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HomeMy WebLinkAboutAdvisory Committee for Alternative Tax Revenues - Report, 1983.pdf ALTERNATIVE TAX REVENUES COMMITTEE REPORT Submitted to BOARD OF SELECTMEN March 1983 ALAN FIELDS LAWRENCE KERNAN JOHN MALONEY RUTH MOREY FRANK PARRISH KENDALL WRIGHT JOHN McLAUGHLIN, Chairman INTRODUCTION A. Charge Proposition 22 placed new constraints on Lexington's ability to raise revenues through property taxes. On October 25, 1982 the Board of Selectmen established an Alternative Tax Revenues Committee to explore additional sources of municipal income. The Committee was charged to: 1 - Review revenue resources of the Town and anticipated demands on those resources, 2 - Investigate and recommend alternative sources of funding other than the property tax to support basic municipal services, 3 - Look at Federal and State Legislation, if necessary, to provide necessary revenue resources, 4 - Give particular emphasis to expansion of our tax base, 5 - Report back no later than March 1, 1983 and disband no later than July 1, 1983. The Committee found: 1. Lexington should develop alternate revenue programs. They can make a significant contribution to the Town's financial status, but they cannot solve all of our fiscal problems if spending continues to grow as currently projected. Alternate revenue programs may help to provide a better balance between who pays for services and who benefits from them. (Part I) 1 2. The most promising short-term source of alternate revenues resides in user fees. The Committee did not choose to recommend specific fees, but to present a "shopping list" for consideration. Some items on the list are conventional and easily projectable. Others will stir con- troversy and require considerable research and public debate. (Part II) 3. Voluntary contributions can play an important part in financing municipal services. We suggest that the Board consider means of expanding Lexington's activities in this area. (Part III) 4. Given the terms of Proposition 21 and the revenue multiplier effect of property tax classification, municipalities benefit financially by encouraging new development, particularly commercial and industrial development. The Committee recommends that the Board of Selectmen work with the Planning Board and other town bodies to develop a process for estimating the long term financial impact of land use decisions. Forthcoming deliberations over disposition of "excess" school and public land sites represent an opportunity to develop such a process. (Part IV) 5. The Committee also considered a number of other revenue sources which merit consideration but do not appear to offer significant financial opportunities at this time. We believe that some of these topics invite further attention. (Part V) 2 B. Financial Projections 1. Town Manager's Projections The Budget and Tax Rate Forecast by Components for the period of fiscal years 1984 through 1988 was presented to this committee as the basis of its deliberations. With the exception of the School Budget, major departmental expenses were broken down among Personnel, Capital and Other. The School Budget was broken down by Operating, Articles and Regional Vo-Tech. This budget, based upon the most current estimates and projections, indicates that a considerable cash shortfall will be experienced during each of the 5 years as shown in the following summary: SUMMARY OF BUDGET FORECAST FISCAL YEARS ($000's) 1984 1985 1986 1987 1988 EXPENSES Police 1,861 1,998 2,139 2,297 2,469 Fire 1,940 1,899 2,016 2,077 2,221 DPW 5,086 5,811 5,733 6,188 6,682 Library 717 941 826 887 955 Other 2,384 2,336 2,436 2,346 2,502 School 18,489 18,976 19,647 19,801 20,235 Personnel Fringe, Debt 4,788 4,903 4,816 4,887 5,150 Service and Reserve Fund Total Appropriations 35,265 36,864 37,613 38,483 40,214 State Charges, Offsets Overlay and Judgements 4,007 4,033 4,165 4,301 4,443 Total Town Expenses 39,272 40,897 41,778 42,784 44,657 REVENUE State Aid 4,500 4,500 4,500 4,500 4,500 Available Funds 1,905 1,684 1,476 1,456 1,460 Real Estate Within 21 Limit 27,813 28,608 29,451 30,290 31,178 Local Receipts 4,196 4,373 4,620 4,727 4,904 Total Town Revenue 38,414 39,165 40,047 40,973 42,042 Shortfall 858 1,732 1,731 1,811 2,615 Total 5 Year Cumulative Shortfall 8,747 3 2. Expenditure Uncertainties Because this committee's charge was to recommend alternative sources of revenue, it did not expend much of its effort on analyzing expenses. It was noted, however, that personnel expenses were forecast on the basis of an annual 7% compounded rate of increase and that capital budgets were adjusted at the same rate for inflation. It is believed that both of these rates are high estimates based upon current wage increases in industry and the present and anticipated inflation rates; both of which are lower than those used in these forecasts. In addition, there is no way to determine what improvements in personnel productivity or operating efficiency are anticipated during the 5 year period. By the use of fixed annual rates of increase for personnel expenses and constant average straight line increase in expenses, it appears that productivity and efficiency improvements have not been factored into the expense forecast. The School Budget, which represents approximately 50% of the total in each year, was presented (in "The Budget & Tax Rate Forecast by Components") in such a way as to defy constructive analysis. It is difficult to understand why expense increases of the amounts shown are necessary during a period of anticipated decreasing enrollment. This is particularly apparent when the forecasts show about the same range of increases during the next five years as they have during the past five years. 