ORDER-2024-13 : Request that City Council hold a Public Hearing and subsequently determine the percentages of local tax levy to be borne by each class of real and personal property for Fiscal Year 2024.

Transcript (~28 min @ 15:06)

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▶ 14:40 Leila Migliorelli: All right. Um, I will motion by unanimous consent to close public comment. Seeing no objection, we're now closed for public comment. Since we have members of the administration here tonight to speak on the items before us, I'd like to motion by unanimous consent to suspend rule 37 B before we proceed. Seeing no objection, rule 37 B is now suspended. First on our agenda tonight is order 2024 dash 13. Request the city council hold a public hearing and subsequently determine the percentages of local tax levy to be born by each class of real and personal property for fiscal year 2024. Tonight we have Sarah McClellan, chief Assessor here with us. Thank you.

▶ 15:48 Speaker 8: Good evening, chair re and members of the appropriations committee. I'm Sarah McClellan, chief Assessor and Chair of the Board of Assessors. I'm presenting information tonight for the property tax classification hearing for fiscal year 2024. Before I begin, I just wanna recognize the staff in the assessing office who have done an excellent job this year, providing great service to our residents and taxpayers. Our assistant assessor, Tina, who has recently promoted to the position from head clerk, the head clerk role, and Tristan, who has departed to pursue other opportunities. I also wanna thank our GIS manager, Jane, and our senior volunteer at Brenda for their contributions in our department. This presentation is posted with the agenda packet this evening, and it's also accessible on the City of Melrose's website, the assessor's page under the heading fiscal year 2024 Property tax classification hearing.

▶ 16:42 Speaker 8: So the purpose of this hearing and subsequent vote by the city council is to allocate the tax levy among the five classes of property. The classes are residential, open space, commercial, industrial, and personal property. For these purposes, residential and open space are grouped together and refer to as ro commercial, industrial, and personal property are referred to as the CIP classes. Personal property is defined as all tangible items that are not firmly attached to land or buildings and are not considered part of the real estate. All personal property is taxable at the local level in Massachusetts unless it is exempt. An example of an exemption is household items in a primary residence. So basically when we're talking about personal property, it's most commonly referring to business personal property. So after the classification hearing, the city council must vote on the following items, the selection of a residential factor or tax shift, and whether to grant an open space discount. There are two other classification, um, policy decisions that are at the option of the mayor. And the mayor has not put forth these options for fiscal 24, but I'll outline them briefly. Um, at the end of my presentation, the residential factor governs the percentage of the tax levy to be paid by the residential properties in the city. The difference will be shifted to the commercial, industrial, and personal property classes. The Department of Revenue each year determines that minimum, the minimum residential factor for each community, which is the maximum shift allowed in the tax levy based on the community's history and assessed value breakdown by class.

▶ 18:31 Speaker 8: So before discussing the residential factor and this tax shift, It's important to review the senior circuit breaker exemption program, which went into effect from Melrose starting last fiscal year. This legislation allows the board of assessors to qualify older adult applicants for tax relief by a state income tax credit referred to as the circuit breaker credit qualified applicants receive a property tax exemption equal to 150% of their state circuit breaker income tax credit. The total amount of this exempted value is to be allocated within the tax levy or shifted to the non-eligible residential taxpayers this year. Um, the board of assessors received 142 circuit breaker exemption applications. Um, of those 120 exemptions were granted by the board. Uh, reasons for application denials included ownership of other significant assets, uh, not receiving the circuit breaker credit on state income tax and lack of ownership interest in the property. The cost of the program this year is $202,692, which is born only by the residential class. Uh, it this adds 3 cents to the residential tax rate, which is 3 cents per a thousand dollars of value, or about $24 to the average single family tax bill.

