CITY COUNCIL BUDGET & FINANCE SUB-COMMITTEE TAX CLASSIFICATION PRESENTATION

November 9, 2010

Presented By The Board Of Assessors

FY ’11 TAX CLASSIFICATION

 Purpose Of The Tax Classification – To Determine How The Tax           

Levy Is Shared Background Levy & New Growth FY 2011 Values Current Status What’s Next? Classification- The Process Overview Of The Values Various Options of Factors and Tax Rate Average Tax Bill Impact Per Class Discussion “Residential Factor” Vote
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BACKGROUND

 The Classification Act Requires Municipalities To Classify Real Property Into One Of Four Classes, According To Use: Residential, Commercial, Industrial, And Personal Property.  Cities That Are Certified as Assessing Property at Full And Fair Cash Value May Elect to Shift Tax Burden Among The Major Property Classes Within Certain Limits Established By Law.  The Bureau Of Local Assessment Have Certified Lawrence as Assessing Property at Full And Fair Cash Value.

 The Adoption Of Different Rates DOES NOT CHANGE the Total Property Tax Levy. Rather it Determines The Share Of The Total Levy To Be Borne By Each Class.
 The “Minimum Residential Factor” Established By The Commissioner Of

Revenue Ensures That the shift of the tax burden complies with the Classification Act.
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LEVY, LEVY LIMIT & EXCESS LEVY CAPACITY

 Levy is the amount the City raises each year through Property Taxes .  The Levy Limit is the Maximum amount the City can levy in a given year.
 The levy limit can grow each year by 2 ½ percent of the prior’s year levy limit plus

new growth and any overrides.

 Excess Levy capacity is the difference between the Levy Limit and the Actual Levy.

Levy Summary FY 2009 Levy $46,642,3514 Prop 2 1/2 Increase $1,184,266 Growth $1,087,456 Overrides $0 FY 2010 Levy Limit $49,642,351 FY 2010 Proposed Levy $49,642,351 Excess Capacity $0
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WHAT IS NEW GROWTH?

 New Growth is a calculation of the net increase in municipal property values because of new construction, improvements to properties, subdivisions, condo conversions, the return of exempt property to the tax rolls or new personal property accounts as well as new personal property equipment at existing locations.  New Growth is added to the City’s Levy Limit, thereby increasing the City’s taxing capacity.  Assessors must submit documentation of New Growth to the Bureau of Local

Assessment annually and receive approval prior to setting the tax rate.  The assessed value of real estate and personal property New Growth during the twelve-month period January 1, 2009 to December 31, 2009 is $50,854,170.  This Growth translates into $1,087,456 of increased tax levy capacity over the basic limits of Proposition 2 ½ .

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FY 2011 VALUES

 Values are based on Sales in Calendar Year 2009  The residential values decreased by 5.9% and commercial/industrial increased by 4.4%.  The City of Lawrence Total Property value is $2.8 Billion. This is a 4.1% decrease from FY 2010.  The average single family home assessed value in FY 2011 is $178,249. This is a $10,651 decrease from FY 2010 average assessed value of $188,900.  Based on property values submitted to the Department of Revenue, the Lowest Possible Residential Factor for FY 2011 is 88.8611 % under Chapter 200.  Continuing with a Factor of 1.75, the residential tax rate for FY 2011 would be $13.43, a $0.86 increase over FY 2010. The correspondent C.I.P. tax rate for FY 2011 would be $30.40, a $2.60 increase over FY 2010.

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PROPERTY VALUE CHANGE 2011 VS. 2010
Total Real Property Value FY2010 Total Real Property Value FY2011 Real Property Value Change Residential Property Value FY2010 Residential Property Value FY2011 Residential Value Change Commercial Property Value FY2010 Commercial Property Value FY2011 Commercial Value Change Industrial Property Value FY2010 Industrial Property Value FY2011 Industrial Value Change Personal Property Value FY2010 Personal Property Value FY2011 Personal Property Value Change $2,835,958,600.00 $2,708,093,100.00 ($127,865,500.00) $2,331,181,389.00 $2,193,228,846.00 ($137,952,543.00) $309,899,311.00 $311,487,554.00 $1,588,243.00 $194,877,900.00 $203,376,700.00 $8,498,800.00 $143,970,790.00 $149,199,370.00 $5,228,580.00 -4.51%

