Who will Win the “New Library” Contest—Shutesbury or Otis?

The Massachusetts Board of Library Commissioners (MBLC) will decide in early 2022 which town will receive the Small Library Pilot Project grant covering 75% of the eligible costs to construct a new library. Of the original four applicants, Chester and Florida have dropped out, leaving only Shutesbury and Otis as contenders.

How will the MBLC decide which town is most deserving? The Pilot Project Program Notice hints about the Selection Procedure, outlining the review panel that will study the worthiness of the applicants and recommend the winner to the MBLC Director. It is not a complete picture, however, since the document states that “A site visit and in-depth interview will be part of the review process”, indicating a more rigorous investigation than is described.

The panel has other metrics to consider, such as financial barometers and community needs. The list of six indicators is apparently not exhaustive, being introduced by the phrase, “The criteria for review and ranking will include”—again inferring that there is more to the list than meets the eye.

Trying to guess the victor is difficult, considering the dearth of information available. One thing seems certain: The decision will be made subjectively, not objectively.

Since I can’t resist prognosticating, I delved into some facts and figures in an effort to predict the winner. Here’s what I came up with, taking one criterion at a time.

1. Community need as determined by the current facility and its inadequacy to meet the community’s library service needs. Deferred maintenance must not be the primary reason for inadequacy.

In addition to a lack of water and septic to M.N. Spear and potable water to the Otis Library and Museum, both towns blame current space restrictions as the reason for a new library. Shutesbury’s MN Spear Library is only 768 or 900 square feet, (depending upon which library document is used as a source) and the Otis Library and Museum is 1,200 square feet (Note: the square footage for the Otis library listed on the MBLC Library Statistics page for 2018 is incorrect; I obtained the correct building size by calling the Otis Library Director).

In 2018 Shutesbury became number two in total circulation in the small library category (town population fewer than 2,000) in spite of our small building. Otis is further down the list, at number 14. This is a great achievement and shows that its small size has not prevented the MN Spear Memorial Library from serving the public’s needs.

2. Community Need Factor as calculated using DOR’s 2022 data for EQV and income per capita.

Comparing equalized values (the total value of all assessed property in town) for both towns, we see that Otis has a whopping $659 million compared to Shutesbury’s $244 million for 2020. Assumedly, the gap will be just as wide for the year 2022.

Otis beats Shutesbury regarding income per capita, as well: $35,153 vs. $28,862 for 2022.

Based on these two measures, Shutesbury appears to be the neediest.

3. Demonstrated community readiness and support for a major capital project.

This metric is unclear. Does “community readiness” reflect the information collected from the other criteria? Or is it a measure of something else? If it is the former, it seems redundant to include it as a separate category; if it is the latter, it is a useless measure unless it is made more clear.

“Community support” is equally vague: do they mean financial (which would be answered via other criteria on the list) or a general enthusiasm? 

Except for the select few Shutesburians with which they have consistent contact, the Commissioners might find zeal for this project wanting. As an example, note the 100 or so persons assembled at the videoed August 17 informational meeting. Assuming 75 of the attendees were pro-project, that number reflects only 5.2% of the registered voters in Shutesbury. Also, this number was achieved only after each Trustee contacted “a few people” to request they attend in an effort to achieve “a large turnout”.

4. Availability of a suitable site.

I found no information pertaining to Otis’ optimal site for a new library. For Shutesbury, the choice seems to be Lot O-32.  In mid-September, soil and groundwater samples were taken and sent for testing; so far no results have been announced.

5. Town/library willingness to work closely with the MBLC in the programming and design of the library.

Since this is a requirement, no doubt both towns plan to comply.

6. Financial stability of the municipality, its bonding capacity, and any financial reserves.

While both towns are financially stable, Otis has several advantages over Shutesbury.

Since 2017, Otis has been feeding its Stabilization fund with cash, raising its rainy day fund from about $847,000 in 2017 to a robust $1.3 million in 2021. Shutesbury had approximately $1.04 million in its Stabilization account in the years 2017 and 2018, but reserves fell in the next two years. In 2021 Shutesbury had about $711,000 available in its Stabilization fund.

When it comes to Free Cash, Shutesbury had slightly more in 2021 than did Otis—$1.4 million to Otis’ $1.2 million.

When it comes to overall wealth, Otis shines. The town has 1,536 single-family parcels compared to Shutesbury’s 748 and, since 2012, Otis has added 17 new parcels to the tax rolls while Shutesbury has lost 37. Single-family values in Otis total more than $501 million and Shutesbury’s stand at a little more than $187 million.

