Q. What is the tax levy?
A. The tax levy is the total amount of money that is collected by the town each year in property taxes on residential and commercial property. For the 2007 fiscal year, this amount is $32,080,051. Of this amount, $28,983,904, or about 90%, comes from residential property taxes, while the other $3,096,147, or 10%, comes from commercial, industrial, and personal property taxes.
Q. What is the levy limit?
A. The levy limit is the maximum amount allowed for the tax levy by Proposition 2½; the tax levy may be below the levy limit, but it may not exceed the levy limit. Although the tax levy is allowed to be below the levy limit, in recent years, in Amherst as in many other towns in Massachusetts, budget constraints have forced the tax levy up to or very close to the levy limit. As a practical matter, this means that the levy limit determines how much revenue the town is allowed to raise in property taxes each year.
Q. What is Proposition 2½?
A. Frustrated by the high rate of increase of residential property taxes in the late 1970s, Massachusetts voters passed Proposition 2½ in a statewide ballot initiative in 1980. The proposition places limits on the growth of the tax levy from year to year. Each year, the levy limit can only grow by a maximum of 2.5% more than the previous year, unless a higher amount is approved by the voters. The law also allows the levy limit to increase as a result of new growth, which is new development, construction, and renovation, all of which add to the total value of the community’s taxable property, lowering tax rates by distributing the tax levy across a larger base.
The law also imposes a levy ceiling that limits the tax levy to no more than 2.5% of the total assessed value of all taxable property in town. This provision affects some towns, but this part of the proposition is not currently an issue in Amherst, where the tax levy is well below this levy ceiling.
The 2.5% annual limit on growth in the levy limit imposes sharp constraints on towns when costs rise at a rate higher than 2.5%. In recent years, inflation alone has resulted in costs that increase at rate higher than 2.5% annually (local inflation was 3.5% in 2004, 3.4% in 2005 and 3.6% in 2006). Fuel costs and health care costs have also been rising at levels considerably higher than 2.5% in recent years. This means that the 2.5% allowable growth in property taxes is not enough to compensate for rapidly rising costs; even though the revenue increases each year, the costs increase faster, and as a result Amherst needs to cut back on its services each year.
The details on how the levy limit calculation process works are slightly more complicated than the overview presented here. For a detailed view of the whole process, see the excellent Massachusetts Department of Revenue document “Levy Limits: A Primer on Proposition 2½”, available on the town website at http://www.amherstma.gov/budget/levylimits.pdf. You can also see the full text of the Proposition 2½ legislation itself at http://www.mass.gov/legis/laws/mgl/59-21c.htm.
Q. What is an override?
A. Proposition 2½ allows towns to override the constraints on the levy limit imposed by the proposition, if approved by the voters of the town. The ballot question on May 1st seeks this approval. For the current 2007 fiscal year, Amherst's levy limit is $31,713,076. Proposition 2½ allows this amount to increase by 2.5% in fiscal year 2008, which would add $792,827 to the levy limit. The Proposition 2½ override would allow the town to increase the levy limit by more than the $792,827 allowed by the proposition. If the voters of Amherst approve Question 1 on the May 1st ballot, this would allow the levy limit to increase by an additional $2,500,000 in fiscal year 2008. For many more details on these calculations, along with general information about the history of overrides in Amherst and elsewhere in the state, see the Amherst Finance Committee’s January 2007 report entitled “Overrides - A Finance Committee Report to the Citizens of Amherst”, available at http://www.amherstma.gov/budget/Overrides_Report_Jan_2007.pdf. You can also view more information about the entire budget process, including budget details for municipal services, the schools, and the libraries, in the “2008 Budget Process” section of the town website at http://www.amherstma.gov/budget/.
