Norwich property tax bills are out. The overall rate is lower. This post addresses the presentation/discussion at the Selectboard meeting on the setting of the Town tax rate. It seemed disorganized to me. “Amateur hour” suggested one Selectboard member.
At the last Selectboard meeting, the Board, by a 3-2 vote, set the municipal tax rate at about a half-cent less than that recommended by the Town Manager. Selectboard members Pepper, Brochu and Langhus voted in favor of the motion. Selectboard members Arnold and Layton favored the Town Manager’s proposal.
The majority opted to use about $42,000 of the budget “surplus,” compared to the $264,290 used last year, to “buy down” the tax rate. rate. (See endnote for explanation of the buy down process.) As a result, the Town property tax rate, including Monetary Articles and Local Agreement rates, was set at $0.5090, a 1.08% increase from lat year, compared to the 2.20% increase requested by the Town Manager. See box below for final property tax rates compared to last year.
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Property tax rates for FY 20 and FY19. Source: Norwich Town Manager.Amateur Hour? The presentation/discussion about the tax rate, which involved the Selectboard, Town Manager, Finance Committee Chair, and Town Treasurer lasted about 90 minutes, a long time. At one point during the discussion, one Selectboard member politely characterized the proceedings as “amateur hour.” I think, after watching the CATV video, that the Board member has a point. It struck me that the Town Manager and Selectboard had different expectations going into the meeting about a possible buy down of the tax rate. That resulted in two general points of confusion. First, there was no certainty how much surplus money was available to “buy down” the tax rate. (See endnote for explanation of the buy down process.) In Norwich, the amount of excess surplus is a key ingredient in setting the tax rate. It struck me as odd that no public official could or would say, with certainty, the amount of the surplus, if any. Second, there was disagreement about whether voter approval is required to spend surplus funds. Past practice in Norwich, including last year under Town Manager Durfee, was to use surplus funds with Selectboard approval only. Getting voter approval may be the better practice. The Selectboard and Town Manager need to put the topic on the agenda, no later than budget season, in order to avoid the same snafu next year. In the end, a decision needed to be made that night.
The Selectboard majority reduced taxes by a modest amount, around $42,000 or one percent of the annual budget.
Selectboard Chair John Pepper offered this perspective in an email: “The majority of the board ended up believing it was best to let the taxpayers hold some of the ‘excess money’ (which was not clear how much actually existed) as opposed to defaulting to the town holding the excess money. In the end, it’s the taxpayers money in my opinion. If and when taxes need to go up because something unexpected happens or we were somehow incorrect in our current decision making, then at least the taxpayers will have had use of their money in the meantime.”
Note, explaining buy down:
In the buy down scenario, undesignated surplus funds held by the Town are earmarked to pay expenses of the next fiscal year. That reduces the amount of revenues needed to be collected in taxes. Less revenue needed from taxes means a lower property tax rate, all other variables remaining constant. Hence, surplus funds are used to “buy down” the property tax rate. How much of the surplus in the Undesignated Fund Balance (UFB) to use is a matter of discretion. The UFB is also the Town’s rainy day/emergency fund, so it is prudent to keep some reserves. See What’s an “Undesignated Fund Balance”? On the other hand, surplus funds belong the taxpayers. No reason for the Town to keep it. Last year, the Selectboard specifically earmarked $264,290 from the UFB in setting the property tax rate for fiscal year 2019. The $264,290 reduced the property tax rate by over three cents. But, it may have depleted reserves by too much. See Agenda Item: Undesignated Fund Balance.
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Originally published on HereCast on July 22, 2019