Otis’ average single-family values are higher than Shutesbury’s too: $326,575 to $250,434. Shutesbury’s average tax bill, at $5,662, is more than double that of Otis, which is a mere $2,766. Shutesbury residents face more of a struggle paying their tax bills, as well, using over 21% of their income to do so. Otis taxpayers spend only 8.35% of their income on property taxes.

Both towns have a single tax rate. For fiscal year 2021, Shutesbury’s rate was $22.61 ($23.37 for FY22). Otis’ fiscal year 2021 tax rate was $8.47, less than half of Shutesbury’s.

Checking the FY2020 Municipal Debt spreadsheet online, I found Otis carries no debt, compared to Shutesbury’s modest $232,000. The Division of Local Services notes that Otis has a Standard & Poor’s bond rating of AA, but does not report any rating for Shutesbury (though several other municipalities are missing this information, as well).

Conclusions

Predicting a winner is nearly impossible based upon the above criteria, some of which seem to be at odds with others. 

The concept of “need” is particularly confusing. If the predominant factor is income and equalized values, Shutesbury wins hands-down. Assumedly, this criterion is meant to give state aid to the less wealthy small towns. 

But this seems to contradict the last criterion, which appears to give weight to towns with large cash reserves and the ability to take on debt. For Shutesbury, the propensity to tax so close to the limit of $25/$1000 of valuation set by Proposition 2 ½ implies little financial wiggle room for new expenditures or debt.

Also, the work put in by Shutesbury to whittle down its debt over the past 20 years may indicate a disinclination to again take on large amounts of debt. To learn more about Shutesbury’s debt history, see my post dated August 11, 2021 “Inside Shutesbury’s Cash Stockpile”.

On the other hand, Otis’ low tax rate, lack of debt, and a large pool of taxable properties may make it look more “stable” to the review board members making the ultimate recommendation. With selection guidelines this vague, it’s anybody’s guess.

Weekly Factoid:

 

The first public library in the U.S. was founded in 1790 in Franklin, Massachusetts. The initial collection of books available to lend to the public was donated by Benjamin Franklin, after whom the town was named.

 

Source: Town of Franklin, MA 

 

Everything You Always Wanted to Know About Proposition 2 ½

Proposition 2 ½ was passed in 1980 and forced changes to the myriad ways Massachusetts residents were taxed. Known primarily for its limiting effect on property taxes, Prop 2 ½ also capped vehicle excise taxes and put the brakes on funding demands from local school committees created with little or no input from municipalities. The law also did away with the “unfunded mandate” whereby cities and towns were forced to implement policies promulgated by the state without the funds with which to do so.

Though most people are familiar with Prop 2 ½, many don’t entirely understand it. Indeed, comprehending all aspects of the law can pose a challenge to all but the most stalwart tax nerds. Though its precepts make financial sense, the multiple types of tax levies and exclusions are baffling and the ways the 2 ½ % increase is applied and used in taxation is commonly misunderstood.

Fear not. To simplify this important issue, I’ve put together this little post to clarify this somewhat complex--but extremely important--aspect of the property tax picture.

The Division of Local Services has a useful downloadable guide on Proposition 2 ½ that strives to explain the befuddling law to municipal officials. It truly is the best I’ve seen and I’ll refer back to it often as I plow through the ins and outs of Prop 2 ½. 

All About Levies

The Tax Levy

Before Prop 2 ½, there was only the good, old-fashioned tax levy--the amount in taxes raised by the town to help fund its annual budget. As discussed in an earlier post, residential taxes make up about 94% of Shutesbury’s tax levy and 73% of its annual budget.

In many communities, escalating tax levies helped fuel the Proposition 2 1/2 referendum vote famously put forward by the group Citizens for Limited Taxation. Among the changes made to the local taxation system were restrictions to the tax levy itself.

Levy Ceiling

The caps on tax levies brought about by Prop 2 ½ now meant that municipalities could only tax up to 2.5% of the “full and fair cash value” of the combined values of all real and personal property in the city or town. This amount is the levy ceiling. This is the absolute maximum a municipality can levy in any given year.

➤Total value of all real and personal property in town * 2.5% = Levy ceiling

For Shutesbury, the formula will look like this once state aid is known and personal and real property values are certified by the Commissioner of Revenue:

➤$227,578,443 * 2.5% = $5,689,461 

Levy ceilings can, and often do, change from year to year as property values increase (or decrease), the values of new properties are added to, and the value of demolished properties are subtracted from the tax base.

Levy Limit

Below the levy ceiling lurks the levy limit.

While the levy limit can never exceed the levy ceiling, cities and towns generally do not tax residents right up to the levy ceiling. The levy limit is the amount up to which municipalities are allowed to levy taxes each year. This amount also changes from year to year and is based on the previous fiscal year’s levy limit.

