The Massachusetts Residential Property Tax Exemption

 

For many Massachusetts municipalities, the residential tax burden is partly relieved by property tax exemptions and, in those cities and towns with a sizable business and/or industrial sector, a split tax rate.

Unfortunately, many residents are not eligible for property tax exemptions. Though split tax rates, which shift the tax burden away from residential taxpayers and onto the commercial, industrial, and personal property (CIP) assessment classes are common in large cities, most communities use a single tax rate. As of 2021, 241 of 351 municipalities have single tax rates–including Shutesbury. 

Some communities have adopted a different way to alleviate the residential tax burden for their more vulnerable residents: the residential property tax exemption. Instead of shifting the tax burden between the residential / open space (RO) class and the CIP class, the shift occurs within the residential sector only. 

How it Works

Under this system, primary residences of lower value shoulder less of the property tax burden than vacation homes, rental properties, vacant land, and highly valued homes.  The formula looks like this:

(A)Total Residential Value / (B)Total Residential Parcel Count = (C)Average Residential Value

(C)Average Residential Value ✕ (D)Selected Residential Exemption % = (E)Residential Exemption 

(E)Residential Exemption  ✕ (F)Number of Eligible Residential Parcels = 

(G)Total Residential Exemption Value

(A)Total  Residential Value - (G)Total Residential Exemption Value = 

(H)Total Residential Value minus Exemption (New Taxable Value)

A new, higher, residential tax rate will emerge since the total assessed value has been reduced by the “total residential exemption value”. 

For fiscal year 2022, only 20 municipalities, mostly in eastern Massachusetts, offer a residential tax exemption to homes where the property is the taxpayer’s principal residence. The exemption applied cannot exceed 35% of the city or town’s average assessed value of all residential properties. This percentage, voted annually by the community’s Select Board or Mayor, is applied to the assessed value total and subtracted from each residential property. The percentage can vary from one municipality to another. No matter which percentage is chosen, no property may have its taxable value reduced to more than 10% of its full and fair cash value.

Are you confused yet?

Real-World Example: Shutesbury

To try and simplify this complicated process, I used the formula above and data from the Division of Local Services Residential Exemption Calculator to see how a hypothetical 35% residential tax exemption would look for Shutesbury. 

To determine the number of properties eligible for exemption, I started with 997, the total number of all residential parcels including vacant land. 749 of these properties are single family homes and 32 are a mix of multifamily dwellings, primarily duplexes, for a total of 781 developed parcels. Shutesbury has approximately 130 vacation homes. Subtracting the vacation homes and half of the multifamilies (estimating they are 50% owner-occupied) from the total number of developed parcels yields 635 properties that are eligible for the residential exemption: (781-130-16) = 635.

Note: These numbers are presented for informational purposes only and are not to be construed as an exact representation of Shutesbury’s suitability for the residential tax exemption. The figures in the formula below have not been rounded off.

(A)$214,968,088 / (B)997 = (C)$215,614.93 ✖ (D).35 = (E)$75,465.23

(E)$75,465.23  ✖ (F)635.12 = (G) $47,929,476.88

(A)$214,968,088 - (G) $47,929,476.88 = (H) $167,038,611.12 

Because the total amount of taxable value has decreased, the tax rate will increase:

Total Tax Levy Fiscal Year 2022 / Total Residential Value - Exemption (New Taxable Value)  ✖ 1,000 = New Tax Rate

$5,001,897 / $167,038,611.12  ✖  1,000 = $29.94 

The new tax rate would be $29.94 compared to the current $21.82 and would be applied to a qualified (owner-occupied) home’s assessed value after subtracting the exemption amount of $75,465.23. According to the chart below, the “break-even” value would be $278,597.90. 

Estimated Impact on Residential Tax Bill

Owner-Occupied     Home Value	Tax Bill     Without Exemption	Tax Bill     With Exemption	Change in           Tax Bill
80,000.00	1,746.40	135.77	-1,610.63
130,000.00	2,837.90	1,632.77	-1,205.13
160,000.00	3,492.80	2,530.97	-961.83
190,000.00	4,147.70	3,429.17	-718.53
220,000.00	4,802.60	4,327.37	-475.23
250,000.00	5,457.50	5,225.57	-231.93
278,597.90	6,081.79	6,081.79	.00
310,000.00	6,767.30	7,021.97	254.67
340,000.00	7,422.20	7,920.17	497.97
370,000.00	8,077.10	8,818.37	741.27
400,000.00	8,732.00	9,716.57	984.57
430,000.00	9,386.90	10,614.77	1,227.87
460,000.00	10,041.80	11,512.97	1,471.17
490,000.00	10,696.70	12,411.17	1,714.47

Source: Division of Local Services

The exemption amount of $75,465.23 would be subtracted from the assessed value of every owner-occupied residence, regardless of value. The one exception in the table above would be a house valued at $80,000; the taxable value can not fall below $8,000, or 10% of its fair cash value.

