The tax riddle
How can real estate bills still rise even as values of homes fall?
Although home prices have yet to recover from what has come to be known as the Great Recession, property tax bills in Boston’s northern suburbs are on the rise as cities and towns struggle to maintain services residents have come to expect.
Across the state, property values tumbled an average of 8.1 percent per year between the onset of the recession in 2007 and July 2009, according to the Massachusetts Department of Revenue. Since property taxes are based on value, homeowners might assume that lower assessments would result in lower bills.
Opening their tax bills will end that hope in a heartbeat.
“Even if the values go down, taxes go up,’’ said Bob Bliss, spokesman for the Revenue Department. “That’s the way the law works.’’
Under Proposition 2 1/2, the state’s tax cap law, communities are prohibited from increasing the total amount of property tax revenue they collect by more than 2.5 percent each year, plus tax revenue that is attributable to new growth.
To calculate the value of a property for tax purposes, local officials base their assessments on home sales from the previous calendar year. This year, for example, assessors are using sales data from 2009 to determine the “full and fair cash value’’ as of Jan. 1, 2010. To the consternation of many homeowners, an assessment never reflects the current market value of a property.
As the effects of the recession drag on, local officials compensate for the decline in property values by raising the tax rates. Since a homeowner’s tax bill is calculated by multiplying the tax rate by each $1,000 in valuation of the property, higher bills occur when the rate is raised, even when values decline.
“Even though the property values drop, the cost of providing city services continues to climb,’’ said Daniel Raycroft, assessor for Newburyport. “An assessment simply determines what percentage, or share, of the total tax burden an individual homeowner will have to bear.’’
A review of state Department of Revenue data revealed that only one community in the region covered by Globe North — Woburn — did not raise its residential tax rate for fiscal 2011, which ends June 30.
The revenue department also provides information on average property tax bills for single-family homes in 53 of the 57 Massachusetts communities in the area. Data for Chelsea, Everett, Malden, and Somerville are not available because those cities have adopted residential exemption programs, rewarding property owners who live in their homes rather than rent them, by reducing the assessed value of their properties. The smaller assessment translates into a tax break, which ranges from $660 in Chelsea to $1,738 in Somerville.
The Globe review shows property tax bills for single-family homes are up this fiscal year in 51 of the 53 communities that submitted adequate data to the state. The annual increases range from $23 in Lawrence to $425 in Rockport.
Homeowners in Manchester-by-the-Sea are facing the biggest hit, with the average-valued home assessed at $1,042,435 drawing a property tax bill of $9,424. Not surprisingly, area communities with the largest average tax bills are wealthy towns where homes often sell for more than $1 million, even in a weak market. Manchester-by-the-Sea is followed closely by Wenham ($9,208) and Winchester ($9,167) for top average bills. In those communities, a small number of homes valued in the multimillions of dollars throws off the average, according to local assessors.
In Wenham, for example, principal assessor Steve Gasperoni noted that the average assessment for a single-family home is $536,273, but the median value is much lower, at $467,550. The median value is the point at which half the homes have higher assessments and half have lower.
Some of the region’s biggest tax increases are in communities where voters approved Proposition 2 1/2 overrides to cover specific expenses, such as capital improvements, or to raise money for school projects.
In Rockport, for example, where the average tax bill went up 9 percent, a portion of the increase — $152 — is attributable to the voters’ decision last May to pass a $536,836 override for local schools, town officials said.
In the northern suburbs, only two communities reported lower average property tax bills. In Woburn, the owner of the average single-family home assessed at $341,627 is seeing an $8 dip over last fiscal year to $3,519, thanks in part to a 2-cent drop in the city’s residential tax rate. Tyngsborough homeowners are seeing the biggest decline, with the annual tax bill for the average single-family home assessed at $318,054 shrinking by $18 to $4,507.
Tyngsborough raised its tax rate from $13.95 in fiscal 2010 to $14.17 this fiscal year. However, that increase was small enough that losses in the value of single-family homes caused property tax bills to decline; the average single-family home decreased in value by $6,346. According to Joseph Gibbons, Tyngsborough’s chief assessor, the slightly smaller property tax bills homeowners are enjoying this year are “a statistical anomaly.’’
“Tyngsborough paid off a bond debt for a school project [in fiscal 2010], but the state is still reimbursing the town [$877,000 in fiscal 2011] for its share of the cost,’’ Gibbons said. “So [in fiscal 2012], if the values stay the same, the tax rate will go up twice as much as it normally would because that [state] money won’t be coming in anymore.’’
And if the property values go up, what then?
“I think what you’re going to see is that, as the economy gets better and values go up, people will see their tax rate go down,’’ said Bliss, the revenue department spokesman. But even though the rate might go down, he said, “they have more valuation, so their bill will still increase.’’
Globe correspondent James O’Brien contributed to this report.