-5.92%

0.51%

4.36%

3.63%

Total Value FY 2010 Total Value FY 2011

$2,979,929,390.00 $2,857,292,470.00 ($122,636,920.00)
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-4.12%
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LARGEST TAXPAYERS
Total Assessed Valued
$34,683,900
$28,865,000 Verizon New England Inc Jefferson at Den Rock $28,527,850 Mass Electric Bay State Gas Lincoln Andover LLC $219,775,110 $24,645,820 Hampton on Beacon

Chi Energy Inc
Princeton Andover $19,393,700 $18,103,900 Lawrence/Methuen Props Jackson St Housing New Balance Athletic Shoe

$13,743,140
$11,886,400 $11,334,100 $10,039,800 $9,405,300
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HJ Brooks LLC
Total

$9,146,200
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CLASSIFICATION/ TAX RATE PROCESS

 Step 1:
 The Bureau of Local Assessment have certified Lawrence as assessing property at full and

fair cash value

 Step 2:
 The Board of Assessors will provide the councilors with information to select the

residential factor toward the determination of the rate for each class of property.  A limited set of possible choices will be provided by the Board of Assessors, but City Councilors may, if desired, explore other tax rate combinations that meet their needs.

 Step 3:
 City Councilors are required to determine the percentage of the tax levy to be borne by

each class of real property: residential, commercial, and by personal property. The decision is made after holding a public hearing.  The Conclusion of the hearing MUST result in a vote of required choices

 Step 4:
 The split tax rates for Fiscal Year 2011 are certified by the Department of Revenue

 Step 5:
 Mail 3rd quarter “actual” bills January 1, 2011

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CURRENT STATUS

 Lawrence Completed the “Interim year valuation” adjustments and values

reflect changes in the tax base due to new construction, alterations, demolition, etc. Sales analysis for calendar year 2009 and adjustments to assessments reflect changes in market conditions as of January 1, 2010.

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WHAT’S NEXT?

 Full Council Vote on the Classification Factor  Upon the Commissioner’s determination that the percentages meet statutory requirements and the public hearing has been held, the assessors will submit to the Bureau of Accounts the local tax rates for final approval.  Councilors certify the excess levy capacity on recap. (Form LA5). This will happen after full Council Meeting.

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TAX LEVY-UNIFORM TAX RATE

 Tax Levy
 FY 2011 Maximum Allowable Levy = $49,642,351  FY 2011 Estimated Levy = $49,642,351

 FY 2011 Estimated Excess Capacity= $0

 Total Value
 FY 2011 Total Value = $2,857,292,470

 FY 2011 Residential Value = $2,193,228,846

 FY 2011 C.I.P. Value = $664,063,624
 FY 2011 Residential Value Percent = 76.7590%  FY 2011 C.I.P. Percent = 23.2410%  Uniform tax rate (tax levy/total value)
 $49,642,351/ $2,857,292,470 = $17.37 / $1,000

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THE FACTOR- SUMMARY

 Total Levy FY 2011
 $49,642,351.49

 Shift Determined Based on (1.75)
 C.I.P. Tax Share =40.6717%  New C.I.P. Levy amount $20,187,534

Residential Tax Share = 59.3283%  Residential Levy Amount = $29,455,063

 Residential Tax Rate
 $13.43 / $1,000

 C.I.P Tax Rate
 $30.40 / $1,000

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PREVIOUS YEAR LEVY LIMIT + 2-1/2 % + GROWTH + OVERRIDES

DETERMINE LEVY

DECISIONS BELOW DO NOT CHANGE LEVY
SINGLE RATE

YES

RESIDENTIAL & CIP RATE THE SAME

VERY HIGH
RESIDENTIAL

TAX RATE

NO

HIGHER RESIDENTIAL RATE & LOWER CIP RATE

LOW

FACTOR (1.00- 1.75)

HIGH

LOWER RESIDENTIAL RATE & HIGHER CIP RATE

1.75 MAXIMUM SHIFT OF TAX BURDEN TO CIP & LOWEST RESIDENTIAL TAX RATE
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THE FACTOR - SHIFTING DEFINITION

 Shifting allows the City to reduce the Residential Classes (R.O.) tax burden while increasing the C.I.P. tax share.  The increase in tax share brought in by Commercial Industrial and Personal Property (C.I.P.) is used to lower the residential tax share.  The combination of the two tax classification amounts must equal the total property tax levy and cannot change it in any way.  The classification shift is a common practice.
 According to the Bureau of Local Assessments about 30% of cities and towns in

Massachusetts have classified tax rate.