Despite the rise in the tax rate, lower-valued properties would enjoy a discount while higher valued properties would see an increase in their tax bills as the higher tax rate affects more of the home’s value. As you can see, the break-even value of $278,597.90 is only slightly higher than Shutesbury’s current average single family value of $269,151. The residential exemption does not change the amount of tax revenue raised by the town.

Why so Few Communities Adopt the Residential Exemption

It makes sense that shifting the tax burden within the residential class would work best if there is a diverse range of properties within that class, just as splitting the tax rate only makes sense if there is a hefty business presence in the community. If the vast majority of the homes in a particular town are owner-occupied, there will be very few parcels to which the town can shift the tax burden. 

It is more difficult for many towns in Western Massachusetts to apply the residential tax exemption since so many properties are owner-occupied. Cities in the eastern part of the state, such as Brookline and Cambridge, have many rental units. Cape Cod and the Islands have a high number of seasonal homes. In the case of Shutesbury, even homes with values just $10,000 above the average will see some increase in their tax bills. In Great Barrington, where high-priced second homes are raising property values, officials have been talking about instituting the residential tax exemption since 2015. They have yet to do so.

A NextDoor Shutesbury posting from November 2021 indicated that many in Shutesbury may be willing to pay higher taxes so that less wealthy households shoulder less of the tax burden. How do you feel about that sentiment? Weigh in by taking the Progressive Taxation Poll on NextDoor.

Weekly Factoid:

 

Property Tax Exemptions: How does Massachusetts measure up?

 

Property Taxes: A Look at Exemptions, Tax Limits, and Assessment Cycles

 

When Will the Work on Shutesbury Elementary School Begin, and What Will it Cost?

 

Compromised Fascia

The Town Administrator (TA) announced at the January 11, 2022, Finance Committee (FinCom) meeting that the Town has again applied to the Massachusetts School Building Authority (MSBA) to obtain grant funding for the Phase 2 roof work at Shutesbury Elementary School (SES). Will the second phase of the school roof replacement project be postponed while the Town waits to hear whether or not it has been denied for the sixth time? Albert Einstein once said, “The definition of insanity is doing the same thing over and over and expecting different results.”

Though the 2021 Town Meeting approved a Free Cash transfer of $254,100 into the Shutesbury Elementary School Gym Roof Replacement Project (also known as "elementary school roof part 1"), there is no time limit attached to the project. Since the SB signed a contract with a roofing company on June 17, 2021, it seems reasonable that the town wanted the work done before the students returned to school.

By August 3, 2021, the gym roof replacement had already been postponed due to supply shortages. The interior drain work was completed, and a 14-week delay obtaining insulation material postponed the outdoor roof work. The contractor suggested the roof replacement might occur during the school’s Christmas break; a school committee member I asked said no outside work has occurred as of January 12. The contractor submitted a time extension request to April 22, 2022, which the SB accepted on October 26, 2021. COVID certainly has made it difficult to accomplish many projects, including this one.

Roof Tile Issues

While I understand the concern surrounding the cost of a large project like replacing the school’s roof, I don’t understand why the SB and TA chose to rely exclusively on MSBA grants rather than combine that activity with the town’s budgetary process. 

For example, the town began appropriating $25,000 for the Library Building Fund in fiscal year 2013. Town officials knew of problems with the SES roof in 2013; why didn’t they also create the Shutesbury Elementary School Roof Replacement Project Fund at that time? It seems more sensible to put money into a fund to maintain a functioning building in addition to or instead of raising money for a building that does not exist. If the town had done so, we would have $250,000 toward a new roof–more if the town had put as much effort into fundraising for that project as it has for a new library.

There is also the question of Shutesbury’s cash reserves. The town has been stockpiling great sums of cash over the past several years but has been loath to use it to rectify problems with the SES building or any other capital project that has arisen recently. In 2017, when the Building Committee (BC) announced that the school roof needed to be replaced, our Free Cash and Stabilization accounts totaled more than $2,000,000. Presently, our reserve levels are comparable, totaling $1,999,746. Shutesbury can easily fund the replacement of the SES gym roof, school roof, and whole-building ventilation system–without borrowing, which would put a larger burden on Shutesbury’s taxpayers.

Estimated Costs

There is no information available in any board or committee minutes concerning the question of installing air conditioning (AC) at SES, despite the recommendations of the 2020 Community Resilience Building study and the Town of Shutesbury Hazard Mitigation Plan of 2021. Both reports note the necessity of protecting school children from the effects of high temperatures and the enhancement AC would bring to the school’s designation as the town’s emergency shelter. 

The Hazard Mitigation Plan also notes that installing AC with the current school HVAC system would be pricey. 