Q. What will Amherst do with the extra money collected by the override?
A. Some of the funds (approximately $1,500,000) will be spent in fiscal year 2008 to prevent the severe cuts in services that would be necessary without the override (although significant service cuts will be necessary in 2008 even if the override were to pass). The remaining funds will be held in reserve to be used during the next two years, when costs are expected to continue rising at a rate higher than the 2.5% imposed by Proposition 2½. The extra revenue collected by the override is expected to be sufficient to cover expected fixed-cost increases over that period, allowing the town to provide essentially the same level of services from 2008 over a period extending to 2010, without requiring any additional overrides over that period. Expenditures will be capped during this period. And that time will be used to aggressively pursue new, long-term revenues for the town, in partnership with the educational institutions and the state, and beginning with the hiring of an economic development director. Success in any of these efforts will extend the three-year plan.
Q. Why are we having another override? Didn't we just have an override?
A. In 2004, Amherst's voters narrowly approved a $2 million Proposition 2½ override. This money was required to balance the operating budget for fiscal year 2005, and prevented drastic service cuts that would have been required without the override. However, the override only provided enough funding to tide the town over for a single year. Balancing the 2006 and 2007 budgets required additional service cuts, along with further withdrawals of funds from the town reserves.
Q. What is different about this override?
A. Unlike the 2004 override, the Amherst Plan is a three-year plan for spending caps, the pursuit of additional revenues, and an override that provides enough revenue to fund town operations for the three-year duration of the plan. And it also provides the necessary time for the Town to take aggressive new steps to enhance our revenues.
Q. What are the elements of the Amherst Plan?
A. The Amherst Plan begins with strict spending caps on municipal services, the school system, and the libraries. Annual spending increases are limited to 3% in 2008, 5.5% in 2009, and 5.6% in 2010. These spending caps would still require moderate cuts in services in 2008, but would then allow essentially level services over the following two years.
The next element of the Plan is the pursuit of additional revenues through State legislative action (a local option meals tax, increased hotel room tax), through the colleges and university for public safety funding, and through appropriate economic development, like ongoing projects such as the expansion by Amherst College of the Lord Jeffrey Inn and the imaginative multiple-use development by Hampshire College at Atkins Corner.
The final element of the Plan is a $2.5M Proposition 2½ override that will be on the ballot on May 1st. The override amount is tailored to produce enough revenue to support level FY 2008 services for the next two years. Whatever success we have with our efforts to secure new long-term revenues will extend the plan beyond three years.
Q. What if the revenue enhancements are not successful? Will there be another override next year?
A. The $2.5 million override will fund the town for three years, even if the revenue enhancements do not bear fruit. The Amherst Plan is based on conservative financial projections and does not presuppose the success of the revenue enhancement efforts. However, the Finance Committee and the Town Manager are strongly committed to these efforts, and additional revenue that is generated over the next three years will serve to lengthen the lifespan of the plan beyond the three-year minimum projection.
Q. How can we trust the budget caps? Won't town officials just spend the money?
A. The Town Manager and school Superintendent have absolutely committed themselves to the spending caps. They will not present budgets that exceed those caps, and even if they were to do so, Town Meeting still has the ultimate authority to allocate funds, and would be strongly urged by town officials to deny budgets that exceed the mandated caps.
Q. What happens if costs rise faster than expected?
A. The budget caps are absolute, and would not be exceeded. Town officials are committed to guaranteeing the success of the plan over a three-year period, and this requires adherence to the budget caps. If costs rise faster than expected, then cuts would have to be made in order to maintain the budget caps. The Town Manager and school Superintendent understand this, and are willing to accept this risk in return for the substantial financial stability that would be brought by a three-year plan.
Q. How much is the override going to cost me?
A. The override will add about $122 annually to your tax bill for each $100,000 in assessed valuation for your property. Some examples:
Assessed Property Value Annual Increase
$100,000 $122
$300,000 $367
$500,000 $611
The average single-family house in Amherst has an assessed value of approximately $330,900. The tax increase from the override for such a property would be $404.
Q. What property tax relief measures are available for those who cannot afford such a tax increase?
A. There are a variety of programs available to provide property tax relief. Eligibility requirements vary. Current information is available from the Town Assessor at assessors@amherstma.gov. Governor Patrick has proposed a significant expansion of the so-called "circuit breaker" for eligible seniors: it would remove age as an eligibility criterion and, if adopted by the legislature, could benefit an estimated 100,000 persons state-wide. It is one of the initiatives the Town would lobby for.