4 Except for these observations, no effort has been made to suggest expense reduction to offset the impending cash shortfall because other town committees are charged with that function and responsibility. 3. Revenue Uncertainties While there are always uncertainties in forecasting revenue, it is believed that it can be predicted more accurately than expenses because fixed rates are used only when they are already known, such as the "21" growth limit on the tax levy. Other revenue sources can be forecast from historical data without introducing additional sources of error associated with using fixed annual rates of increase. It is believed that the revenues forecast in the budget figures as presented by the Town Manager are reasonable and as accurate as possible within the framework of current information. 4. Base Year (FY 1984) Uncertainties This Committee's deliberations took place simultaneously with preparation of the FY 1984 budget. Rather than attempt to revise FY 1984 figures constantly, the Committee decided to use the 1984 figures used in the Budget and Tax Rate Forecast. We understand that this might result in some major discrepancies between our 1984 figures and those that eventually will be appropriated. These discrepancies, however, should not effect our findings. 5 5. Revenue Shortfall The projected cash shortfall resulting from the 5 year budget forecasts are of significant importance because it represents the major underlying reason for the formation of this committee. The revenue shortfall shown above is based upon the actual expense and revenue figures included in the Budget and Tax Forecast. In order to determine the quantitative effect of minor changes in expense forecasts on this shortfall, the committee reviewed the assumptions behind personnel, capital and school expenses. By assuming a 6% annual rate of increase for Town Personnel and Capital expenses instead of the estimated 7%, and projecting a similar 1% annual difference in School Operating Expenses (assuming similar percentage increases were used by town management in its school expense forecast) , the following revised shortfall figures would result: ($000's) 1984 1985 1986 1987 1988 Reported Shortfall 858 1,732.0 1,731.0 1,811.0 2,615.0 Projected Savings 266 556.3 853.3 1,161.1 1,509.2 Revised Shortfall 592 1,175.7 877.7 649.9 1,105.8 % Shortfall Reduction 31% 32% 49% 64% 58% Total 5 Year Cumulative Shortfall - Reported 8,747 Total 5 Year Cumulative Shortfall - Revised 4,401.1 Total 5 Year Cumulative Shortfall - Reduction 4,345.9 Approximate 5 Year Cumulative Reduction 50% As these projections indicate, the magnitude of Lexington's revenue shortfall is very sensitive to assumptions concerning cost increases, a factor which should be given considerable attention. 6 I. THE ROLE OF ALTERNATE REVENUES The Committee believes that Lexington should develop alternate revenue programs. Such programs can produce significant additional income. Additionally, by shifting more of the cost burden to users of particular activities, alternate revenue programs provide a means of maintaining some activities which might be reduced or eliminated if funded solely by property tax revenues. A. The Financial Potential of Alternate Revenues Alternate revenue programs can play a critical role in meeting -- or overcoming -- Lexington's projected revenue shortfall, particularly if proposed spending is curtailed. The revenue shortfalls discussed previously are recapitulated below: 1984 1985 1986 1987 1988 "Official" Shortfall $858 $1,732 $1,731 $1,811 $2,615 "Reduced" Shortfall $592 $1,175 $ 878 $ 650 $1,106 Lexington easily can meet the "reduced" shortfall level through use of alternate revenue sources. It can meet the higher, "official" shortfall with alternate revenues over the next few years, but would encounter problems by 1988. As a matter of fact, most of either shortfall projections could be closed by simply instituting fees for sewer service and trash collection and further increasing water rates. User fees in other areas could produce substantial additional income. 7 TABLE A Potential Annual Income from Alternate Revenue Sources One to Three Years Three to Five Years Water 300,000 330,000 Sewer 550,000 1,200,000 Trash Collection 550,000 660,000 Schools 170,000 340,000 Library 50,000 100,000 Recreation 5,000 10,000 Total User Fees $1,625,000 $2,640,000 Voluntary Contributions ? ? New Development ? ? The estimates for user fee income are discussed in the following section: some of the estimates are "harder" than others. As noted in the sections on voluntary contributions and new development, the Committee has not attempted to estimate the additional income that might be produced, but the potential is significant. The fact that Lexington theoretically can meet its projected revenue shortfalls through higher user fees does not mean it can in practice, nor necessarily should do so. Squeezing every possible dollar of income from the town, even if legal, leaves little leeway to meet future contingencies. Some of the user fees discussed may be unacceptable to the public. User fees and other alternate revenue programs can be more or less effective and equitable than simple tax increases, depending upon the services involved. B. Rationales for Applying Alternate Revenue Programs While noting that alternate revenue programs can raise substantial additional income, the Committee believes that such programs should be used as a means of improving the relationship between "who pays" for particular activities and "who benefits" from them. Alternate revenue programs can provide a useful middle ground in funding activities between those that are 8 universally desired (police and fire protection) and activities that appeal to and are used by relatively small portions of the town