HomeMy WebLinkAbout2006-02-10-AC-rpt.pdf rim %,\ Appropriation Committee
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APRIL IVB February 10, 2006
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MESSAGE TO LEXINGTON VOTERS ON THE COMMUNITY PRESERVATION ACT
Summary
In the Town election on March 6th, voters will have the opportunity to consider adopting the Community
Preservation Act (CPA). The Appropriation Committee offers the following information to help you understand
the potential benefits and costs of the CPA, as well as other likely upcoming tax increases. We urge you to
consider all of these factors and to reflect upon your own prionties for Lexington as you make your decision
about the CPA. Whatever your conclusion,we urge you to cast your vote
BENEFITS The CPA, if adopted,will provide two benefits
1) It will provide Lexington with a dedicated revenue stream through an annual 3% surcharge on residential
and commercial property taxes to be spent on eligible projects in the areas of historic preservation, affordable
housing, preservation of open space, and recreation. The CPA for Lexington advocacy committee has estimated
that over the next five years this surcharge will bring in a total of$12.33 million.
2) It will allow Lexington to receive matching funds from the State for the above projects, thus increasing the
"buying power" of each dollar raised through the CPA surcharge Based upon projections provided to CPA for
Lexington by the Massachusetts Community Preservation Coalition regarding estimated future State-match
percentages, Lexington could stand to receive an estimated $8.06 million in State funds to match the estimated
$12.33 million in surcharges collected in the first five years the CPA is in effect.
CONSIDERATIONS
1) Generous exemptions for low-income households will allow homeowners making less than 80% of median
income (100%if age 60 or older)to apply for a full refund of the CPA surcharge.
2) Some of the funds raised and matched through CPA could be used to support projects that would otherwise
receive funding in the operating budget or through a debt-exclusion override. This would allow reductions in the
size of some future tax increases. However, the CPA is primarily intended to support projects that might not
otherwise receive funding when competing with other operating and capital budget priorities for existing
revenues.
3) The CPA surcharge will be in addition to other increases in your property tax bill. In addition to the usual
annual growth in single-family-home property taxes (projected at 5.3% for FYs 2007 & 2008), we anticipate
that in June 2006 there will be a Proposition 2'/2 override referendum—effective in FY 2007 It is currently
expected that between $3 million and $7 million will be requested for basic municipal and school services—
services which will be lost if the override fails. In addition, a debt-exclusion override for reconstructing the
Department of Public Works (DPW) facility and the School Administration Building will most likely be on the
ballot in the spring of 2007 (If so, its earliest effect on taxes would be in FY 2009 )
4)The percentage at which the State will match our locally-collected CPA funds is projected to diminish from a
level of 100% for 2007 to 39% for 2011 as more communities adopt CPA. (This is the basis for the projected
$8 06 million 5-year State match.) The actual State match will vary from these projections depending upon the
number of new communities adopting CPA, and due to other factors, including changes in the real-estate market
(the primary source of State funds is a fee on real-estate transactions), or actions of the State legislature to alter
the State's CPA-funding mechanism.
OUR FULL REPORT
We encourage you to read our full report, which follows, for details and examples of the projected financial
impact of the CPA. It is also available outside the Town Clerk's office on the 1st floor of the Town Office
Building, in the Cary Memorial Library, in the Senior Center, and on the web at httn.//www lexinntontmma.org/
or httn.//ci.lexincton.ma.us/(follow the link for"Town Election March 6")
Appropriation Committee Community Preservation Act February 10, 2006
FULL REPORT OF THE APPROPRIATION COMMITTEE
CPA PROCESS
In Lexington, as in other towns, the approval of the distribution of CPA funds begins with a
9 person committee, the Community Preservation Committee, composed of one member from
each of the Conservation Commission, the Recreation Committee, the Planning Board, the
Historical Commission, the Lexington Housing Authority, and the Lexington Housing
Partnership The remaining three at-large members will be appointed by the Board of Selectmen.
Each year, that committee will bring to the Town Meeting a list of projects to be undertaken
under the CPA with associated dollar amounts. Town Meeting may approve, disapprove, or
approve with a lower, but not higher, funding amount. Town Meeting cannot change the
Community Preservation Committee's proposals for how funds are spent.
