year the Finance Committee is presenting an operating budget that falls within the constraints of Prop 2 ½ and, therefore, is not seeking an operating override.

Essentially, Prop 2 ½ sets limits on how much money the town can raise each year from tax revenues, but it has exceptions and provides for some flexibility. It does not mean that your tax rate can only increase by 2.5 percent or less each year.

In Wayland’s case, the $880,000 requested to be funded through debt exclusion (one type of override) will actually still lead to a decrease in the tax rate for Wayland citizens (more debt is maturing than is being proposed). Still, it is temporary funding above the allowed 2.5 percent constraint of Prop 2 ½ and so requires a special vote.

Obviously, this is a quick crash course on some frequently asked questions and issues. Wayland’s Finance Committee expanded the introductory section of the 2011 Warrant in an effort to provide more education related to issues discussed in that document. For more information, see the 2011 Warrant, which is posted on the Town of Wayland website.