Commentary

 

Town Budget up 13.9% But tax rate up 0%?
Explanation-Commentary
By Janet Neal

Gray--How can the Town Budget go up 13.9% and not increase the tax rate? Is that even possible? Short answer, yes Longer answer, yes, technically, sort of.

First, yes, the newest proposed Town of Gray budget expenditures for next year will be 13.9% higher than this year. What is making it go up so much?

Some of the increases are familiar like pay increases, higher insurance costs, plus three new positions (a deputy code enforcement officer, a full time paramedic, and an additional mechanic). Additionally, the budget for next year also includes some “one-time” items that are expensive, like repairing three bridges, paying off the purchase of the former post office building, and putting money into reserves for public safety vehicles.

In fact, without the bridges, ($342,940), the budget increase would be down to 6.1%, less than half of the current increase. Now, how can there be a spending increase of that magnitude, but no impact on people’s property taxes?

The answer is that there already has been an impact on our taxes. We’ve been living with it for years. We already have been taxed more than was necessary, and the excess money has been piling up: the balance is now roughly $2,800,000. Some people call this the savings account, some have called it the “slush fund”, but its real name is the Undesignated Fund Balance (UFB). This is in addition to, and not to be confused with, the separate Crisis Fund money.

It is important to have operating cash on hand. However, even the Town’s accountants have suggested that Gray’s cash accumulation is on the high side. So the Council is recommending we spend about $800,000 of that accumulation. The question voters will decide is just how to spend it. Should it offset taxes, or should it go for special projects, or some combination?

One might ask how this excess money accumulates. Every year the Manager and Council put forth a proposed budget, listing all the things they want authorization to spend money on. These expenditures need to be paid for with revenues. These revenues come from three categories: state revenue sharing (relatively small amount), miscellaneous categories such as fees, licenses, and excise taxes, and lastly, the most notable source of revenue – the property tax.

Every year, the Manager and Council try to make the best estimate as to how much of the other revenue will be available. Based on that estimate, the Town then levies property taxes to collect the rest of the money it needs.

For several years, the Managers (and Council) have underestimated these other revenues and, therefore, have overestimated the property tax that would be required to make ends meet. (see chart) And, when those other revenues actually come in higher than were expected, the cash accumulates in the Undesignated Fund Balance.

Another way money can accumulate is when items are budgeted for (and we are taxed for them) but they are not bought. This has occurred also. After several years of underestimating other revenues, and therefore needing to charge citizens more property tax than was really necessary, the Town has seen its UFB grow considerably. It is now at about $2,800,000. Beyond a certain point, this money needs to be returned to the taxpayers by way of reduced property taxes.

The Town Charter says the UFB can be used to offset property taxes for a subsequent year if so approved by the voters at Town Meeting. Voters did exactly that in June of 2000 when they made a motion and voted to use nearly $400,000 of the UFB to offset the tax increase for the following year.. The Council is proposing to use roughly $800,000 of the UFB to help offset the cost of certain projects.

It is not yet clear however whether the items to be funded by the UFB will be embedded in the budget package, or listed out separately for individual consideration by the voters. Given the nature of this type of “funding”, separate articles might be more straightforward and discussion could be better focused on the merits of each individual proposal.

Besides those special items which at the moment are currently embedded within the budget package, there are two other money issues that will most likely appear separately on the warrant, apart from the budget. Gray citizens may be voting on authorizing up to $110,000 for police protection. As proposed, this would impact the tax rate next year, and every year thereafter that it is approved ($17 on $100,000 home the first year). Also on the warrant will be a proposal to put $200,000 into a new reserve account for expanded Town Office space in the future.

This proposal would likely be funded from the UFB if voters agree. A more precise analysis of the tax consequence of individual items on the warrant will be possible after the Warrant is set in May.

Historically speaking, 13.9% is a pretty large increase in spending. But it may be relatively easy to sell to residents because the Council is using the UFB to absorb the sticker shock. Citizens will decide if that is what they want to do with their extra money.

Janet Neal holds a degree in mathematics, and was a former SAD 15 School Board Director, was Chair of the SAD 15 Finance Committee, and a member of the Gray Charter Commission. She is a Gray resident.