population. Some of the user fees discussed in this report are "tax supplements". Implementing a trash collection fee, for example, shifts the cost of trash collection from property tax revenues (limited by Proposition 212) to individual householders. Implementation of sewer use charges and higher water rates have a similar effect, although individual bills would reflect differences based on water usage. Billing individuals for these services, instead of taxing them, also means that their payments are not deductible for income tax purposes. Sewer use charges and higher water rates do have some effect on the distribution of the tax burden because local non-profit and government institutions which escape local taxes, would be required to contribute more to the town under use fee charges. Lexington provides many other services which better illustrate the dilemma of funding a balance between who pays and who benefits. Some examples not discussed in this report include Lexpress, the new running track and the proposed bikeway. Each of these activities are or will be used by a relatively small proportion of Lexington's population, but their advocates contend that each activity produces broad public benefits in reducing pollution, improving life style, enhancing property values, etc. The Committee believes that Lexington can and should seek alternate revenue sources to fund some of those local activities which are "nice", but not widely used, nor broadly supported. User fees and voluntary contributions can provide some local luxuries which the majority of local citizens may not wish to support from their taxes. 9 The Committee believes that alternate revenue sources should be considered, too, in terms of user options. In our report, for example, we talk of possibly establishing instrumental music fees for lessons given in the schools. We believe that this is an example of an activity where there are many teachers available outside of the school system. Many Lexington students currently avail themselves of private lessons because the school system does not meet their needs. We believe that the existence of private alternatives should be a consideration in deciding whether or not a particular activity should be subject to user fees. C. Managing Development of Alternate Revenues This Committee believes that expanded user fees and concerted efforts to increase voluntary contributions have considerable financial promise for Lexington. The Committee is concerned, however, that current attitudes, procedures and organization may hinder effective implementation of these efforts. The Committee has noted that many town bodies oppose new or higher user fees. This opposition seems to stem from many sources: increase of administrative burdens, fear that fees will decrease demand for services offered, belief that fees are unfair for a particular user group, etc. A number of officials seem to feel that if they resist user fees indefinitely, tax monies will be forthcoming. Attitudes and procedures concerning voluntary contributions are even more complex. In the past, both givers and recipients have seen such contributions as a means of doing "more" of a particular activity. The 10 receiving institutions have viewed such contributions as "off-budget" funds, to be spent at their discretion with little or no reference to their annual appropriations. This approach has treated contributions as "additional" revenues, not "alternate" revenues. We believe more sophisticated attitudes and procedures must be evolved if voluntary contributions are to play an effective role in Lexington's financial planning. Gifts that allow town agencies to do more should be welcomed, but more attention should be given to fund drives which produce voluntary contributions which will support continuation of present activities in the face of increased financial pressures. The Committee has no ready answers for these problems. Perhaps the budget process could be amended to establish goals and targets for fees and contributions. Perhaps the Selectmen can negotiate an understanding with the School Committee and other town bodies regarding the allocation of alternate revenues between on-going operations and new activities. New incentives and new ground rules will be needed if these activities are to provide meaningful financial relief. D. Summary In summary, after reviewing existing tax revenue resources and investigating alternative sources of funding, the committee concluded that unfortunately no single source of revenue in lieu of property taxes would be sufficient by itself in closing the projected fiscal gap. While specific proposals have been suggested in the report, what the committee would most like to recommend is the acceptance of a fiscal management 11 philosophy that would be more sensitive to the relationships between the costs incurred and the charges imposed for various town services rendered. Inasmuch as the charge by the Board of Selectmen to this committee required us to focus our attention solely on the revenue raising side of the budget, we accepted as a given that all of the services which the Town provides have merit. What we did not accept in this era of increasing fiscal restraint, are what are in effect, financial subsidies by Town government as a whole, to specific well intentioned services that could, and in our judgment, philosophically should, be sharing a larger part of the tax burden. II. USER FEES A. Fees for Municipal Services Lexington collects considerable revenues from user fees today. In reaction to passage of Proposition 2=2j most of the fee schedules have been reviewed and updated. The Committee focused on three areas offering the greatest revenue potential. 