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Q & A on Property Taxes

December 2, 2018

CHELMSFORD -- It happens every year: The Board of Selectmen votes to set the property tax rate for the fiscal year.

Normally, this isn’t terribly huge news. The difference this year is that it could be the first time in two decades that selectmen choose a split rate instead of a single rate. And that determines how much you, homeowner or business owner, will pay in taxes.

So we’re taking a look at the issue, the statements surrounding it and how other towns contend with a split rate.

Q: How does this work?

A: A single rate is when residential and commercial, industrial and personal property (CIP) pay the same rate. Chelmsford has had this system in place for 20 years.

A split rate is when some of the tax burden is shifted from residential property owners to CIP.

A municipal body -- in Chelmsford’s case, the Board of Selectmen -- can decide to shift as much as 75 percent (a 1.75 factor), depending upon how long classification has been in place in a community. The biggest shift Chelmsford could make in the first year of a split rate is 50 percent (1.5 factor).

Q: Who wants to split the rate?

A: Three of the five selectmen -- Chairman Glenn Diggs, George Dixon and Emily Antul -- have expressed interest in instituting a split rate, as a means to provide some relief to residents, especially those with fixed or limited incomes. Residential taxpayers pay the lion’s share of real estate taxes in town -- about 82 percent compared to about 18 percent CIP. It is a common lament in Chelmsford that senior citizens, in particular, are being taxed out of town. A majority of residents who voted in April’s town election also supported two public-opinion referenda asking whether they favored instituting a split rate and a small commercial exemption (more on that later).

Q: Who doesn’t?

A: Established businesses and their supporters. Some economic development officials, such as Economic Development Commission Chairman Donald Van Dyne, have said that it doesn’t make sense to change tax policy amid efforts to redevelop and revitalize the Route 129 business corridor -- including instituting the Business Amenities Overlay District and hiring Director of Business Development Lisa Marrone -- and fill vacancies there and elsewhere in town.

“The split rate sends a message that the town is not business-friendly,” said Chelmsford Business Association Executive Director John Harrington.

He said a split rate “divides the community,” and instituting one will be “a political choice.”

“Classification isn’t the golden thing that they think it’s going to be,” Harrington said. “It might be for the first year, they might see something. But as it goes on, it’s just going to be taxes as usual. Taxes are always going to go up.”

He said many CBA members also live in town, so they may get some relief on their residential property taxes, but not enough to offset the increased commercial taxes. Harrington said businesses enjoy many of the same, but not all, town services as residents, and pay more for them.

Harrington couldn’t point to any particular businesses that came to town specifically because of the split rate, but said it is part of the consideration -- perhaps about fifth in the list of priorities -- a business makes in determining whether to locate here.

Q: How does a split rate affect the ability to attract and retain businesses in other communities?

A: We posed this question to officials in Billerica and Tewksbury, which have shifts of 1.75 and 1.55, respectively.

In Billerica, CIP accounts for about 26 percent of total properties in town, and comprises about 45 percent of the levy due to the shift.

Community Development Director Rob Anderson said he doesn’t believe Billerica’s high shift has damaged the town’s ability to keep and bring in new business. Taxes are part of the equation, but there are many other superseding factors, he said.

“The number one thing for any business is the workforce that they can attract, because they want to have the people that have the right education, who can get there easily,” Anderson said.

He said great highway access allows towns like Billerica and Chelmsford to pull talent from a wide region. Speed to market, access to vendors, amenities and facilities that meet specific business needs are also of high importance, Anderson said. Zoning flexibility for mixed use is also attractive, he said.

In Tewksbury, CIP accounts for 16.86 percent of total valuation of properties in town, and comprises 26.13 percent of the levy due to the shift.

Tewksbury Town Manager Richard Montuori said the tax rate never really comes up in conversations with businesses, unless, for instance, they’re interested in negotiating a tax increment financing (TIF) agreement for a break on a percentage of taxes over a certain time period.

“It’s not been something that has deterred someone from coming in,” he said. “No one has ever said to me, ‘We would have come to your town, but you have a split rate.’”

Montuori pointed to towns with the biggest share of value in commercial and industrial, like Burlington and Billerica.

“They all have split tax rates, and they’re still developing and still building,” he said, noting location and available amenities are key.

Anderson, who worked in regional economic development for the state, had experience with many communities with both single and split rates and varying amounts of interest and success in attracting business. He said the communities that had a single point of contact for businesses and outreach had the most success.

“A key point of contact is much more important to business development than the taxes ever will be,” Anderson said.

Q: What are the exemption options that can provide other means of tax relief?

A: Adopting a small commercial exemption can shift up to 10 percent of the tax burden from eligible commercial parcels to non-eligible commercial parcels and all industrial parcels, according to Chelmsford Chief Assessor Frank Reen.

To qualify, commercial properties must be valued at $1 million or less, and each business therein, whether a single or multi-tenant property, must have an average annual employment of 10 full-time equivalent employees or fewer at each of its locations, he said.

The small commercial property owner would benefit from the lower rate, and it would be up to that owner as to whether the savings are passed onto the tenant businesses, Reen said.

Of Chelmsford’s 432 commercial parcels, 329, or 76 percent, are valued at less than $1 million, he said. There are 222 industrial parcels, Reen said.

Another, lesser-used option is the residential exemption, which shifts the tax burden within the residential class from lower-valued properties to higher-valued ones and those owned by non-residents, he said. This exemption can reduce the taxable valuation of taxpayer “principal residence” properties up to 35 percent of the average assessed value of all residential class properties, Reen said.

Q: How will Chelmsford’s economic development efforts change if the rate is split?

A: According to Marrone, not much, if at all.

“Whether the rate is flat or split, you will see the same effort from me to provide Chelmsford with business development support,” she said. “I’m not going to change my approach in any way. I’ll still have the same excitement to work here, the same available empty space to fill, and businesses to provide support.”

Marrone said having a single rate can be a marketing tool. However, workforce, transportation, commute times, parking, amenities, location, supply chain, facilities, flexible zoning and ease of permitting tend to come up in conversation well before the tax rate, she said.

“There are a lot of great attributes about Chelmsford to be able to promote aside from a single tax rate,” Marrone said.

Follow Alana Melanson at facebook.com/alana.lowellsun or on Twitter @alanamelanson.

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