Revisiting the cost estimates put forward by the FinCom on page 3 for necessary repairs and renovations to the SES:

➤Elementary School Roof,  Part 2:  $600,000

➤Whole Building Ventilation: $175,000 - $350,000

➤Total Estimate: $775,000 to $950,000

When I asked a FinCom member if the ventilation system estimate includes installing air conditioning, he said it did not. However, the system would be designed so that air conditioning could be added at a later date if the town so desired. He hopes the Town will be able to access American Rescue Plan Act Coronavirus State Fiscal Recovery Funds to help pay for the new ventilation system. 

Inflation and soaring building costs will factor into the total costs, as well. At the November 23, 2021, SB meeting attended by the BC, a committee member noted that building costs have gone up 40%. If that is true, the total estimate above of $775,000 to $950,000 may need to be increased by $310,000 to $380,000. 

Suggestions to Expedite Necessary Work at SES

It is obvious that the work needed to remediate problems at SES must be done soon. The commentary in the November 23 minutes showcases confusion and lack of unity on questions of process as well as an effort to ascribe blame for a “philosophical issue about spending money”— obstacles that have kept the school in a state of disrepair for much too long. 

After many hours of research into this matter, including reviewing the 11/23/21 SB meeting recording (available from the Town Clerk), I propose the following in order to resolve the conflict between town officials and promote the timely remediation of the long-overdue problems at Shutesbury Elementary School.

The Select Board must focus on supporting the original charge of the Town Buildings Committee. The SB Chair complained during the November 23 meeting that the charge of the BC is “vague” and that an update of the original charge is needed at this year’s Town Meeting; there was talk of dissolving the BC and starting over (as they did with the Energy Committee earlier in this session, presumably). The “confusion” over the BC’s charge stems not from vagueness but from excluding the BC from a process that should have included them. The BC is admonished for not meeting often enough, due to quorum issues, but the SB refused to appoint a prospective new member to the Committee despite having done so a few minutes earlier for the Recreation Committee. 

This attitude toward the BC from the TA and SB is particularly hazardous to the Town’s investment in buildings. The talent and reservoir of institutional knowledge that has been making the necessary repairs to SES should be retained with new members added as needed to support the renovation projects. As one SB member put it, “if we have a committee asking for help and someone is willing to help I think we should appoint them.”

The SB and TA must honor the process that will best address the problems at SES. In my conversation with a Shutesbury School Committee member, he noted a complete lack of process when it came to redressing infrastructure complaints at the school. He considered this to be the main reason there has been little progress and much confusion whenever projects at SES arise. This behavior is a poor use of taxpayer dollars and a waste of time.

A reasonable process would be to immediately refer all maintenance or repair issues to the BC for investigation and then to listen to their advice. Leaving this Committee out of the communication loop has resulted in many erroneous decisions that nearly led to needless waste of taxpayers’ money. 

Enable, not dissolve, the BC. Much of the November 23 meeting centered on pinning blame on the BC for the lack of progress being made on the problems at SES. The SB Chair made several references to a lack of a “capital needs assessment” of town buildings, putting the onus on the BC for not providing such a document (I found no evidence that this was ever requested). The SB Chair indicated that the town needed such an assessment in order to keep up with building repairs–which is what the BC has been doing all along.

It is disingenuous for the SB to claim that they have no idea of the status of SES and other town buildings. The SB and the TA participated in both the Hazard Mitigation Plan and the Community Resilience Building Workshop and filed several grant applications to the MA School Building Authority since 2014. Those applications required detailed descriptions of the school’s problem areas such as the roof and HVAC system.

End the quibbling about spending money on SES. Disinformation was dispensed at the November 23 meeting regarding the cost of recent repairs to the school’s sidewalks, heating system, and water heater replacement. The TA accused the BC of being cheap with sidewalk repairs, replacing only those areas that had buckled and leaving the rest alone. She alleged that because the entire sidewalk system at SES was not replaced, “people were tripping and falling”. In my discussion with the school committee member, he said he personally checked the sidewalks and there were no problems.

It is noteworthy that the situations in which the BC are accused of scrimping on costs are also examples where they were excluded from the process and an incorrect initial diagnosis was made by someone else (sidewalks, boiler, and water heater). Only after the BC Chair and a FinCom member interceded were these problems rectified and solved– providing Shutesbury taxpayers proper stewardship of their building and good value for their tax dollars.

Moving Forward

Those pleading for a clear procedure when it comes to preserving our town structures must be listened to, and town officials’ reluctance to spend money on building maintenance and repair must be overcome. A Town Meeting vote to move a minimum of $1,000,000 of Shutesbury’s cash reserves into a building fund specifically for the school should put the matter to rest and promote the maintenance and repair of Shutesbury’s most valuable asset: the Shutesbury Elementary School.

Weekly Factoids:

 

2020 Total Per-Pupil Expenditures, by Massachusetts school districts:

 

Highest: Provincetown, $40,538.17

Lowest: TEC Connections Academy Commonwealth Virtual School District, $10,290.32

Amherst-Pelham Regional: $22,489.13 

Shutesbury: $21,623.14

Source: School and District Profiles