1. Sale of Water Fees and contractual arrangements for sale of water are expected to yield $1,000,000 in Fiscal 1983. Lexington's basic rate of $0.45 per hundred cubic feet (HCF) was set in 1975. The Board of Selectmen recently increased the rate to $0.55/HCF which will increase revenues by $200,000 per year and increase the average householder's water bill by $12 to $65 per year. Since the average rate for the 79 MDC communities currently is $0.70/HCF, Lexington presumably could justify 12 raising its rates to this level thereby yielding an additional $300,000 per year (and more as long-term contracts are renegotiated) . This would add an additional $18 per year to the average family's water bill. 2. Sewer Use Charges Lexington currently does not have a sewer use charge. Many surrounding towns do, normally charging on the basis of the amount of water used. If Lexington implemented such a charge to cover operating expenses for sewer service, the annual revenue would amount to approximately $550,000 based on 1982 water consumption, and the average user would pay an additional $54 per year. Lexington also might consider basing sewer use charges on the full cost of sewer service including amortization of the existing system. Using 1982 estimates this would generate a sewer use charge of $0.91/HCF, cost the average user $108.00 per year, and free $1,200,000 from property tax revenues for other purposes. 3. Trash Collection Charges Lexington implemented town-wide trash collection almost simultaneously with the enactment of Proposition 212, thereby increasing town spending without a commensurate increase in revenues. The town could implement trash collection charges tied either to the cost of the contract for trash collection or to prevailing commercial rates in the metropolitan area. 13 In 1982, Lexington paid $550,000 for trash collection (an amount expected to climb considerably in the future) . If this amount were charged back to the 9,673 households served under the contract, the average user would pay $57.00 per year. This amount probably conforms with prevailing commercial rates. Implementation of such a fee would allow $550,000 to be redirected to other town activities. 4. Administration One appealing aspect of these particular user fees is that they entail little or no additional cost for administration. Sewer use charges and/or trash collection charges can be added to the current Town billing systems. Since much of the justification for implementing a sewer fee and for higher level water and sewer rates is based upon amortization of the existing system, the Committee believes that the revenues produced by new fees should not be diverted to other purposes. All revenues intended for amortization should be directed to a Public Enterprise Fund and expended for system replacement only. 5. Cumulative Effect If all of these measures were implemented at the maximum rates considered, Lexington would obtain additional revenues of $2,050,000 per year at an annual cost of $183 to the average household. B. Fees for School Services Lexington's school system collected $600,000 in fees for various services during 1982, $476,000 from food services. The Committee feels that wider 14 use of fees has considerable financial potential for the schools. We believe that the School Committee should be asked to direct the School Administration to review school operations with a view toward developing a comprehensive and up-to-date user fee schedule. Following are some of the areas which the Committee believes merit review: 1. Adult Education The school system collected $17,200 in fees for adult education courses in 1982. According to school officials, the adult education program is "self-supporting", but this description applies only to the direct costs. The adult education program is not charged for space, heat, light, etc. We feel that fees should be set so as to recover the full cost of the program, especially since all other community users of school facilities are charged for such items. Such a policy might well entail doubling current fees thereby yielding an additional $17,000 in annual revenues. The Committee appreciates that doubling fees might not double revenues if prospective enrollees feel that the increased price is not equivalent to value received. We also observed, however, that many other adult education programs charge higher fees with considerable success. Minuteman Vocational High School, through a program of aggressive promotion, higher fees, and a sensitivity to the "market" for adult education, has turned over to the school $82,000 in revenues during 1981 and 1982. While the Lexington school system does not have the facilities to compete with Minuteman for courses such as "Maintaining Your Mercedes" (76 applicants for 15 positions at $35 15 each) . Lexington can and should note the possibilities for offering courses such as "Personal Computing", where Minuteman recently had 88 applicants for 15 positions at $55 a piece. 2. Space Rentals Given declining student enrollment, Lexington has excess school capacity estimated at 30%, even following the closing of Franklin School. We believe that the School Administration should actively seek rental clients for this excess space. The Committee notes that statutes and by-laws allow non-conforming rentals of school space which suggests that commercial tenants could generate considerable rental income. We also recognize that it might be difficult to find tenants acceptable to the schools; therefore, we have estimated potential revenues from pursuing this alternative at $20,000 per year, which probably is minimal. 