CPA projects must meet State criteria in one of four categories historic preservation, affordable
housing, open-space preservation, and recreation. At least 10% of the CPA funds raised in a
given year must be allocated to each of the first three categories. The remaining 70% can be
allocated among all four categories in any fashion.
The Community Preservation Committee may propose cash funding or borrowing for these
projects. If borrowing is proposed and approved by Town Meeting, the Town becomes obligated
to pay off such a bond with CPA funds.
COST TO HOMEOWNERS
If approved by the voters (and until such time as it is amended or repealed by another vote and
all funds borrowed under CPA are fully paid off), the CPA will impose a surcharge on the
property taxes of residences and businesses. For residences, the exact amount is a surcharge of
3% after applying a $100,000 exemption to the assessed value of the property (The $100,000
exemption is not available to commercial properties.) Chart 1 depicts the estimated effective
percentage surcharges in FY 2007 for varying assessments. In FY 2007, it is estimated that this
surcharge will be approximately $210 for the average-assessed single-family home ($696,540 in
FY 2006), this is an effective surcharge of 2 57% The estimated FY 2007 CPA surcharges in
dollars are depicted in Chart 2 Please note that these surcharge estimates are slightly higher than
those published by CPA for Lexington ($210 vs. $199 for the average-assessed home) We have
used their $199 estimate, which is calculated using the FY 2006 tax rate, as a base for computing
reasonable estimates for FYs 2007-2011 that take into account projected annual growth in the
residential tax rate due to new construction and the growth of residential value relative to
commercial property value
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Appropriation Committee Community Preservation Act February 10, 2006
Chart 1 Effective percent increase in property tax
due to 3% CPA
3.00
2.50 Average single
.. / family home
4) 2.00
a
1 50
w
1 00
0.50
0.00
0 `-p0 sr0 60 00 ?O �? Q
00 00 00 00 o0 00 00 00 00 00
00 00 00 00 .000 .000 .000 .000 .000 .000
Assessed value
Chart 2: Property tax increase due to 3% CPA
FY2007
700
600
500
� 400
a
N
`, 300
200 Average single
family home
100
0
O ?00 700 6'00 800 00 7�0 ?: 60 c9 200
000 ,000 000 ,000 0000 0000 0000 0000 0000 0000
Assessed value
EXEMPT TAXPAYERS
When Town Meeting passed the article to put CPA to the voters, exemptions for low-income
households were included. These exemptions, which are based on income, age and family size,
could allow many Lexington homeowners to qualify to apply for a full refund of their CPA
taxes. The table below(provided by CPA for Lexington) lists the qualifying income levels
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Appropriation Committee Community Preservation Act February 10, 2006
(Number of people in household
111 112 113 114 115
Property owner 60 or older $57'800 $66,100 $74,350 $82,600 $89,200
(100% of median income)
Property owner younger than 60 $46,250 $52,850 $59,500 $66,100 $71'350
(80% of median income)
STATE MATCHING FUNDS
The State will match a percentage of the revenue collected locally through the CPA surcharge.
There is a one-year lag in payment of State matching funds, so, for example, Lexington would
receive funds from the state in FY 2008 to match the surcharge revenue collected in FY 2007
The State holds funds for CPA use in a dedicated account. Revenue generated through filing fees
of $20 for all deeds and $10 for all liens registered anywhere in Massachusetts flows into the
account and each year matching funds from the account are distributed to the cities and towns
that have approved the CPA and are raising CPA funds locally The actual percentage of the
match in any particular year depends on the balance in the State account relative to the total
amount of CPA surcharge revenue received by municipalities. (See section III-B of the MA
Dept. of Revenue's CPA guidelines for details of the match-percentage determination rules.
http.//www DLS state.ma.us/PUBL/IGR/2000/00209amended.pdf.) Since both the rate of
collection of filing fees and the number of and sizes of CPA programs will change over time, the
matching percentage in future years is uncertain. The State is expected to match 100% of the
CPA surcharge revenue raised locally in FYs 2007 and 2008 and is tentatively projected to
match 52%, 42%, and 39% respectively, for surcharge revenues raised locally in FYs 2009,
2010, and 2011 However, it is also possible that the State legislature will alter CPA funding to
preserve the 100% match.