How does a levy limit increase, you ask? Start with the last fiscal year’s levy limit and multiply by 2.5%, the maximum allowed annual increase for every municipality. Add this amount to the prior levy limit. Add in the new growth, which is the amount of new development, additions to existing properties, new personal property, and tax-exempt properties being returned to the tax rolls (through a sale, for example).

➤Prior year’s levy limit  *  2.5% =  Maximum increase allowed each year

➤Maximum allowed increase + Prior FYlevy limit + New growth + Overrides (if applicable) = Current FY levy limit

Plugging in Shutesbury’s numbers from the revenue budget for fiscal year 2022:

$5,649,760 * 2.5% = $141,244

$141,244 + $5,649,760 + $10,000 (New Growth) = $5,801,004  (LEVY LIMIT)

The new levy limit of $5,801,004 is still not final; the town has a few more additions and subtractions to do.

$5,801,004 + $31,638 (Debt Exclusion) - $513,080 (Excess Levy Capacity) - $40,000 (Overlay) = $5,279,562 (TOTAL TAX LEVY)

In the FY 2022 Revenue Budget document, the Debt Exclusion (line 16) is for a 10-year Capital Plan for the Regional School system;

The Excess Levy Capacity (line 19) is the difference between line 17, Maximum Allowed Levy ($5,832,642), and line 20, the Tax Levy ($5,319,562);

The Overlay (line 22) is the amount of money set aside for the fiscal year to make up any revenue lost through tax abatements and exemptions.

Whew. Is your head spinning yet? 

This succinct graphic, courtesy of the Massachusetts Division of Local Services’ Levy Limits: A Primer on Proposition 2 ½, is helpful when trying to visualize how the levy types discussed relate to each other

Communities are not required to levy right up to the levy limit if their budgetary needs do not oblige them to do so. If the tax levy is below the levy limit, the amount not levied is called “excess levy capacity” and goes untapped for that particular budget year. Though this amount is not accessible after the tax rate is set, next year’s levy limit is still based on the prior year’s levy limit, not the actual tax levy. In other words, communities are not penalized the following year for fiscal conservatism.

Municipalities are also not restricted by a decision not to levy up to the levy limit in any given year. If a town or city chooses, it can levy taxes right up to its limit the next year and any subsequent year. It is a decision made on an annual basis and is not impacted by the prior years’ decision. 

Is excess levy capacity a good thing? Can cities and towns levy above the levy limit or levy ceiling? The answers to these and other burning questions will be answered as I continue to plumb the depths of Proposition 2 ½.

Weekly Factoids:

 

Despite the restrictions of Proposition 2 ½, Massachusetts ranks 34 out of the 50 states for the lowest effective tax rate.

 

Hawaii is No. 1 for the lowest effective tax rate and Alabama is No. 2; Hawaii’s median home value is the highest at $615,300 and Alabama’s is the third lowest at $142,700 (only Kentucky and Indiana are lower at $141,000 and $141,700).

 

Source: WalletHub

 

Is it Time to Axe Shutesbury’s CPA Tax?

The Community Preservation Act (M.G.L. 44B) was passed in September of 2000 and allowed municipalities to levy a property surcharge of up to 3% on real property and to create a Community Preservation Fund in which to deposit these funds. The money, which would be disbursed by the community’s CPA Committee, must be used for very specific purposes: to protect open space, preserve historic sites, and support outdoor recreation and affordable housing. 

Communities have the option of levying the surcharge in 0.5% increments up to the maximum of 3%; communities who enact the maximum 3% rate are eligible for up to 100% matching state funds. 

Those who levy between 1.5% and 2.5% qualify for an unspecified “match” from the state. The match rate varies from year to year as it is dependent upon “fees on filings at the registry of deeds and land court.” There are allowable exemptions for low-income persons and low- and moderate-income seniors. Veterans and their surviving spouses may also be eligible for an exemption. Municipalities can vote to exempt the first $100,000 of each taxpayer’s property. Shutesbury exempts the first $100,000.

A Fund Brimming with Unused Money

Shutesbury adopted the CPA by a sizable majority (75% for, 25% against) at its 2008 Town Meeting. The town elected to charge its taxpayers an additional 1.5% of their property value to be eligible for matching state funds.

Since 2009, Shutesbury has amassed $454,940 in its CPA fund. Subtracting this amount from the total amount raised over the last 12 years, $591,696, shows that Shutesbury has used only $136,756 from that account in that time. Tallying approved projects from 2011 through 2019 shows a total of $179,750. This reserve fund analysis prepared for the 2021 Town Meeting indicates that $44,774 has been set aside for unfinished projects--which is close to the difference between $179,750 and $136,756 ($42,994).