3. Specialized Programs One of Lexington's primary assets over the years has been the reputation of its school system. One dimension of that reputation has been the richness and diversity of the specialized programs offered by Lexington's schools, both in academic and extra-curricular spheres. Many of these specialized programs, by definition, directly benefit only a small portion of the school population. The Committee believes that user fees present one alternative for maintaining some of these programs in the face of the financial pressures generated by Proposition 21. 16 Lexington is confronted with re-evaluating all of its school programs in light of declining school population and educational philosophy, as well as for financial reasons. As part of this re-evaluation process, the concept of "value-added" should be considered. Presumably the School Committee will be questioning whether programs which were offered with a school population of 10,000 students are providing the same degree of educational effectiveness for a school population of 5,000. In recent years the School Administration has reduced the range of curriculum offerings. Grade structure and facility requirements currently are under review. We believe that any overall review of school activities should include consideration of the role that user fees might play. Given the current financial outlook and projections of declining enrollment, some courses of study will be cut and some extracurricular activities will be eliminated in the coming years. There is a need to provide people with advance notice of the probable casualties, in order to allow them to (1) plan accordingly (e.g. , not having their children start German I if German II and III will not be available) , (2) generate the necessary political support to maintain a given program from tax revenues, or, (3) devise alternate revenue schemes to support the desired program. The Committee believes very strongly that all children should participate in normal school related activities. We believe that voluntary contribution programs (discussed below) , differential pricing and scholarships can be used to prevent fees for specialized programs from excluding students from low income families. The School 17 Administration already has some experience in dealing with fees and scholarships for extraordinary school activities such as the Bridge School Quebec trip. Some of the programs and courses which might lend themselves to user fees include interscholastic athletics and instrumental music. The Committee is not recommending that these activities, per se, bear user charges. We do not know the number of students involved in each program or the appropriate fee levels. There may be other programs better suited for user charges. The programs cited are illustrative of those operated with user charges in other school districts around the country. During 1981, the schools spent approximately $140,000 for Senior High School athletics against $30,000 in revenues (primarily gate receipts) , for a net expenditure of $110,000. If Lexington were to recoup half of this amount through fees charged to participating students, the $55,000 yield would be significant. Instrumental music lessons outside of the schools frequently are priced at $10 per weekly session. School charges at half that level ($5 per week) for 30 weeks per year would cost a student's family $150 per year. Assuming that roughly 10 per cent of the school population avail themselves of such lessons, a $5 weekly fee for 30 weeks would yield $75,000 in additional revenues. The Committee cites these figures not as recommended charges but as an illustration of the dollars involved. 18 4. Cumulative Effect Since the Committee has been unable to place estimates on all of the items mentioned above, it is difficult to assess the overall impact. At a minimum, we might be talking $167,000 per year ($17,000 for adult education, $20,000 for school rentals, $55,000 for interscholastic athletics, and $75,000 for instrumental music) . At a maximum, fees might produce $400,000 to $500,000 per year. These sums are small compared to a $17 million school budget, but they are significant compared to many spending articles on the annual warrant. The impact of these items on local citizens is uncertain and disproportionate. Parents of a child taking instrumental music lessons would bear a greater load, worsened if their child played interscholastic sports. The burden would increase for parents with more than one child pursuing similar programs. On the other hand, most children do not participate in all of these activities and those that do frequently accrue private benefits in terms of scholarships, better job opportunities or personal pleasure. Perhaps those who benefit most from particular educational offerings should be asked to contribute more. C. Fees for Library Services Lexington Cary Library is hailed as one of the best and most heavily used libraries in Massachusetts. Cary has almost 24,000 borrowers, 6,000 of whom are non-Lexingtonians. The Committee believes that the Library Trustees should explore use of an annual card fee for adult library users. A basic annual fee of $5 or $10 would yield significant additional revenues 19 even if local users under 18 and over 65 were excepted. Variations could include higher rates for non-residents or corporate users. The Committee has heard and considered two common objections to adoption of a library user fee: 1. That a fee will discourage use or is somehow unfair. Between 1970 and 1980 the price of the average hard cover book increased from $12.00 to $25.00 and the average subscription price for periodicals went from $10.00 to $35.00. In this context, we believe that an annual use fee of $5.00 or $10.00 is not unreasonable. 