SAVINGS FROM CPA FUNDING VS. TRADITIONAL FUNDING OF CAPITAL
PROJECTS
If the CPA is approved, some of the revenues may be used, in part, to fund some planned
projects and parts of projects that would otherwise be funded from non-CPA sources. The use of
the CPA to pay for these projects would reduce the need to raise taxes in future years via
Proposition 2'/2 overrides or debt exclusions. In time, this would lower the effective cost of CPA
by an amount that could be significant.
In order to get an idea of the magnitude of this effect, we have considered two scenarios,
illustrated in Tables 3a and 3b For simplicity's sake, we have assumed that the CPA will be in
effect for five years and that CPA projects will be funded on a cash basis, rather than by
borrowing. These assumptions not only help to simplify the analysis, but also tend to maximize
the benefit of CPA, since the State percentage match is expected to start declining in several
years and is difficult to predict beyond a several-year horizon, and since paying cash for CPA
projects will save the Town the interest costs associated with borrowing. As noted earlier, CPA
for Lexington projections (with input from the Community Preservation Coalition) suggest that
in the first 5 years, total surcharge revenues in Lexington would be $12 33 million and the State
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Appropriation Committee Community Preservation Act February 10, 2006
would match those funds in the estimated amount of $8 06 million (including $1 million
expected to be received in FY 2012 as a 39% match of surcharge revenues raised in FY 2011).
Scenario 1 assumes $4 11 million of CPA revenues would be used to fund historic
preservation projects in the current capital plan, and the remaining $16.29 million would
be used for other qualifying projects that would not otherwise be funded. Scenario 1 is
based on a reasonably conservative assumption. that the historic preservation projects in the list
published by the CPA for Lexington advocacy group are the only projects that would be funded
whether or not CPA is approved by the voters. CPA for Lexington compiled this list by collecting
information from Lexington's 5-year capital plan and other sources. For reference, these historic
preservation projects are detailed in Table 5 at the end of this document, where you can see that
their total cost excluding any interest is about $4 1 million, and their total cost with interest over
the 15-20 year bonding penod is about $5 5 million. (Note that only part of the future
reconstruction of the school administration building is qualified to be done under the CPA.)
Table 3a summarizes the impact of Scenario 1 on the owner of an average-assessed single-family
dwelling in Lexington (hereinafter known as "the average homeowner") This average
homeowner pays property taxes on a home that is currently assessed at $696,540, to which he or
she has made no recent additions or improvements. Table 3a illustrates, for example, that in FY
2007, the average homeowner will pay a CPA surcharge of$210 However, his/her net cost will
be $208, since the homeowner can expect to see a $2 savings on the rest of his/her tax bill from
planned capital projects which would now qualify for CPA funding. Starting in FY 2008, you
can see the effect of CPA matching funds from the State If the CPA program ends after five
years, the average homeowner will have paid $1,140 in CPA surcharges and will have seen an
approximate $138 reduction in the rest of his/her tax bill. At the same time, the Town will have
gained $1,883 in buying power through both the surcharge and the addition of estimated State
matching funds through FY 2012 Note the final column in the table Even though this analysis
assumes that the CPA program ends after five years, taxpayers will continue to see a small yearly
benefit on their tax bills for up to twenty years (the life of the bonds that would otherwise have
been issued to pay for capital plan projects now eligible for CPA cash funding) In Scenario 1,
this benefit totals $514 over the entire 15-20 year period(before accounting for the time value of
money)
Scenario 2 assumes $4.11 million of CPA revenues would be used to fund historic
preservation projects in the current capital plan and $5 million used to purchase open
space that would otherwise be approved by the voters for a debt exclusion, the remaining
$11.29 million would be used for other qualifying projects that would not otherwise be
funded. Scenario 2 is meant to address concerns that Scenario 1 might be too conservative/too
pessimistic. There might be other future projects that Lexington residents feel so strongly about
that they would fund them with or without CPA. Scenario 2 shows the effect on our analysis if
we assume, in addition to the histonc preservation projects identified in the capital plan, that
CPA funds are also used to make a $5 million purchase of open space which the taxpayers would
have otherwise authorized by a FY 2008 debt exclusion override. (For reference, the details of
the bonding assumptions are provided in Table 5 at the end of this document.)
