Property tax

MIDDLESEX - Corporations and big businesses may pull all the strings in Washington D.C., but come tax classification time around The Middlesex East’s coverage area, local officials obsess almost exclusively about financial impacts on individual homeowners.

But as with so many trends and traditions in the COVID-19 era, 2020 proved to be the year that expected routine got turned on its head.

During tax classification hearings in the final days of 2020, when most Massachusetts’ communities set tax rates for the current fiscal year, many area officials called for maintaining the status quo in order to shield reeling local businesses from another financial liability.

For example, in Tewksbury, where the Board of Selectmen set its tax rates in early November, Chief Assessor Joanne Foley recommended town leaders freeze the community’s commercial/industrial/personal (CIP) property shift at 1.56.

Tewksbury’s selectmen, though empowered to hike the CIP to as much as 1.75, ultimately agreed given the unprecedented turmoil foisted on businesses since COVID-19 crossed into the state last spring.

As a result, in FY’21, the residential tax rate will be set at $15.72, while CIP rates are $27.60.

The average commercial landowner in Tewksbury can expect their tax bills to drop by about $141 next year to $23,343.

Single-family homeowners, whose property values climbed on average by more than $20,000 over the past year to $454,977, can expect to see a $7,152 tax bill for the year. That total represents a $241 increase over prior year tax estimates.

“I’ve been an advocate of the CIP in the past, but I don’t [agree with] changing it this year. Keeping the status quo is the best environment we can offer our business community, which is suffering too much,” said Tewksbury Selectwoman Jayne Wellman during the town’s recent tax debate.

“This year, given the pandemic and impact on businesses, I do agree with the 1.56 shift,” agreed Selectwoman Anne Stronach.

In Massachusetts, cities and towns are allowed to decrease tax burdens on homeowners by adopting a dual tax rate that includes a higher charge for commercial landowners. The mechanism is set in place by adopting a minimum residential factor, which results in a CIP value.

The greater the CIP, the larger the portion of the overall tax levy commercial and industrial classes are responsible for covering. For example, according to Foley, had Tewksbury during its tax classification hearing adopted a single rate — or no CIP shift — the business sector would be responsible for about 16.6 percent of the community’s $97.3 million tax levy for FY’21.

However, with a 1.56 shift, that tax burden for businesses climbs to roughly 26 percent.

Tewksbury was far from alone in trying to limit the fiscal impact of tax increases on commercial enterprises. In Winchester, which is in essence one of the few regional communities to have a defacto single tax rate, various town officials last month argued now is not the time to buck that trend and hit the town’s fragile small business community with a higher tax bill.

“It would put too much pressure on commercial business owners to shift,” remarked Select Board member Mariano Goluboff at a virtual meeting in early December.

As a result of the decision, Winchester’s commercial rate, which applies to an extremely limited number of properties in the bedroom community, are set at $12.83.

Residential tax rates in 2021 are set at $12.83 per 1,000 in valuation for Winchester residents, where the average single-family domicile is worth around $1.2 million. The typical homeowner will see a $737 jump in real-estate taxes, which equates to average annual tax bill of just over $15,000.

Digging in for two-year downtown

In Woburn, where local officials have long argued that the city’s vibrant industrial and commercial sector should pay higher taxes given associated traffic and noise impacts to residents, Mayor Scott Galvin is prepared to dip into the city’s reserve funds for the next two years to contain the financial fallout from COVID-19.

Though Woburn has imposed the maximum allowable CIP shift of 1.75 for some time now, last month the City Council authorized Galvin’s proposal to spend some $3.5 million in free cash to stabilize the municipal budget for FY’21.

The area mayor has in years past classified the use of one-time funding sources like free cash for reoccurring expenditures as especially imprudent, as the spending strategy creates a structural deficit in future years’ budgets.

However, given the staggering losses local entrepreneurs and everyday workers are experiencing due to COVID-19-related layoffs and restrictions on business operations, Galvin insisted upon granting the tax relief.

“This will help soften the blow for the residents and the businesses,” Galvin told the City Council in early December, when he asked the aldermen to okay the free cash withdrawal. “We’re positioned well.”

