Real estate slump eats into revenues

Only a few years ago, a residential building boom and its pressure on school, police, and fire services had officials and taxpayers worried.

But with the nation in the throes of a real estate slump, their fears have largely shifted the other way, as a deficiency of housing starts has created a vacuum in new taxable property.

In Pepperell, which faces unprecedented fiscal difficulties this spring, Town Administrator Robert Hanson said the drop in new housing is a bad sign in the immediate short term, because it means the town cannot raise its levy capacity by much for fiscal 2009, starting in July.

On the other hand, unrestrained residential growth would also be a negative for the town.

"I suppose, if you want to address the effect of growth on services, the lack of new growth is a good thing," said Hanson. "If you want to address the flexibility in terms of the town's finances, then it's a bad thing."

Regardless of the vantage point, one thing is clear: The town is in uncharted waters, financially speaking.

Pepperell has never faced a Proposition 2 1/2 override vote, a measure Hanson said is becoming increasingly likely this year as officials assemble the annual budget.

Under the state's Proposition 2 1/2 law, towns cannot increase property taxes by more than 2.5 percent annually, factoring in new growth, unless voters sanction an override of that amount.

If that new growth is low, as it currently is in most communities, then towns must keep their levy increases closer to the 2.5 percent ceiling imposed by the state.

The estimated levy increase in Pepperell for fiscal 2009 is currently at $125,000, said assessor Susan J. Smith. That's a pale comparison to years prior when it was more than $300,000 at times, she said.

Smith said she thinks the building boom of a few years ago combined with the lack of new growth is having a double impact on the town.

Students from the new homes are still moving through the school system, even while the current slump is dragging down new growth, putting the town between "a rock and a hard place," said Smith.

On top of that are climbing insurance and salary costs.

"This new growth estimate won't even cover the increase to insurance, so we are really running on a negative," said Smith.

Similar complaints are being heard in Belmont, where Town Administrator Thomas Younger said the town's new growth has been on a steady downward trend since 2006.

That year, the town had $687,000 in added levy capacity from new growth; now it has ebbed to an estimated $600,000 for fiscal 2009, said Younger.

Younger said much of the open space in Belmont has been built out, leaving few choices for developers, even if they were in a flourishing real estate market.

"We're not developing new commercial base, and that hurts us also," he added.

While he saw many factors contributing to the fiscal malaise in the state, Jay Szklut, planning and economic development manager for Belmont, said he thinks the Proposition 2 1/2 law may be outdated, given the varying economic situations of cities and towns and their travails with new growth.

"I'm not sure it's a realistic percentage," said Szklut, speaking of the 2.5 percent ceiling. "If you have some type of tax limitation, it has to be linked to an index that varies. But costs vary. I'm not sure it makes sense."

Meanwhile, town and city officials are scrambling to find ways to come up with savings in the face of declining new growth and rising costs.

Jeff Ritter, Groton's interim administrative officer, said his office has been scanning correspondences and sending them via e-mail instead of by post to save on printing and other costs incurred by the town.

The measure is just one small example of how town officials are going to extremes to bridge an estimated $250,000 spending gap for next year, he said.

"I'm literally counting paper clips," said Ritter.

Groton town accountant Valerie Jenkins said the town has seen a tremendous drop in new growth since 2005, when the new growth levy figure was at an all-time high of $725,000.

In the upcoming fiscal year, the figure is estimated to be only $265,000, she said.