Setting tax rate no simple matter
IN THE CITY
by Jim Bennett
The agenda package is prepared for the July 9 meeting of the City Council. One of the major discussions on Monday night will be setting of the tax rate for 2012. In order to meet the deadline for the paper, this is being written prior to the meeting. I obvious do not know what decision the Council will make on Monday evening, but I thought you would appreciate a little more in depth understanding of the issue.
The final determination of the property tax rate is a mathematical exercise that is governed by State law. It essentially has five major components. They are as follows:
• Total authorized spending by the municipal government;
• The property tax bill that the city receives from Aroostook County that we must collect for their operations;
• The property tax bill that the city receives from SAD 1 that we must collect for their operations;
• The total non-property tax revenues used to offset the budget (reduce the amount property taxes needed). The primary sources are excise tax paid on vehicles, revenues received from the State Government and charges for services; and
• The total taxable property within the city, which is established based on April 1 of each year.
The 2012 budget that was adopted in December, based on the assumptions used, would have kept the tax rate at $23.50 again this year (it has been that rate since 2010). Unfortunately, two of the major assumptions did not come true; namely that the Aroostook County tax would remain the same at $574,759 and that our total value of the city would remain at $514,261,150. The County tax increased by $30,351 to $605,109. At the same time, the total value of the taxable property decreased to $510,083,650; a loss of $4,177,500 in taxable property.
The tax rate is set by taking the total amount needed to collect for taxes ($12,085,137 in 2011) and dividing it by the total value of the city ($514,261,150) for a factor of 0.02349999 or $23.50 per thousand dollars of taxable property.
Back in December, the adopted budget approved by the City Council decreased municipal spending by $181,344 in order to keep the tax rate flat. Of that amount, $175,000 was directly related to the reduction in Municipal Revenue Sharing from the state of Maine.
These two factors will require a mid-year budget adjustment in order to keep the tax rate flat for the third year. The budget will need to be further cut by another $145,974, bringing the total reductions to $290,044 from last year.
The challenge on Monday evening is to decide two questions. First, they need to ask whether it seems fair to further reduce your city services (by $30,351) in order to send those funds to Aroostook County for their use, instead of passing that tax increase ($0.06 or 0.0025 percent on the tax rate) on to you. Admittedly, there are very little of the services provided by the County that are directly beneficial to Presque Isle residents.
It should be noted here that I do not believe that the good folks making decisions for Aroostook County are budgeting irresponsibly. I suspect it is quite the opposite. While I am certain they are receiving less money from the State and other sources, the fact is that the Council has to decide that very question on Monday night. Given the condition of economy and the challenges citizens are facing, I know that they will be deeply concerned about raising property taxes, even if it was only $0.06 or 0.0025 percent on the tax rate.
The second question facing the Council is whether they should pass the loss of property tax revenues because of the loss in values onto the remaining taxpayers or reduce services accordingly. The drop in value is reducing the revenues to the city by $98,171.25 ($4,177,500 x .002350). In order to make up that difference, the tax rate would go up by $0.20 on everyone else, or 0.85 percent. Combined, the two would impact citizens by just over 1 percent on their bill. With the assistance of the management team of the city, I have prepared a set of recommendations for the Council to consider in order to formally reduce the budget so that the tax rate will be held flat.
In summary, the Council will be faced with making a decision on whether they will further reduce a declining municipal budget in order to hold the tax rate flat for the third year or whether it is time to bump the rate up slightly (just over 1 percent for a tax increase of $0.20 or $13.95 increase for the average home). There are two factors requiring the Council to take this action. First, the property tax bill from Aroostook County increased by $30,351. Second, the taxable property decreased by $4,177,500. As a side note, the budget is already less than it was last year. In fact, the city is receiving $300,000 less in revenue sharing from the State than it did in 2010.
Once again, the City Council will be faced with making choices between two alternatives that are both unattractive.
Jim Bennett is Presque Isle’s city manager. He can be reached at 760-2785 or via e-mail at jbennett@presqueisleme.us.