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Appropriation Committee Community Preservation Act February 10, 2006
Table 3b summarizes the impact of Scenario 2 on the average homeowner Just as in Scenario 1,
at the end of five years the average homeowner will have paid $1,140 in CPA surcharges for
which Lexington will receive $1,883 in "buying power" after the estimated State match.
However, in Scenario 2, the total capital plan savings benefit for all of the historic preservation
projects in Scenario 1 plus a $5 million open-space acquisition is $273 at the end of five years
and $1,218 at the end of twenty years. The net cost to the average homeowner is $867 after five
years, and at the end of twenty years, the program essentially breaks even (before accounting for
the time value of money)
We emphasize that this analysis merely illustrates the implications of two possible scenarios.
Different assumptions could be made about the projects that would be funded by the taxpayers in
the absence of CPA, or about the cost and timing of the projects assumed for this analysis.
TABLE 3a: Scenario 1
CPA FUNDING&AVERAGE HOMEOWNERS TAX&BENEFIT
5 YEAR 20 YEAR I
FISCAL YEAR FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Total Total
TOTAL CPA SURCHARGE $2.30M $2.38M $2.46M $2.55M $2.64M $12.33M
AVERAGE HOMEOWNER'S CPA
SURCHARGE $210 $221 $228 $236 $245 $1,140
AVG HOMEOWNER'S CAPITAL
PLAN SAVINGS(HISTORIC
PRESERVATION) $2 $7 $37 $47 $45 $138 $514
NET COST TO AVG
HOMEOWNER $208 $214 $192 $190 $199 $1,002 $626
TOTAL STATE MATCH $2.30M $2.38M $1.28M $1.07M $1.0M $8.06M
PERCENT MATCH(OF PRIOR
YEAR'S SURCHARGE) 100% 100% 52% 42% 39% 65%
TOTAL AVAILABLE $2.3M $4.7M $4.8M $3.8M $3.7M $1.0M $20.4M
AVG HOMEOWNER CPA
BUYING POWER $210 $430 $449 $355 $344 $95 $1,883
TABLE 3b: Scenario 2(With$5M Open Space Acquisition)
CPA FUNDING&AVERAGE HOMEOWNER'S TAX&BENEFIT
5 YEAR 20 YEAR
FISCAL YEAR FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Total Total
TOTAL CPA SURCHARGE $2.30M $2.38M $2.46M $2.55M $2.64M $12.33M
AVERAGE HOMEOWNER'S CPA
SURCHARGE $210 $221 $228 $236 $245 $1,140
AVG HOMEOWNER'S CAPITAL
PLAN SAVINGS(HISTORIC
PRESERVATION+OPEN
SPACE) $2 $7 $83 $92 $89 $273 $1,218
NET COST TO AVG
HOMEOWNER $208 $214 $146 $144 $155 $867 ($78)
TOTAL STATE MATCH $2.30M $2.38M $1.28M $1.07M $1.OM $8.06M
PERCENT MATCH(OF PRIOR
YEAR'S SURCHARGE) 100% 100% 52% 42% 39% 65%
TOTAL AVAILABLE $2.3M $4.7M $4.8M $3.8M $3.7M $1.0M $20.4M
AVG HOMEOWNER CPA
BUYING POWER $210 $430 $449 $355 $344 $95 $1,883
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Appropriation Committee Community Preservation Act February 10, 2006
OTHER TAX INCREASES ON THE HORIZON
Projected growth in residential property taxes (before overrides). In FY 2006, the tax
increase on single-family homes with no additions or improvements was 5 3% The increase
beyond 2.5% arose primarily from the continued trend of larger increases in residential property
values relative to smaller increases (or decreases) in commercial property values. For FY 2007
we have projected a similar percentage increase, before factoring in CPA or a potential operating
override.