Limitations and Drawbacks of the CPA Tax

Though the CPA has helped Shutesbury save money, spending it has proven tricky. Over the years, the law’s downsides have become clearer. 

The most obvious is the restrictions placed on the use of the funds. Another is that, by relying on registry fees to feed the CPA Trust Fund, money available from the state match will ebb and flow depending upon the level of recording activity at the registry. Since 2012, state budget surpluses may be added to the trust fund but those are equally unreliable. 

Since the trust fund is the same size regardless of the number of cities and towns adopting the law, the payouts decline as the pool of adopters grows. When Boston began receiving CPA matching payouts in 2019, a big chunk--$3.6 million--of state money was removed from the pool distributed to all adopters.

Another problem: The law favors wealthy communities. For municipalities accepting the maximum 3% surcharge, the state match is much higher--up to 100%. 

All towns that adopted the CPA receive a  “round 1” distribution in matching state funds from the Massachusetts CPA Trust Fund, an amount which consists of 80% of the Trust Fund’s total by the end of October. For municipalities taxing below the 3% threshold, disbursements stop after round 1.

The remaining 20% of Trust Fund money is reserved for communities that opted for the full 3% surcharge, amounts that are disbursed in two additional funding rounds. A study by the Kennedy School of Government and Harvard University in 2007 noted that cities and towns with higher property values tend to adopt a 3% surcharge, noting that communities on Cape Cod and in Middlesex County were big winners when it came to CPA matching funds.

For Shutesbury, the average state payout over the past 12 years is 28% of the amount taxpayers paid through the CPA tax.

The CPA also disregards Proposition 2 ½, which was enacted by ballot vote in 1980. When accepting Sections 3 through 7 of the law, which municipalities must do to adopt the CPA, they agree that the surcharge “shall not be included in a calculation of total taxes assessed”. This essentially allows communities to tax beyond the limit of Prop. 2 ½. 

Can Shutesbury use more of the CPA funds it has on hand? 

Currently, both Town Halls have mold problems. These buildings have historical significance and qualify for CPA funding. 

The Old Town Hall has been a subject of concern for some time. The Select Board created a Records Storage Advisory Committee (RSAC) in June 2017 to make recommendations regarding the preservation of the town’s archival records. Discussions involved the conditions at Old Town Hall since that is where most records are stored. Moisture in the vault and main room where documents are kept were identified as major problems. 

Although a member of the Town Buildings Committee was appointed to the RSAC as requested by the chair of the Buildings Committee, a draft report of the RSAC says that person “did not attend” meetings. The document later mentions that the Building Committee had the bricks in the Old Vault sealed as a barrier against moisture and suggested installing mini-splits to control humidity. That suggestion “languished” despite the fact that funds are available.

In May 2019, Town Meeting approved a $34,000 CPA project that would perform maintenance and repairs to Old Town Hall. The mold problem persists and has been cited as a reason why the building is unsuitable for community use. Perhaps CPA funding--for Old Town Hall and Shutesbury Town Hall--should be utilized to remediate the mold issues once and for all.

The money might also come in handy if the town decides to forgo a new library building and renovate and expand the existing one. CPA funds could be used to refurbish the existing, historic building, fix the heating system, and possibly pay to hook up to Town Hall’s well and septic. The Massachusetts Board of Library Commissioners offers grants for library expansion “on an irregular basis”, covering 45% to 50% of eligible costs. 

Even without a state grant, Shutesbury could likely handle a library expansion project similar to the one proposed (and withdrawn) in 2001. Wendell borrowed $1.24 million in 2012 to build a new library and town hall. Assuming half that amount was dedicated to its 4,200 square foot library and using an inflation calculator, Shutesbury would need approximately $736,000 today to expand the current library by the same square footage. To date, the town has $514,000 earmarked for library construction.

It’s Time to Take a Break from the CPA Tax

It seems unreasonable to continue to tax Shutesbury property owners when the CPA fund is full of unspent money and there are no new projects on the horizon. The Old Town Hall project is the last on the state’s list and it appears there are no others on tap since the CPA Committee has not met since the spring of 2019.

The law requires a community that adopts the CPA to maintain adoption for five years, after which time it can revoke its acceptance by the same means it used to adopt the terms of the legislation. Until we can find eligible uses for the cash we have saved, perhaps we can consider repealing Shutesbury’s Community Preservation bylaw at the next Town Meeting.

Weekly Factoids:

 

Local governments in New England rely more heavily on property taxes as a revenue source than other U.S. states.

Source: The Lincoln Institute of Land Policy

 

Big-box stores have successfully used the “dark stores” assessment theory (the claim that the best comparable sales for chain stores are vacant or “dark stores”) in many U.S. states to significantly lower their property taxes, to the detriment of local governments.

Source: Bloomberg News