 In Accordance With The Classification Act of 1978, Tax Levy from CIP May Be Increased By 50% (A Factor of 1.5),  Chapter 200 allows communities such as Lawrence the ability to use a Factor Up to 1.75  The chosen Factor for FY2010 Was 1.75,Which provided for maximum Tax Shifting, as allowed by law, from Residential to C.I.P.

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THE FACTOR- VARIOUS OPTIONS

Factor

RO Rate

RO Change $ From 2010

C.I.P Rate C.I.P. Change $ From 2010

1.75 1.74 1.73 1.72

$13.43 $13.48 $13.53 $13.59

$0.86 $0.91 $0.96 $1.02

$30.40 $30.23 $30.06 $29.88

$2.60 $2.43 $2.26 $2.08

* All $ are per $1,000 of Assessed Value

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FY 2011 TAX LEVY BREAKDOWN

Factor= 1.75

Valuation

%

Tax Share

%

FY 2011
Residential Commercial Industrial $2,193,227,846 $311,487,554 $203,376,700 76.7590% 10.9015% 7.1178% $29,451,930 $9,470,575 $6,183,536 59.3282% 19.0776% 12.4562%

Personal
Total

$149,199,370

5.2217%

$4,536,310

9.1380%

$2,857,292,470 100.0000%

$49,642,351 100.0000%

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CHOICE OF TAX RATES

 Last year’s (Factor) chosen was 1.75

Maximum allowable factor

 This year the choices are shown below  Other choices are possible and can be shown if the councilors wish to advocate such alternatives. As a reminder, a factor below 1.75 will increase the residential tax bill.  The FY 2011 Tax Levy Limit increased by $2,271,722
Residential Factor 1.75 1.74 1.73 1.72
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Res. Rate 13.43 13.48 13.53 13.59

Avg. SFH Bill $2,393.88 $2,402.80 $2,411.71 $2,422.40

Dif. From 2010 $19.33 $28.25 $37.16 $47.85

Change $/1000 $0.87 $0.91 $0.96 $1.02

C.I.P Rate 30.40 30.23 30.06 29.88

C.I.P. Incr 2.60 2.43 2.26 2.08
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FACTOR COMPARISON

 Below is a comparison of a factor of 1.75 and 1.72
Class Res Com Ind Factor of 1.75 FY 2010 Avg Value Tax Avg Tax Rate $198,869 $317,363 $964,742 $12.57 $27.80 $27.80 $2,500 $8,823 $26,820 Factor of 1.75 FY 2011 Avg Value Tax Avg Tax Delta $ Delta % Rate $186,769 $354,366 $1,001,856 $13.43 $30.40 $30.40 FY 2011 $2,508 $10,773 $30,456 $9 $1,950 $3,637 0.34% 22.10% 13.56%

FY 2010

Res Com Ind

Factor of 1.75 $198,869 $12.57 $317,363 $27.80 $964,742 $27.80

$2,500 $8,823 $26,820

Factor of 1.72 $186,769 $13.59 $2,538 $354,366 $29.88 $10,588 $1,001,856 $29.88 $29,935

$38 1.54% $1,766 20.01% $3,116 11.62%

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OTHER FACTORS IMPACT
FY 2010 Factor of 1.75 Avg Value Tax Rate $198,869 $317,363 $964,742 $12.57 $27.80 $27.80 FY 2011 Factor of 1.70 Avg Value Tax Rate $186,769 $354,366 $1,001,856 $13.69 $29.54 $29.54

