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HomeMy WebLinkAbout2018-10-05-REPSC-min Residential Exemption Policy Study Committee (Ad hoc) Friday, October 5, 2018 Hudson Room, Cary Memorial Building Minutes Attendance Mark Andersen (chair), Vicki Blier, Sara Bothwell Allen (acting secretary), Howard Cloth, Katie Cutler, Thomas Whelan, John Zhao, Joe Pato (Selectmen liaison). Invited guests (for Economist and Policy Maker Round Table): Peter Enrich, Jonathan Haughton, Chris Herbert, Chris Kluchman Resident observers: Robert Pressman, Peter Kelley, and Carolyn Kosnoff(Assistant Town Manager, Finance Department) Mr. Andersen called the meeting to order at 8:02AM. Ms Bothwell Allen agreed to serve as acting secretary. Mr. Andersen thanked our invited guests for coming and explained Committee meeting process to guests and observers. Public Comment Period none Economist/Policy Maker Round Table Ms Blier thanked our invited guests and asked each to introduce themselves and their background in residential tax policy. Peter Enrich thanked the Committee for taking on this complex issue. He is a Lexington resident and was a Selectman who had to vote on this issue in the past. He's also lawyer and law professor at Northeastern University, specializing in tax policy, and engages on property tax issues regularly. He also participated in writing the State Circuit Breaker law. Chris Kluchman is a Lexington resident and a planning and housing expert at the Department of Housing and Community Development. She works with housing policy and has been looking into Lexington Housing Development data with regard to potential RE implementation over the past month. Jonathan Haughton, not a Lexington resident, is Chair of the Economics Department at Suffolk University, has done tax work in several locales worldwide. He drew attention to our Committee's charge "preserving affordability for residents" as not clearly specified to evaluate whether implementing RE is a helpful tool. Can the focus be refocused on whether relatively lower income residents can continue to reside in Lexington? Mr. Pato responded that the earlier focus on senior residents has been broadened in the context of a series of debt exclusion votes and increasing burden. Chris Herbert, a Lexington resident, is Managing Director at Harvard's Joint Center for Housing Studies. His background is in public policy and economics with a national focus. Asked to provide their thoughts on RE impacts, Mr. Enrich illustrated that it is a two-step process. Step one is the impact of RE on home-ownersa tax burden shift from lower to higher value homes, and is that desirable. He elaborated that it is a crude instrument insofar as correlation between income and housing price is loose. There's also a disincentive for developers, but of unknown strength. The second step is the impact on rental properties, which is a big negative. Who is bearing the burden of RE tax shift? How much of property tax increase gets passed on to renters versus owners? Ms. Kluchman mentioned there exist 2300 rental units in Lexington—that's a very small percentage of the total housing stock(data from Regional Shared Housing Office) and $3500/month average rent (but restricted units more like $1500/month). Rental housing is an economically easier way to become a Lexington resident, not needing down payment capital. Mr. Haughton believes, in the short term, owners will take the increased tax burden, but the longer-term effect would be to make rental ownership less desirable. Mr. Herbert added that the rental supply is totally inelastic (no more apartment complex building is possible, effectively). So long as demand to rent in Lexington remains strong, increases in property tax cost will be passed on to renters sooner than not. Mr. Enrich recommended viewing property tax as a service fee, reasonably passed on to renters, and Lexington provides excellent services. Mr Pato mentioned the rental market is basically two pools: 1100 large complex units and the rest are SFHs rented out. Mr. Herbert said that's two very different pools of owners, who may have different behaviors regarding whether to pass along tax increases. Ms Kluchan mentioned that while between 13-16 towns have RE, Means Tested approach is the tool increasing in popularity because it is a more refined way to target need. Mr. Enrich agreed MT is more finely tuned, though administratively a bit more complex. He also suggested the Circuit Breaker could be improved (but at the state scale, not by Lexington alone), and also the tax deferral program could be used more broadly. His primary recommendation would be for the town to devote $20k to marketing the deferral program to increase utilization. Mr. Haughton asked if there is truly an affordability problem if people aren't looking into assistance. Mr. Cloth pointed out the bank/mortgage limitation on obtaining deferrals. Mr. Andersen asked the guests to consider that the housing market is not static; development and redevelopment continues, and the current tax structure favors the wealthy (owners) over renters. If we pass an RE, there are possible 2nd order effects—including a one-time gift to current home- owners and some likely apartment to condominium conversion, and other effects we are concerned as possibilities. Our guests input as experts on whether these are real concerns will inform our report to Selectmen. This is discussion of an RE-induced Capitalization Effect: change of assessment value based on shifted tax burden. Mr. Haughton agreed—the winners will be home owners in currently lower value homes, but they will benefit less than the chart shows because lower home values will increase at the next assessment. The value benefit would end up being about 70% of what we have projected. Mr. Enrich agreed, though he thought there would be a time lag effect due to the property value adjustments likely occurring gradually a few rounds of assessment. Mr. Herbert agreed. Ms. Blier asked if the cost of immigration to Lexington would also increase, and Mr. Haughton said there would be no effect on immigration. Ms. Kluchman said other aspects of the town's