Given that local property taxes make up 75% of Arlington’s revenues, its worth understanding how they are assessed, what limits are placed on the growth in these taxes, and how and when a community can choose to increase them to pay for new and growing needs.
If you own land or a building (real estate) the community that it is located in assesses property taxes on it in order to cover the cost of the services that community us providing to the landowner. Property taxes are based on the value of the real estate not the property owner’s income or other wealth. Property tax rates are generally defined as a number of dollars of tax per $1,000 of assessed value. For example, if you property is assessed at a value of $100,000 and the tax rate is $10.00 per thousand dollars of value, your tax bill will be $1,000.00. ((Assessed value/1,000)*tax rate)
Massachusetts has a state law, know as Proposition 2.5, that limits the growth in property taxes to 2.5% of the current tax levy collected. For example, the town of Arlington collected $109,965,991.00 in 2018. This was the levy limit in 2018. The town can collect an additional $2,749,150.00 in 2019. Additions to the value of property due to new construction are an exception to this limit. Arlington will collect $981,206 more in property taxes in 2019 than it did in 2018 due to new growth. Add together previous year’s levy limit, the 2.5% increase allowed and new growth and you get the new levy limit: $113,696,347.00.
What happens when the value of property goes up? If your house is worth more this year than it was last year it doesn’t increase this levy limit. Instead the town had to decrease the tax rate so that it only collects income up to or less than the levy limit.
A community can decide to increase the levy limit in one of two ways. A property tax override that permanently increases the levy limit or a debt exclusion override that temporarily increases the levy limit to generate the funds needed to pay back a debt incurred for a project such as a school rebuild. Whether its an override or a debt exclusion such an increase in the levy limit has to be voted on by the community and must be approved by a majority of the town’s voters to take effect.
The state passed a law some years ago called the Community Preservation Act or CPA. This law allows a community that votes to accept its provisions to add a surcharge of 1-3% to each tax bill. The CPA defines how that money can be spent and outlines the decision making process. A community that accepts the CPA is eligible for state matching funds and must appoint a committee to manage the process of choosing projects to fund. Arlington residents voted to accept the provisions of the CPA in 2016. Arlington’s surcharge is 1.5%.
Arlington also takes advantage of a state law that allows the town to shift the portion of the water bill that funds our share of the Massachusetts Water Resources Authority debt from our water bills to our property tax bills. This is known as the MWRA Debt shift.This was done some years ago in order to make that portion of the water bill tax deductible.
A good graphic representation of the levy limit can be found here.