Class Res Com Ind

Avg Tax $2,500 $8,823 $26,820

Avg Tax $2,557 $10,468 $29,595

Delta $ Delta % $57 $1,645 $2,775 2.28% 18.65% 10.35%

Res Com Ind

FY 2010 Factor of 1.75 $198,869 $12.57 $317,363 $27.80 $964,742 $27.80 FY 2010 Factor of 1.75 $198,869 $12.57 $317,363 $27.80 $964,742 $27.80
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$2,500 $8,823 $26,820

FY 2011 Factor of 1.65 $186,769 $13.95 $354,366 $28.67 $1,001,856 $28.67 FY 2011 Factor of 1.50 $186,769 $14.74 $354,366 $26.06 $1,001,856 $26.06
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$2,605 $10,160 $28,723

$106 $1,337 $1,903

4.23% 15.15% 7.10%

Res Com Ind

$2,500 $8,823 $26,820

$2,753 $9,235 $26,108

$253 $412 ($711)

10.13% 4.67% -2.65%
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AVERAGE TAX BILL IMPACT ANALYSIS FISCAL YEAR 2010 VS. 2011
FY 2010 Tax Rate R/O $12.57 $27.80 FY 2011 Tax Rate R/O $13.43 $30.40 CIP FY 2010 Average Value CIP FY 2011 AverageValue

Single Residential 188,906 Condo Units 129,500 Two Family
268,200 Three Family 199,300 Commercial 317,400 Industrial 964,700

Tax Amount
$12.57 $2,374.55

Single Residential
178,249 Condo Units

Tax Amount Tax Amt. Change $13.43 $2,393.88 $19.34 $13.43
$13.43 $13.43 $30.40 $30.40

$12.57
$12.57 $12.57 $27.80 $27.80

$1,627.82
$3,371.27 $2,505.20 $8,823.72 $26,818.66

115,200 Two Family
182,579 Three Family 184,293 Commercial 354,366 Industrial 1,001,856

$1,547.14
$2,452.04 $2,475.05 $10,772.73 $30,456.42

($80.68)
($919.24) ($30.15) $1,949.01 $3,637.76

Note: Values and taxes are averages per classification.
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AVERAGE TAX BILL IMPACT ANALYSIS FISCAL YEAR 2010 VS. 2011 (CONT.)
Factor Res. Rate 13.43 13.48 13.53 13.59 13.64 13.69 13.80 Avg. SFH Bill $2,394 $2,403 $2,412 $2,422 $2,431 $2,440 $2,460 Dif. From 2010 $19 $28 $37 $48 $57 $66 $85 Change % 0.81% 1.19% 1.56% 2.02% 2.39% 2.77% 3.59% Factor Res. Rate 13.43 13.48 13.53 13.59 13.64 13.69 13.80 Avg. Condo Bill $1,547 $1,553 $1,559 $1,566 $1,571 $1,577 $1,590 Dif. From 2010 ($81) ($75) ($69) ($62) ($56) ($51) ($38) Change % -4.96% -4.60% -4.25% -3.82% -3.47% -3.12% -2.34%

1.75 1.74 1.73 1.72 1.71 1.70 1.68

1.75 1.74 1.73 1.72 1.71 1.70 1.68

1.65 1.60
1.55 1.50

13.95 14.22
14.48 14.74

$2,487 $2,535
$2,581 $2,627

$112 $160
$206 $253

4.72% 6.74%
8.70% 10.65%

1.65 1.60
1.55 1.50

13.95 14.22
14.48 14.74

$1,607 $1,638
$1,668 $1,698

($21) $10
$40 $70

-1.28% 0.63%
2.47% 4.31%

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PROPERTY TAX ANALYSIS CLASSIFICATION AVERAGE VALUE FISCAL YEAR 2010 VS. 2011
$3,000.00
$2,612.05 $2,500.00 $2,374.55 $2,393.88 $2,452.04 $2,505.20 $2,475.05

$2,000.00 $1,627.82 $1,547.14

$1,500.00

$1,000.00

$500.00

$0.00 Single Residential Condo Units FY2010
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Two Family FY2011

three Family

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DISCUSSION

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CONCLUSION OF CLASSIFICATION PRESENTATION

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