housing plan would be more effective for making Lexington more affordable, particularly types of housing and proximity to public transportation. The guests agreed RE provides an incentive to convert apartments to condominiums, but maybe not enough to affect behavior. However, given land prices, there's already a strong incentive in that direction. Mr. Enrich pointed out that while the recent federal tax reform is reducing ability of home owners to reduce fed taxes, it doesn't affect ability of landlords to reduce for them it's a business expense. Distribution of override vote tax increases will have a substantial effect as well. Mr. Zhao shared that during our realtors round table, we had asked if relieving some burden on the lower end of the market would we give residents an incentive to stay, and the brokers had responded it is a possibility but it's not the primary reason people are moving out. So, does the policy help people stay as a primary benefit(versus all these secondary effects)? Mr. Haughton said owners of lower value houses should be happy to see lots of mansions being built because of the tax and service benefits, but not sure it helps residents to stay. Mr. Herbert said how much equity someone has in their house is the main question regarding emigration. If your tax burden decreases but has the effect of increasing your property value, it might increase emigration incentive. The main issue is not tax rate, but how well-tiered property taxes are to municipal services. Mr. Cloth asked whether RE or MT or both together—even if they don't put much money in their pockets, what would it do to senior's perception about town doing all it can to help? Mr. Herbert said MT is very different from RE in that MT is targeted at 65+residents and as such sends a much clearer signal to seniors the town is trying to help. Ms. Kluchman says, for seniors, RE is more progressive but MT is more the direction to go, along with 41A(the tax deferral program), but also building more housing built with seniors in mind—such new development apartments, not SFHs. Mr. Enrich says a problem with the circuit breaker is the capped value limits its utility to some who need it, and that it's limited to seniorsa circuit breaker should also be applicable to short-term life circumstances (e.g. unemployment). Because the State pays for CB costs, that financial burden rests at state level, not at the town level. He encourages CB reform advocacy, especially to increase the cap. Mr. Cloth pointed out the appeal of RE is also town can do it on its own. Ms. Kluchman pointed out approving MT home rule by state legislature is a bit more work, but would be approved. She asked to refocus on the goal of this examination: Lexington is unaffordable and some relief is desirable, or is a targeted population's relief the goal? Mr. Pato stated he has no particular preference for using RE versus other tools, but the Board of Selectmen wants to be informed about impacts of possible tools. Topic Fairness: Mr. Haughton pointed to income as one approach to looking at fairness. For asset rich, cash poor residents, the deferral program needs to work better. For people who are asset poor (big mortgage) and income poor, ideally the circuit breaker should help but it's just a band-aid. Mr. Pressman brought up the lower value condo owners. Mr. Herbert illustrated that complex scenarios that make fairness difficult to parse (life stage and home value choices as two factors). Mr. Haughton said, of all government levels, local government is the least well able to create distribution fairness. Ms. Blier asked if the circuit breaker could require I Oyrs residency. Mr. Enrich said there are federal/Constitutional limitations to what one can do with required residency, but that ten years is a frequent requirement. Ms. Kluchman said the fairness question: who do we want to help—seniors who are here, ability of people earning less than $300k to move in to town or to remain in town, is a question for TM and Selectmen to answer. The practices to help provide more affordability is more dense housing, close to public transit, etc but that these would not likely have much intersection with RE if they are owner-occupied two- to four-unit dwellings. Ms Blier asked whether there is any downside to a MT approach? Ms. Kluchman said MT seems like a no-brainer—none of the down-sides and fairness questions of RE. Mr. Enrich says he would rank tax deferral and circuit breaker approaches ahead of MT. Mr. Andersen said one concern with MT approach is that some people may feel they have limited ability to pay but come out just above the cut-off for assistance, whereas RE has a graduated impact across all. Mr. Haughton said it still provides an objective measure, but a downside is it requires a fair amount of information, and that people's incomes can vary substantially year to year. Mr. Andersen said there's an assessment aspect as well, and the Assessors' office reported not being able to do a great deal of asset testing, so MT is also somewhat blunt tool, but much less so than RE. Mr. Enrich recommended just using income as proxy for wealth, and dropping the asset testing. Ms Blier asked whether each guest would vote for/against the RE, were they in a position to make the decision for Lexington, and Mr. Whelan asked what they would support instead. Mr. Herbert said he would not vote for RE because it is too crude a tool, and instead would support a MT approach. Mr. Enrich said he would most likely vote no,but could imagine voting yes under conditions of political/symbolic consideration to pass a contemporaneous override. Ms. Kluchman also would vote no, though she supports it at the 10% level as a progressive tax. Mr. Haughton would also vote no, and thought working to promote increased use of the existing tax deferral program would most help residents who are struggling. Panel discussion was then concluded, and all guests were thanked for their generous participation today. Approval of minutes from the September 28, 2018 meeting was deferred to the next meeting due to time constraints. Next meeting October 12, 8:OOAM. Meeting adjourned at 9:44AM.