2. Under current state law, Lexington would lose state aid or access to state and regional services by charging non-residents at a higher rate. This is a meaningful objection and should be investigated in depth. In recent years direct state aid has been at a level significantly lower than the revenues which might be produced by an annual user fee. The Committee also believes that since all surrounding communities are suffering the same or worse financial pressures as Lexington, that cooperative measures to implement user fees might be negotiated with state and regional services. The Trustees of the Library have noted probable legal difficulties in establishing a user fee for lenders (See Appendix A) . The Committee believes that a fair and reasonable annual user fee could yield an additional $50,000 to $100,000 per year in library revenues. The precise structure of fees should be developed by the library staff and trustees based on their knowledge of library usage. 20 D. FEES FOR RECREATION SERVICES The Recreation Committee has made substantial progress in collecting fees for services in recent years. Fees have recently been reviewed and increased. This Committee feels that more might be done, particularly in terms of user fees for playing fields. The competition for playing field time has become intense in recent years. Many groups complain about scheduling problems and field maintenance. Intensive use of some fields causes deterioration. Many fields require major investments for rehabilitation or development. Part of the increased demand for playing field time stems from the rapid expansion in adult participation in organized field sports, a trend which places extraordinary demands upon fields for prime evening and weekend hours. The Committee does not know how enduring this trend is. With memories of boom-and-bust fads for tennis and skiing in the past decade, it is difficult to project field use by adult groups. The Committee believes that higher fees for adult groups are feasible and reasonable given the cost of alternative recreational activities. We believe that fees double or triple present levels might yield little additional revenues ($5,000-$10,000) but might help to control the demand for playing fields and thereby slow the pace of deterioration. III VOLUNTARY CONTRIBUTIONS Lexington has benefited enormously over the years from the generosity of its citizens. A few examples are Cary Hall, Cary Library, and numerous 21 public trust bequests. The Committee believes that voluntary contributions can and should be an important source of alternate revenues for Lexington. The Committee has noted that many municipalities actively solicit contributions. In recent months Time and The Wall Street Journal have reported on the successful efforts of cities and towns to obtain gifts ranging from computers and park benches to swimming pools and snow plows. Many municipalities publish and circulate catalogues or "wish lists". Many school systems have established educational foundations to accept contributions intended to support particular educational programs. Lexington, despite its past successes, has not pursued fund raising activities aggressively. The School Administration has increased its efforts lately. The Library Trustees currently have a committee investigating the subject. The Recreation Committee has been exploring the concept and has established a recreation gift fund account. The Committee believes that these efforts should be expedited and that consideration be given to launching similar efforts addressing other town activities. The Committee noted that efforts to increase voluntary contributions can complement a program of expanded user fees. Contributions can be used for example, to pay user fees for persons who might be unable to afford them. Obviously it is difficult to predict the results of such efforts. They take time to bear fruit. The Committee is convinced, however, that a concerted program to increase voluntary contributions would yield significant new revenues. 22 IV, REVENUES FROM NEW DEVELOPMENT While user fees and voluntary contributions can provide significant alternate revenues for Lexington, their long-term significance is minor compared to property tax revenues. Although Proposition 21 limits municipalities' ability to increase rates from their existing tax base, towns may increase their total property tax levy through allowing new development. Since enactment of Proposition 21 , Lexington has added $25 million to its tax base and $600,000 in revenues for the current year through new development. Lexington has adopted property tax classification which provides for higher tax rates on commercial and industrial properties than on residential and open space properties. As a result of classification and because of the greater intrinsic value of commercial and industrial properties, in 1982 such properties generated 28% of Lexington's property tax revenues while accounting for only 5.4% of the town's developed acreage. This suggests that significant new property tax revenues can be generated by allowing or encouraging additional commercial and industrial development. Pursuing such development strategy obviously entails other considerations: 1 - While estimating the gross revenues which could be generated by additional development is a straightforward process, the town also must consider the municipal costs generated and thus the new net revenues. 