Editor’s Note: In an accompanying article, Michael Wise details, with charts and graphs, the recalibration of property taxes that would be paid by Great Barrington homeowners, should a residential tax exemption be adopted. to read his analysis, click here.
Great Barrington’s taxes are high enough that some people are finding it unaffordable to live here. We can do something to help them stay.
Towns like Great Barrington that provide good public services have higher taxes than those that don’t. Other towns in the county of similar size that provide similar services also have higher-than-average taxes. In Williamstown, for example, tax bills are even higher than ours. But the taxes feel higher here because family and household incomes are lower. Great Barrington’s property tax bills, in relation to median income, are the highest in Berkshire County.
There are several measures we could adopt concerning our property taxes that would help keep Great Barrington affordable:
- Residential exemption: making the property tax progressive, shifting its impact from lower-valued homes toward more expensive properties and second homes.
- Split rate: usually this is a higher tax rate for commercial and industrial properties, but when combined with the residential exemption the two rates could be equal.
- Tax relief programs: using means-based exemptions and refundable credits, mostly to help seniors.
Under state law, towns can decide which measures to use and how to implement them.
Adopting the residential exemption would cut most homeowner tax bills. The mechanics look complex: The exemption, which applies to owner-occupied homes but not to rentals or second homes, is a fixed amount that is subtracted from assessed value to determine taxable value. To compensate for how it shrinks the residential tax base, state law requires raising the residential tax rate. Combining the effects of the smaller base and higher rate produces a “break-even” value. For homes below that value tax bills would decrease, and above it they would increase. The maximum exemption here would be $64,733, which would make the break-even value $470,000.
The effect is clear: three-quarters of the town’s residences are below that break-even value and thus could benefit. For the median home, valued at $294,400, the residential exemption would cut the tax bill 11 percent. Benefits would be concentrated in Housatonic village and Risingdale, where most tax bills would drop at least 20 percent. Not all would benefit, of course. Near the break-even value tax bills would not change much, up or down. For the 100 high-end homes valued over $850,000, half of which are second homes, the tax bill would increase by seven percent or more.
A split rate by itself could not help residential taxpayers as much. The highest permissible split rate could reduce the average single-family tax bill by 13.5 percent; however, that would raise the average commercial tax bill by 50 percent, which could drive away business and jobs. If a split rate is used, it should be at a lower level.
Combining the residential exemption with a lower split rate – and all of the towns that use the residential exemption also use a split rate – could make the nominal rate for all property the same while still providing a substantial benefit to most residential taxpayers. If Great Barrington adopted a split rate that raised business taxes 10 percent, along with the maximum residential exemption, the tax rate for all would be about $15.85 per thousand. That rate would fund the proposed budget for 2016, including the school assessment, while 80 percent of the homeowners living in Great Barrington would have lower tax bills than they are paying now.
Major changes like these would have side effects, amounting to potential costs that must be weighed against the benefits. Implementation of a split rate would be straightforward, but setting up for the residential exemption would be more complex. Towns that use it advise adding resources for administration and providing for a year of lead-time. The residential exemption would make the town less attractive for expensive second homes. It would increase the taxes on rental properties, and landlords might try to pass that through to tenants. The residential exemption tends to make the property tax progressive, which many (but not all) would take to be a benefit. It could, however, create problems for seniors trying to stay in expensive homes on reduced and often fixed incomes. Implementation of the residential exemption depends on making sure that this problem is addressed.
Several programs under state law can help seniors with their property taxes. The “circuit breaker” is a refundable income tax credit for property tax that exceeds 10 percent of a senior’s income. Seniors whose incomes and property values are similar to community averages in Great Barrington are likely to qualify for this relief. There is a means-based exemption for seniors under which the state reimburses the town for revenue lost. Great Barrington offers the maximum relief under this program, and the town granted 29 of these exemptions in 2014. But Great Barrington might do still more. Notably, we have not yet adopted the program that permits seniors with modest incomes to defer paying their property taxes until the taxpayer dies or the property is sold.
I have put together a 20-page background memorandum that explains each of these points in considerably more detail, which I will be happy to share with anyone who is interested.
