Based on the information from the administration, we can fund the new High School in the budget. At this point projections are a yearly city payment of $8.13 million for Add/Reno Option 3, and $9.54 million for New School/ Cawley Site.
What that means is a 6.5% – 7.7% increase in the current property taxes. For each percent raised in taxes, revenue for the City budget would increase by approximately $1.24 million. The advantage of this is, taxes can be brought up to the required level incrementally over the next few years.
IF Councilor Elliott gets the other Councilor’s to put this to a public vote on funding then they should give the voters at least three options to fund it.
1. Funding in Budget – Gradually over the next 3-5 years increasing current tax levy
2. Basic Debt Exclusion – 30 year defined term that has beginning and end.
3. Graduated Debt Exclusion – start with minimal increase in property tax build up to a Max then reduce back down over a 35 year period.
Option 3 gives the senior citizens less taxes the first 11 years before it hits a peak for a number of years then slowly goes back down. When I first read about this I was thinking it wasn’t the best way to fund a project but after reviewing it a little more it is an easier sell to the public. Families with younger children and young families who will be raising children will in fact be the people paying for the High School and it will be their children using it. Seniors pay only a slight increase that grows over 11 years but gives them time to plan for the increase.
In Somerville the $257 million plan calls for building a 1,590-student high school on the site of the current school. By a vote of 26,236 to 10,153, Somerville residents overwhelmingly approved a debt exclusion, or temporary tax increase, to fund $130.3 million of the city’s projected $137 million share of the project.
I took this information straight from the City of Somerville Website and I think Lowell should do the same on our website for our High School Project as far has posting this type of explanation of funding. (Bold notation is mine)
What is a Proposition 2 ½ Debt Exclusion and how does it work?
Proposition 2 ½ limits the amount of revenue a city or town may raise from local property taxes each year to fund municipal operations. This amount is known as the annual levy limit. However, the law allows a city or town to increase tax revenues above that limit with voter approval. A debt exclusion increases the amount of property tax revenue a community may raise for a limited or temporary period of time in order to fund a specific capital project. Note that this is different from a Proposition 2 ½ override, which would add to the property tax rate indefinitely.
The proposed debt exclusion exempts the annual debt service to pay the $130.3 million in bonds for the Somerville High School renovation from the annual levy limit. A time-limited tax increase equivalent to the revenue needed to pay off the annual debt service payments would be levied on property taxpayers. The additional revenue raised by the tax increase must only be spent on construction of the new High School. The payment period will extend from 2018 to 2054.
The Somerville High School Financing Plan does not call for borrowing the entire $130.3 million up front and raising the tax bill immediately. Instead, the City’s plan keeps borrowing costs as low as possible, and allows the property tax increase to rise gradually over the next 11 years reaching a peak amount in 2027. The property tax increase will be in effect for the payment period, 2018 to 2054, until the debt is retired. (Example: The average two-family home would see an increase of $4 in year one, increasing gradually to $94 in year 5, and gradually up to its peak of $349 per year, or $6.71 per week, beginning in Fiscal Year 2027.)
SINGLE-FAMILY – According to financial estimates, the average valued single family home would see approximately a maximum of $294 per year added to its tax bill starting in fiscal year (FY) 2027 through approximately FY2047. Prior to 2027, during the first five years of the borrowing (FY18-FY22), the additional annual property tax on the average single would be less: the estimate is $4 in year 1, $11 in year 2, on up to $79 in year 5. Between year 5 and year 10, the amounts begin to rise until reaching the maximum noted above. The amount would then fall again somewhat at the very end of the borrowing period before reaching zero in FY2054.
The projected borrowing cost is not based on the current rate of 3.046% the city borrows at, but rather at a much higher rate of 5% in order to keep estimates cautious. Should borrowing rates end up being less than the 5% projected, the impact to the taxpayers would be consequently lessened. Should borrowing rates end up being more than the 5% projected, the impact to taxpayers would be increased.
It is an interesting way to do a debt exclusion.