23 2 - The potential revenues from new development must be balanced against competing community values concerning open space, aesthetics, affordable housing, traffic congestion, wild-life habitats, etc. The Committee believes it would be useful if land use proposals included an analysis of the long-term impact on net revenues. We understand that the Planning Board attempts to make such an analysis on proposals which come before them, but the responsibility and authority for long-term financial planning is divided among many town bodies. This Committee believes that greater weight should be assigned to revenue projections, given Lexington's financial outlook. The School Committee recently declared as "excess" five schools sites, recommending transferral to the Board of Selectmen. These sites, totaling approximately 96 acres, will be suggested for many competing purposes including conservation, recreation and housing. We understand that the Selectmen will be establishing an advisory committee to study the appropriate disposition of these lands. Our Committee believes that such an advisory committee might be charged to work with the Planning Board to design an analytical process which would incorporate long-term net revenue estimates as part of the decision-making process. The Committee suggests, moreover, that Lexington's current land use plans might be reviewed with an eye toward the town's revenue potential under Proposition 21 . If current tax limitations were to continue for the next decade, will the town's tax base expand sufficiently to generate adequate revenues to support current levels of town services? Should the town restructure land use goals because of tax limitation? The Committee does 24 not purport to know the answers to these questions, but believes that Lexington must begin to address them. In reaction to an earlier draft of the Committee's report, Mr. David Williams, Chairman of the Conservation Commission, suggested that other revenue measures be considered in connection with land use and development. (Mr. Williams noted that these were personal observations since he had not received the draft in sufficient time to confer with other members of the Commission.) The Committee has not explored these suggestions but we believe they merit further investigation. 1. Zoning changes which greatly increase the value of a parcel of land (for instance going from residential to commercial/industrial) might be accompanied by a one-time charge of $5,000 or $10,000 per acre. 2. Variances granted by the Board of Appeals might entail an annual usage charge (as distinct from the application fee for a variance) . 3. Ann annual fee or a one-time conversion fee might be charged to homeowners seeking to establish an accessory apartment. 4. The sanitary landfill site on Hartwell Avenue has great financial promise and should be considered in looking at Lexington's long-term land use and financial planning. 25 V. MISCELLANEOUS ITEMS The Committee touched upon many subjects on its work. The items mentioned below merit some consideration by the Selectmen, but were not central to our report. A. The Committee engaged in a cursory examination of the use of contributions in-lieu-of-taxes for non-profit institutions. The potential revenues involved did not appear great enough to warrant extended study, but the Town Manager's Office should keep track of developments in this area. It also should be noted that water and sewer use charges do yield additional revenues from non-profits despite their tax-exempt status. B. The Committee noted that most town bodies have increased fees for permits and licenses to realistic levels as a result of the financial pressures stemming from Proposition 21. There are anomalies in the fee structures, however, and some members of the Committee questioned the economics of $1.00, $2.00, or $3.00 fees. We believe that fees at these levels may be compensatory when collected as one-time cash payments for entry to the swimming pool, but if the activity involves generating paper work, cross-filing or record-checking, fees at these levels probably are not covering the costs involved. We suggest that the Town Manager's Office be directed to establish guidelines in this area. Similarly, we believe that all fee-setting agencies should review their fees on an annual basis to ensure that fees are commensurate with costs. 26 C. School Transportation The sale of school bus tickets produced $12,500 in 1982. These revenues, declining in recent years, are generated for the most part by students who live short of the mandated minimum distances for free school bus rides, but who can apply to buy tickets for excess seats on mandated routes. Committee members have been informed that such "excess" seats are oversubscribed upon offering. We also have been informed that a considerable portion of LEXPRESS ridership consists of students in these zones. With the future of LEXPRESS in question at the time of this report, we would suggest that school and community demands for transportation services might be coordinated better. A more extensive school bus system -- charging compensatory rates for students short of mandated busing distances -- might prove more responsive to community needs. The Committee believes that this is only one example of areas where more coordination among town agencies would be cost effective. 27 EM � �EVE CARY MEMORIAL LIBRARY f SL ECIMEN ';' LEXINGTON, ••- MASSACHUSETTS 02173 a R A (617) 862-6288 Appendix A March 10, 1983 Mr. John J. McLaughlin, Chairman Alternative Tax Revenues Committee c/o Selectman's Office Town Office Building Lexington, Mass. 02173 Dear John, The Library Director and I received copies of your Committee's draft report yesterday, and I have asked Mr. Hilton to duplicate copies for mailing to other Executive Committee members for our upcoming Trustee's meeting scheduled for 7:30 A.M. on March 17th. We would like to thank you for sending us the report in draft form. I regret that we cannot have a collective Trustee opinion before your March 16th meeting as you have requested, even though the draft does indeed create major policy prob- lems, as you no doubt realize. We will of course be represented at the meeting, but without a collective response of the Board or its Executive