▶ 19:57 Speaker 8: So the total amount that can be raised in taxes remains the same. Whether or not there is a tax shift, the shift does not raise more revenue. It simply changes the allocation of the tax burden among the classes of taxpayers. For fiscal 24, adopting a factor of one would result in a residential tax rate of 10 33 per thousand dollars of property value. A adopting a factor of less than one to as low as the minimum residential factor results in an increasingly greater tax burden shift from the residential class to the commercial, industrial and personal property classes. The Department of Res revenue has determined that the minimum residential factor for, for Melrose, for fiscal 24 is 0.9 6 0 1 1 3 or a CIP shift. The max shift of 1.75 with the senior circuit breaker exemption in place, Melrose no longer has an option of having a single rate as the cost of funding the exemption has shifted only into the residential class.

▶ 20:59 Speaker 8: So this slide, next slide is showing the, uh, percentage of the levee class before any shift. Um, you can see here that 95% of the property value in Melrose is residential. You also see, uh, a breakdown in the number of parcels by property type and that the total taxable value in Melrose is now at about $7.4 billion.

▶ 21:27 Speaker 8: So this slide, the next slide is, um, shows how we arrive at the tax late rate for the community for this fiscal year. So on the left side is a form that shows the total values in Melrose by property type. Again, you can see the total taxable valuation of about 7.4 billion at the bottom. We start with the fiscal 23 levee limit. We add 2.5% as allowed through mass law prop two point a half. We add new growth, which has been certified by the Department of Revenue for this year. We subtract any amended growth from the previous year, and then add the fiscal 24 debt service payment and arrive at the maximum allowable levy of 76,595,006 $60. We take that number, divide it by the fiscal year 2024, total taxable value in the city to arrive at the single tax rate of 10 $10 30 cents per thousand dollars of assessed value for the residential rate. We add the 3 cents for the cost of the circuit breaker exemption to the single rate to get the 10 33 if there's no further shift. And as a note, the debt exclusion that is showing here is from the bond that was issued in 2005 for the construction of the middle school, the final year of the payments for this debt exclusion. That debt exclusion here is 2029.

▶ 22:58 Speaker 8: The next slide, Um, shows the breakdown of new growth over the past five years. Last year, um, we had a large increase in new growth due to completion of utilities projects in the city. Um, this year our total certified growth is at $772,733. Um, 24% of this growth number is from nine utilities and telecommunications personal property accounts. The new warehouse, um, on Broadway on 99, um, contributed to about 12.5% of that growth. So essentially, one third of the growth this year comes from 10 parcels, uh, real parcels and personal property accounts. Um, it's also important to note that con commercial industrial, personal property projects throughout the city add levy growth at a much faster rate than residential because they're added at the CIP rate, which at last year was 1812 compared to our residential tax rate of 10 42. So the residential growth was about 440,000. Um, and that was generated from about, from changes in about 300 parcels in the city.

▶ 24:16 Speaker 8: The next slide is, um, so each year the def assessors determine the full and fair cash value of all real and personal property in the city. As of January 1st, the market values for fiscal year 24 are determined by arms length sales from calendar year 2022. So the average assessed value of a single family home for this fiscal year is $794,037, which is an 8.2 increase from last year's, um, average single family value. Um, but just to give a general overview of the market condition, which it's not apples to apples, the way that it breaks down, um, because of the housing stock stock on the market. But the average sale price of a single family home in 2022 was $913,930, which was up from $808,109 in 2021, which that was a year over year, 13% increase. So there were 214 single family sales in 2022 versus 251 in 2021. So the sales volume was down a bit, but the prices were still continuing to increase. The next slide,

▶ 25:37 Speaker 8: sorry.

▶ 25:42 Speaker 8: Um, I have the slide, uh, fiscal year value change by property type. Yep. Okay. Here we see the increases for the year in total assessed value by property type. Um, the most significant value increases this year we're seeing in apartments in the industrial sector. Um, I just wanna note here that these numbers represent the total value for these property types in the city. So some of the changes market driven, um, and some of the changes is due to construction project completion. For example, in the industrial sector, the change is driven primarily from the new warehouse that was built on Route 99 as the apartment increase, whereas the apartment increase was a combination of market driven increase and completion of the radio factory apartments and a sale of that property in 2022.