Debt exclusion override: Last year at Town Meeting, two capital projects were identified as
possible subjects for debt-exclusion overrides in the spring or fall of 2006 These are the School
Administration Building, only about 1/3 of which can be funded through CPA, and the
replacement of the DPW facilities at 201 Bedford St. The principal amount for these two projects
is expected to be up to $25 million and would be financed through bonds to be repaid over
twenty years. At present, it is unlikely that these projects will be put to the voters before spring
2007 and their first tax impact wouldn't be felt until FY 2009 For already approved debt-
exclusion projects, we have assumed level debt service in FYs 2007-2011 for purposes of this
analysis.
Proposition 21/2 override: Preliminary estimates (made in late January 2006) of the FY 2007
budget gap range from $3 million to $7 million. Therefore, it appears likely that an operating
override referendum will be put to the voters this June. The Appropriation Committee estimates
that for each $1 million of operating override, the incremental cost to the average homeowner
with an assessed value of$696,540 would be about $82 in FY 2007
Table 4 shows, for a range of residential-property assessments, the expected FY 2007 residential-
property tax without an override (column 2) The mcremental increase in the residential property
tax for each $1 million of potential operating override appears in column 3 [Note that passage of
an operating override will also slightly increase the CPA surcharge, which is applied against the
total tax (after exemptions) For each $1 million of operating override, the additional CPA tax on
the average-assessed home will be around$3 ]
TABLE 4
ESTIMATED FY 2007 TAX ON UNIMPROVED SINGLE FAMILY
HOME BASED ON FY 2006 EVALUATION
Single Family Home
Est.FY2007 Tax
Single Family Home Increase for Each
Single Family Home FY2007 Real Estate $1M of Operating
Valuation Tax Before Override Override
$200,000 $2,340 $23
$300,000 $3,510 $35
$400,000 $4,680 $47
$500,000 $5,849 $59
$600,000 $7,019 $70
$700,000 $8,189 $82
$800,000 $9,359 $94
$900,000 $10,529 $106
$1,000,000 $11,699 $117
$1,500,000 $17,548 $176
$2,000,000 $23,398 $235
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Appropriation Committee Community Preservation Act February 10, 2006
TABLE 5 (Reference Detail for Scenarios 1 & 2)
CPA Long Total
Amount Assumed Bond Term Interest+ Year of
2007- Capital Maturity Bond Total first principal bonding/
Project 2011 Bonding (Yrs.) % 2007 2008 2009 2010 2011 5 years 2007-2028 cash
StructuraVsystems eval. $20K
of Historic Bldgs. $0 0 $20K $20K 2007
Town Office Building $75K $0 0 $75K $75K 2008
Police Station $1,900K $1,900K 15 5 $227K $215K $2,660K 2009
Fire Station Headquarters $110K
$110K 5 5 $28K $26K $25K $127K 2008
Munroe Arts Building $500K $500K 10 5 $75K $73K $70K $638K 2008
Burial Ground $210K
refurbishment $210K 5 5 $53K $50K $48K $242K 2008
visitor Center $100K
repairs/upgrade $100K 0 $100K $100K 2009
Buckman Tavern Heating TBD TBD I
System
School Administration $1200K
Building(portion
qualifying for CPA) $1,200K 15 5 $140K $136K $132K $1,680K 2008
Total Historic I $4,115K I
Preservation
Amount spent using capital plan $20K $75K $395K $507K $491K $1 488K $5,541K
Ave.Single Fam.Home Benefit $2 $7 $37 $47 $45 $138 $514
Open Space Acquisition I $5,000K 1 $5,000K 1 201 51
' Amount spent using capital plan $500K $488K $475K $1 463K $7,625K
Ave.Single Fam.Home Benefit $46 $45 $44 $135
Total Historic Preservation and Open Space
Amount spent using capital plan $895K $994K $966K $2,950K $13,166K
Ave.Single Fam.Home Benefit $2 $7 $83 $92 $89 $273 $1,218
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