Committee. I can, however, list some of the problems based on local, state, and federal law, and perhaps I should at this point just allude to the nation- wide acceptance of the free public library concept which began in 1827 in Lexington, and note that the cohuun meaning of "free public library" is free for lending, since with few exceptions even research libraries are free for reference. The present Library was accepted by the Town in 1868 along the terms of a gift of Maria Hastings Cary; these terms have since been upheld in a landmark case of the State's Supreme Court. These begin "If the inhabitants of Lexington in a town meeting duly called for the purpose, will vote to establish a free Public Library . . ." The State Constitution in Article XLVI notes that appropriation may be made ". . . for free public libraries . . .", and the state laws themselves enabling taxation for this use the phrase "free public libraries" several times. (You correctly note that fees for non-residents would cause us to forfeit State Aid, and probably important Regional services. We monitor this problem closely and have been instrumental in formulating new pending legislation which would benefit Lexington and also allow us both to partici- pate in Regional services, and to keep State Aid: these are truly critical sources of new revenue and service.) Page 2 We have verified that eligibility for federal library programs also require free public library service, with the common usage of "free" to mean lending. (Library Services and Construction Act.) This matter will, of course, be discussed at our meeting on March 17th, and I will be in touch with you again after the meeting. In the meantime, please do not hesitate to call Mr. Hilton or me if you require more infor- mation. I would conclude by noting that we have been really quite successful in increasing the Trustee budget with voluntary donations and bequests, and with fees for non-basic services. We understand the plight of the Town, and will, of course, continue our efforts towards increasing these revenues. Sincerely yours, Ted R. Petterson President, Board of Trustees Copies: Executive Committee, Cary Library Advisory Committee, Cary Library TRP:el „,;,:)--,t- ,,,,,NORI _ ' A, Planning Board o2 x�/ Town of Lexington, Massachusetts ••IA1ll9 n / L.ekINGTo '. Robert A. Bowyer CEiVED• TOWN OFFICE BUILDING Planning Director SELECTMEN Lexington, MA 02173 F,' APPENDIX B 617/862-0500/Ext. 24 t't'?r b i' , i983 March 14, 1983 TO: John F. McLaughlin Alternative Tax Revenues Committee FROM: Planning Board The Planning Board is pleased to respond to your memorandum of March 8, 1983 re- questing comments on the draft of your report. Our comments follow the page sequence of the report. In the discussion of space rentals of school buildings on page 16, it should be noted that all of the school buildings are in single family residential zoning districts. As a general rule, the Zoning By-Law would not allow commercial tenants in school buildings in those zoning districts. In the section on revenues from new development, we believe some attention should be given to,obtaining more ?contributions” from developers for the installation, or upgrading, of public facilities or equipment that would be impacted by the new devel- opment. Examples are grants of land for public use, construction of improvements, such as utilities, traffic signals, sidewalks, or funds for engineering services and the like. Some other Massachusetts communities have been more assertive in obtaining these "contributions. " While raising this possibility, we must also note this is a murky area of land use law and deals with difficult questions of "contract zoning, " "development exactions and fees," and the relationship between off-site improvements and development impact. In the second paragraph on page 23, the report comments on the relationship between 28% of the property tax revenue and 5.4% of the Town's developed acreage. The amount of developed acreage is not a good measure; the intensity of development on that acre- age is significant. For example, the center business district occupies about the same area as 25 house lots in an RO district but has significantly'different impacts. In the second sentence of the second paragraph on page 24, may we suggest an alterna- tive wording: "We understand that the Planning Board now considers the projected revenue from new development as one of the factors in making its land use recommenda- tions, but does not include such information prominently in its report because of the ' difficulty of estimating service costs to the Town and the difficulty of presenting a cost-revenue evaluation. The Committee suggests the Planning Board give greater weight to the Town's revenue needs." The question of the Board of Selectmen establishing an advisory committee to study the appropriate disposition of the "excess" five school sites is a serious policy issue that needs further discussion. That process is essentially land use planning. '' Under Massachusetts law and Lexington's structure of government, the Planning Board has responsibility for land use planning. John Fm McLaughlin -2- March 14, 1983 Alternative Tax Revenues Committee • The Planning Board agrees with the last paragraph on page 24 that raises the issue of land use planning in relation to tax limitations and the generation of revenue. In its work program, the Planning Board has identified economic development and a cost revenue analysis as one of its important tasks. That item has been deferred pending the completion of higher priority items, i.e. , the center revitalization program, the South Lexington study, the analysis of socio-economic characteristics of the Town based on the 1980 Census, and work on housing.