▶ 26:36 Speaker 8: No. Next slide. No. Okay.

▶ 26:40 Speaker 8: So on this side we have the assessed values by class over the last six years. The residential class was around 5 billion in 2019. And for fiscal year 2024, the value is now at 7 billion. And then on the right side of this side is a, just a graph of the CIP value over the six years.

▶ 27:04 Speaker 8: So the next slide is the, um, comparison of Melrose and some of its surrounding communities, um, for fiscal year 2023, average single family values, tax bills, and residential tax rates at that for a minute.

▶ 27:27 Speaker 8: And then this slide shows the residential to CIP percentage of total value in Melrose versus its surrounding communities.

▶ 27:44 Speaker 8: And then the next slide is the historical le levy percentage paid by the residential in the CIP classes after the shift. So you can see that it's remained relatively steady over the last decade.

▶ 28:07 Speaker 8: Next slide. Yep. And then here we see this historical shift that has been chosen for the last 10 years. The average single family tax bill in the average impact year over year. Last year, a shift of 1.68 was chosen, which increased the average single family tax bill by 2.8% or $208 on the average single family, um, tax bill. Um, over the prior year. It's not listed here, but, um, at that shift, the average commercial bill would've increased 6% or 775 from 2022 to 2023.

▶ 28:48 Speaker 8: So this slide demonstrates the effects of the shift. So we look at the tax rates applied to this average single family value and the average commercial value here, you see that with no shift or choosing a residential factor of one, the single family bill would increase by about $559, and the commercial bill in would decrease by 64% by about $5,229.

▶ 29:19 Speaker 8: Um, so with the max shift of 1.75, the average single family bill increases $196 and the commercial bill increases, um, $980 and 9.7%. And the median commercial value is, um, so we sometimes we look at the, um, median value as well. Um, but just to compare it, it wasn't real far off. Like the median commercial value of just commercial properties is 627,000. So it's not super far off.

▶ 30:00 Speaker 8: And then next are the shift options, which I'm gonna move past these, but I will, we'll obviously come back to them. So this is the, the, um, the shift options. I com um, included the complete list on the next slide. But here I've listed only the range that the council has considered, um, and chosen from in the past, over the past years. Um, recent years. On the left and green, you see the residential rate, uh, the corresponding average single family tax bill. The dollar increase in the increase from last year on the right in blue is the corresponding CIP rate average commercial bill at that rate. And the dollar increase and the percent increase as a reminder, um, the fiscal year 23 residential rate was 10 42. Um, and the commercial rate was 1812. Um, while we speak of the shift in discussion when voting, the council must choose the residential factor that corresponds to the chosen shift. It's important to note also that the final tax rates may change slightly when we submit to the Department of Revenue because of the rounding in that factor in the great numbers in the value.

▶ 31:17 Speaker 8: So the next is all the shift options. And then we go on to talk about the open space discount. So the open space discount is a required vote for the city council during property tax classification, but Melrose does not currently have any property that meets the state's definition for the class for classification as open space. So I've included the definition, um, of open space here just for reference. And then there, there were those two other options available during property tax classification, which are the small commercial exemption in the residential exemption. Both of these are policy options of the mayor with the city council's approval. Um, Melrose has not historically adopted either of these exemptions, and the mayor has not opted to put them forth for adoptions for this fiscal year. Um, briefly, the small commercial exemption is an exemption of up to 10% of assessed value, which can be applied to commercial values that, that are one occupied as of January 1st by a business with an average annual employment of no more than 10 during the previous calendar year. And two have a valuation of less, uh, than $1 million. So this exemption just further shifts the tax burden within the commercial class. It increases the tax rate for the CIP class and has been adopted by fewer than 20 communities in Massachusetts. The Office of Labor and Workforce Development provides the assessors with a list of businesses in Melrose and the number of employees they have for the year. Um, the, and that's how it's usually determined for eligibility. But, um, the consideration in the adoption of this exemption is that it works as a further shift, um, to be born by the majority of the ci. I don't know how to respond to that. I'm sorry. Um, of the CIP segment, also, in order for a parcel to meet that criteria, if it contains more than one. So a real estate parcel, if it contains several businesses, each, each small business within that parcel have to meet the criteria in order for that one parcel to be eligible for the exemption. So it becomes confusing and difficult to administer. Um, the residential exemption is the, is the final consideration, um, exemption of up to 35% of the average assessed value of all residential parcels, which is applied only to residential parcels that are the PR principal residents of the taxpayer. It this exemption shifts the tax burden within the residential class only. It increases the tax rate for the entire residential class and has been adopted by fewer than 20 communities in Massachusetts.

