Housing costs in South County are pricing out ordinary people. Yet our aging infrastructure—schools, bridges, water—needs expensive attention. To do something about these challenges, towns should offer the residential exemption from local property taxes. By reducing taxes for most homeowners and paying for that mostly by raising taxes on expensive second homes, this would raise funds for infrastructure without increasing the cost of housing for those who can least afford it.
To illustrate the benefit: If Great Barrington had used the residential exemption this year, the tax bill for a resident in a median-value home would have been cut by $1,400, a savings of 22 percent. Half of the homeowners in town would have saved even more. And the 35 residences in town that are valued below $178,000 would have paid no tax at all. Savings would be even greater in towns with more second homes. In Stockbridge, where the second-home proportion is 43 percent, using the residential exemption this year would have saved the median Stockbridge homeowner 30 percent, and there would have been no tax on homes valued below $235,000. (These projections are based on data from a calculator on the Massachusetts Department of Revenue website.)
The residential exemption, a local-choice option under state law, operates by deducting the exemption amount from the taxable valuation of homes occupied by full-time residents. The exemption is calculated as a percentage of the average value of the town’s residential properties, so where values are higher, so is the exemption. Granting the exemption to residents shrinks the tax base, so raising enough revenue to pay for the town budget requires raising the tax rate. The net effect is a higher tax bill for second-home owners and for residents living in the most expensive homes. In Great Barrington, where the exemption would be $178,000, the “break-even” value is $700,000. About 10 percent of the homes in Great Barrington exceed that value, but about half of those are second homes. Put another way: Despite the break-even effect, using the residential exemption would give a tax break to over 90 percent of Great Barrington resident homeowners. In Stockbridge, the break-even level is $1.4 million, and in West Stockbridge, it is $1.1 million.
By using the residential exemption, the towns in the Berkshire Hills Regional School District could pay to update the high school without raising taxes on most of their residents. Suppose the annual debt service for a high school project is $4 million, shared among the towns according to the district agreement. Great Barrington could set its tax rate high enough to pay for its share without raising the tax bill at all on the average-valued home, while the median home’s tax bill would still drop below the current level by 14 percent. Stockbridge could afford its share while saving the median homeowner 17 percent, and West Stockbridge could pay its share while saving its median homeowner 29 percent.
Some say that second-home owners will try to avoid the higher tax bill by buying elsewhere. If “elsewhere” means other towns in South County, that incentive could soon disappear, because the legislature has just created a huge incentive for all the towns in southern Berkshire County to adopt the residential exemption. A new category of “seasonal communities” is defined for the Cape and for Berkshire County. Five towns in South County automatically qualify because of their high rates of second-homeownership, and the others could qualify based on additional statutory criteria. In seasonal communities, the residential exemption may be much larger. To illustrate the potential effect: In Lenox, Stockbridge, Monterey, and New Marlborough, using the residential exemption at the new seasonal community rate would cut tax bills for the median residence in half, and using it in Egremont would cut it by 70 percent.
Concern has been expressed about risk of higher rents, because rental properties don’t get the exemption. But in Great Barrington, and perhaps elsewhere, many rental units are in duplexes and triplexes that would qualify for the exemption because the owner lives in one of the units. Rents on these units should be unaffected. Concern about effects on rent can be met by doing what Provincetown did when they adopted the residential exemption a few years ago. Through a home rule petition to the legislature, they obtained authorization to extend the exemption to rental properties where the tenants are permanent residents.
A final concern is about people who are aging in place. Several programs under state law already help seniors deal with rising property taxes. One relatively new program operates like the residential exemption, permitting seniors who meet income criteria to exempt some of their homes’ value from tax. In Great Barrington, this exemption could be $110,000. If Great Barrington adopted this along with the residential exemption, only seniors with higher incomes in homes valued over about $1 million—that is, people like me—might pay a higher tax bill than they are paying now.
All the towns in South County will be holding annual tax classification hearings in the next few months. That is the opportunity for the towns’ select boards to give their resident taxpayers a needed break. By adopting the residential exemption, they can keep housing affordable and still raise funds for badly needed infrastructure, by reducing taxes on those who most need the help while charging more from those who can most afford it.