“With the support of the council over the years in doing conservative budgeting, we’ve built up our reserves for something just like this. This is the rainy day the funds were made for,” he added, referring to Woburn’s estimated $42-plus-million in free cash, stabilization fund, and reserve account savings.

According to Woburn’s Chief Appraiser John Connolly, by dipping into Woburn’s war chest, about $150 will be shaved off of the typical homeowner’s anticipated tax bill for FY’21.

Given the great disparity in commercial and industrial property valuations, Connolly was unable to give a similar estimate on the savings for the business community.

City officials in Woburn had been prepared to allocate as much as $5.5 million in rainy day account monies this year in order to stabilize the municipal budget.

Besides shoring-up the budget with withdrawals from rainy day accounts, the mayor also plans on reining in municipal spending for the next two years as the city’s coffers recover from the loss of one-time revenues like meals tax payments and building permit fees. Many municipal officials across the state also suspect that water bill payments and real-estate tax collections will take a hit as out-of-work citizens fall behind on payments.

Potential residential tax accelerant

With virtually every class of residential real-estate soaring in value at clips that make the days before the 2008 financial crisis look like a modest melt-up, municipal leaders in prior years generally tried to contain the financial fallout on voting citizens by maximizing the tax burden born by commercial and industrial landowners.

With most businesses themselves booming in a thriving economy, town Select Boards and City Councils generally met little resistance in adopting that strategy.

Some area communities, including Stoneham and Wilmington, stuck with that strategy and kept the maximum 1.75 percent CIP shift in place for FY’21.

In Stoneham, where average single-family home values over the past five years have soared by more than $115,000 to $577,172, the typical residential taxpayer will likely see tax bills increase by $147 in 2021. Two-and-three family landlords, whose real-estate values climbed by about 14 percent since last year, can expect annual taxes to jump by $251 to $6,833.

However, according to Brian Macdonald, Stoneham’s chief assessor, he is worried the fallout from COVID-19 will eventually result in a hollowing-out of the commercial and industrial real-estate market as more and more businesses close their doors.

The Stoneham tax expert also believes COVID-19 could create a permanent telecommuting shift for traditional office employers who instituted work-from-home policies in response to the pandemic.

“When the lockdowns began, we saw real-estate sales really grind to a halt. We really didn't know what to think, and nobody really had a grasp of how the market would respond," said Macdonald.

"One thing I'd like to keep everybody informed of is the potential impact to the commercial properties in town. It has yet to be realized [how that portion of the real-estate market will function]," Macdonald warned Stoneham’s Select Board last month.

Based upon an initial analysis, while the commercial real-estate market froze up almost completely after the state shuttered all “non-essential” businesses last March, all classes of residential real-estate continue to sell at record-high prices.

According to Stoneham’s assessing department manager, after residential property sales briefly stagnated alongside the commercial market last spring, single-family houses and condominium inventory soon began turning over at a rapid rate.

Median sales values for houses in Stoneham are now up by roughly $42,500 over the average $560,000 price paid a year prior. Condominium purchases are also on target to exceed 2019 levels, when 96 such units turned over, all while median sales prices towards the end of 2020 had climbed by $12,750 year-over-year to $363,250.

As Macdonald explained, though that news is great for residents looking to sell their properties, a simultaneous decline in commercial land values will steeply accelerate the climb in residential tax bills for those citizens who intend to stay put.

"Next year, I am anticipating a harsh adjustment for the residential property class…You're [probably] going to see that percentage burden accelerate to where the residential class will bear a greater responsibility for the town's tax levy,” he said.

Tewksbury’s assessor, along with town Selectman Brian Dick, forecasted a similar scenario when setting the community’s tax rates last November.

Unlike Stoneham, Tewkbury’s commercial real-estate sales had already begun dropping before COVID-19 hit, and condominium sales prices have also undergone a surprising over the past year, according to assessor’s office records.

“I think we’re just seeing the very tip [of the pandemic’s impact],” said Foley of the trends. “We’re aware of maybe five businesses that have [already closed in town]. Commercial values were really valued based upon last year’s income and expense. Next year, it will really be a whole different picture.”

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