▶ 33:58 Speaker 8: And then the final slide is, um, just a list of, uh, classification hearing terms that we use in their definition just for reference. Um, and that concludes my print presentation. I'm, and then I'm happy to answer any questions that you have.

▶ 34:12 Leila Migliorelli: Thank you. Um, just to clarify, so the, what we'll be voting on tonight is the residential factor in that,

▶ 34:19 Speaker 8: In in the open space. In the open

▶ 34:20 Speaker 3: Space. Okay. Just wanted to make sure that was clear for everyone. Um, questions. Councilor Repe.

▶ 34:29 Mark Garipay: Thank you. Uh, Ms. McClellan, you've answered most of my questions that we went over on the phone, so that's, uh, that's great.

▶ 34:38 Mark Garipay: But, um, we do have, um, last year when, uh, you were in front of us, there was, um, the new growth. A lot of it was based on utility, a lot of utility work that was done. We've had additional utility work, but I believe it was, I can't remember if it was during the budget or during this hearing last year, it was mentioned that the, the utility companies were potentially looking to take that to court, whether they could, we could tax them on that. Is that still the case or could we still lose that in court and all that, that money get taken back off of that?

▶ 35:12 Speaker 8: So, um, several of the utility, the bigger utility companies had appeals, um, over many, many communities in Massachusetts. So, um, but in Melrose over the summer, so one of the, uh, utility companies, EV Eversource had an appeal and they withdrew the appeal against Melrose in, um, July. So we have no pending, um, utility appeals at the A TB with util Yeah, currently.

▶ 35:50 Mark Garipay: So we're out of the woods right now on, on that. Yes. Thank you. Um, on

▶ 35:58 Mark Garipay: the industrial went up 33.2% and you mentioned that's mostly the warehouse on 99 that went in?

▶ 36:05 Speaker 8: Yes, because last year the industrial value was like 20 million. So some of it, some of that value increase was just because industrial space is still, um, warehouse space is still, um, increasing in value like it's, um, across everywhere. So as the market value for that space, um, increases, then the market value in Melrose will will increase. So the value will increase, um, but also that one parcel was huge in growth. So, and, and we have such little amount of industrial space in Melrose as it was, so it, it contributed to a huge growth in that segment.

▶ 36:55 Mark Garipay: Okay. And then, um, regarding the apartments on the value change property type, that went up 19%? Yes. Um, how many, what, what came online this year for new, new apartments and what else, what other factors go into figuring that value out at 19%?

▶ 37:14 Speaker 8: Sure. So, um, I think

▶ 37:18 Speaker 8: as we discussed even last year, um, they, they, we didn't get a full value from the, um, radio factory apartments last year. Like they weren't at the full value because of construction completion. Was it mid-year from the previous year. But then also because, um, apartments and, um, Um,

▶ 37:46 Speaker 8: investment properties as such are valued using, you know, the income, um, approach to value. So we would look at rents. So they only had like a half year of rent at that point. So, um, they weren't fully valued last year. So that specific huge value had changed a lot. There was also a ch a sale of that property in 2022, which was significant. So, um, it adjusts. So it was part, partly like a market adjustment. And then also the fact that interest rates, you know, have been increasing. So, um, you know, it,

▶ 38:28 Speaker 8: it creates rents to go higher. Like, um, you know, just the way the market works that people, people aren't maybe gonna buy a house, they're gonna rent a house, okay. Or rent an apartment or, or a home or,

▶ 38:42 Speaker 3: And then

▶ 38:47 Mark Garipay: just curious and looking at the tax rates at different communities. And I, you know, I, looking at Melrose Redding in, in Wakefield, um, we we're all based on this, we're pretty comparable Mm-Hmm. Um, but I see that their taxes seem, seem, um, to be considerably more than what we have in Melrose is that because they've had multiple, multiple overrides over the years, um, in their tax.

▶ 39:13 Speaker 8: So for Wakefield, um, specifically, they, um, have double the, um, CIP value that we do. So they also end, end up, and it is related, they have double the, um, CI, so CIP value, and then they have double the growth. So their growth that they're adding to their levy is double, which then compounds at two point a half percent each year. So, um, that's the main reason in Wakefield why they would have a higher levy than we do in a higher, um, tax bill, um, than with reading. I know that they have added a significant amount of debt in the past several years for, um, a library and they also did a school, so that increases the tax bill.

▶ 40:15 Mark Garipay: Okay. Um, that's all the questions I have for now. Thank you. Okay.

▶ 40:21 Speaker 3: Anyone else?

▶ 40:30 Speaker 3: Councillor Gar pay for a second time, or? Yeah,

▶ 40:33 Speaker 2: I'll, I'll make a motion to, um, um,

▶ 40:36 Mark Garipay: I'll throw it out there to put the, uh, residential factor, the shift at 1.72, which is 0.9617. It, um, is pretty much in line of what we, if you take what we've done over the last 10 years, take the override out. It's average about a 3%, uh, change. This is 3.16. It's, um, comparable, somewhat comparable to what we did last year for the residential where we did 2 0 8 last year. I think it was on the residential. This is two, uh, 2 42, and I think that fits in well with the commercial, the commercial, um, increase also, um, comparable to what we did last year. Um, the increase last year, it'll be a little bit more on commercial, but the percentage is going down. Um, so I would make that motion that we do a residential shift of 0.9617 second.

▶ 41:36 Leila Migliorelli: Okay. Motions on the table for a residential shift of 0.9617, uh, made by Councilor Repe, seconded by Councillor Ella. On discussion.

▶ 41:50 Speaker 3: Seeing none, Mr. Clerk.

▶ 41:55 Speaker 2: Councillor McMaster? Yes. Councillor Sun. Yes. Councillor Repe. Yes. Councillor Chetty. Yes. Councillor Reky. Yes. Councillor Williams? Yes. President Es Yes. And Chair Elli? Yes. That's unanimous.

▶ 42:13 Speaker 3: Alright, that motion passes. Um, next is the open space.

▶ 42:22 Speaker 3: Oh, sorry. East or No, don't leave. Yes. Okay. Sorry. Before you go anywhere, um, what is the will of the committee on that

▶ 42:39 Speaker 3: Councilor?

▶ 42:41 Mark Garipay: Can I just ask one Question? Yes, go ahead. Did you say we've granted the, I'm sorry, I was looking at my paper. We've granted the open space, um, oh, discount. We

▶ 42:49 Speaker 8: Don't have open space, so it's just to not grant an open space discount.

▶ 42:53 Mark Garipay: So the motion would be to, um, move forward with, um, not granting an open space discount. Second.

▶ 43:00 Leila Migliorelli: Okay. Motion to not grant an open space discount made by Councillor Repay. Seconded by Councillor Williams. On discussion. Seeing none, Mr. Clerk.

▶ 43:12 Speaker 2: Councillor McMaster? Yes. Councillor Sun? Yes. Councillor Repe. Yes. Councillor Chetty. Yes. Councillor Bruski. Yes. Councillor Williams? Yes. President? Yes. And Chair Elli? Yes. That's unanimous. Alright.