It is unquestioned that Watertown is going through an unprecedented level of growth and change. In this type of environment, even within the confines of Proposition 2 ½, many residents struggle to pay increasing property taxes on limited incomes.
In recognition of the realities residents all over town are facing, in recognition of the current and future market increases and how such trends affect our commercial and residential classes and with the Community Preservation Act being passed by voters (to be on taxpayer bills in 2018), I offer the following to the residents of Watertown as, hopefully, a form of reassurance regarding FY17 and future tax classifications.
From 1998-2016 the average tax bill in Watertown increased just over 4.0% each year. Although 4.0% is the rough average, in 10 of those years the average tax bill only increased between 2.0-4.0%. I am of the opinion that in Watertown the average property tax bill for owner occupied properties should never increase more than 2.0-4.0%. We owe that to our residents who are struggling to meet increased burdens and tax payers in general as a core principal of good government.
The major caveat here is that this percentage, specifically as it relates to the owner occupied residential class, is not always in our control. As folks know, after calculating the flat tax rate (the levy limit (including new growth) / the total assessed value), the town performs a tax shift of 175% onto CIP properties (Commercial, Industrial and Personal). 175% is the maximum allowed by law onto commercial properties.
As such, in markets where the residential class is outgrowing the CIP class, the shift has less of an impact. And conversely, when commercial is outpacing residential, the residential class gets a bump. The potential swings in the commercial vs. residential market, alongside the vast growth Watertown is experiencing, are the reason why this percentage is not in the Council’s control.
To help mitigate this impact, Watertown is one of only 13 municipalities to adopt a residential exemption, granting a discount to owner occupied properties. Traditionally, this rate has been 20% of the average residential assessment.
Right now, plain and simple, people want to live in Watertown. Our proximity to Boston, high level of services and amenities are driving up prices all over town. When the owner occupied residential projections were published a few weeks back they showed a projected increase of 5.91%, including the residential exemption (or $335.00 in real dollars). This was due to two major factors. One, the residential class is outpacing the commercial meaning the tax shift has less of an impact. Second, the classification itself contained some pretty significant outlier properties that brought up the “average” to an amount that the typical homeowner would not see. Excluding the outliers, the tax rate for the typical homeowner would be more accurately shown as 5.27% or $267.00.
As I mentioned above, based on current needs and the town’s tax history, my preference is to reduce that percentage to between 2.0-4.0%. On Wednesday the Watertown Town Council in fact voted to increase the 2017 Residential Exception from 20% to 22%. With this adjustment, the property taxes for the vast majority of the residential owner occupied homes will increase, on average, 3.8% or $192.00, down from the above projected figures.
It is important to note here that Watertown is already at its capacity for how much it can transfer to CIP properties at 175%. As such, to meet my goal of reducing any increase to between 2.0-4.0% (in such a growing market with residential outperforming commercial), increasing the residential exception is really the last option. However, the residential exception is capped by law at 30% so this option is not one that is sustainable long-term.
The reason why I, and I believe many of my colleagues, did not want to increase the residential exception beyond the 22% that we ended up deciding on is because we can never go beyond 30% and I see times in the near future where another increase will be needed.
The Assessor’s office predicts that in FY 2018 there will be similar growth across the town which will again be characterized by the outpacing of residential over commercial. Additionally, the CPA comes on the book. This leads me to believe that the FY 18 initial forecast of tax increases for the owner occupied residential class will be much higher than the desired 2.0-4.0%. It also leads me to predict that if this is the case, next year I will propose and/or support another increase of the residential exception to bring tax increases back within a reasonable range. But again, as of now, we only have 8% of increases to work with.
The good news is that Assessor’s Office also predicts that in FY 19 we may be in a situation where the commercial class starts to carry more of the burden when projects like the Arsenal Mall renovation get going. As such, in FY 19 it is my hope that no further increase in the residential exception is needed. With continued growth in the commercial class I would hope starting in FY19 we can have an increase of between 2.0-4.0% without again increasing the residential exception.
However it must be noted that FY19 may also be around the time when the Town seeks an override to replace/renovate our schools. If this were to occur, it will be my preference to raise the residential tax exemption to 30% (again the highest allowed by law) to mitigate the increase as much as we possibly can.
This is where I see Watertown taxes over the next 3-5 years and why. My goal will always be to do all in my power to limit any increase to the historical 2.0-4.0% despite the overwhelming growth of the town and other market forces.
Please note that the homeowner residential class I have been focusing on is not the only class we have in Watertown. I acknowledge that every time we increase the residential exception, a higher cost is shifting to those properties that are not owner occupied. This may result in higher rents if the owner shifts the increase to the renter. While I do believe the factors mentioned before (proximity to Boston, amenities, high level of services) will and have been the cause for the majority of the increase in rental properties, this is also a contributing factor. It is also important to note that the homeowner residential class is also broken into types of uses: single family, condominium, two family and three family. Each of these types within the homeowner residential class increases at a different rate.
This year’s 3.8% increase, or $192.00, is the average of those types. Lastly, the aforementioned reflects my thoughts and priorities for what the typical homeowner would see on their tax bill. Of course, individual homes may see increases more than this or less than this. For example, roughly 13% of houses this year will see no increase. On the other hand, if you added a new kitchen and patio this year, your bill will likely be more than mentioned here.
Thank you for taking the time to read this long tax classification article. Please always feel free to contact me with questions or concerns about this topic or anything at all.
Ken Woodland
District D Town Councilor
617-780- 4426
So the argument against raising the owner-occupied exemption beyond 22% is it needs to be saved for the future adjustments? That does not make sense. More like it needs to be “saved” for future politic reasons.
People who have lived here for 40-50-60 or even more years are being forced out because they can’t afford the ever increasing costs of taxes and water/sewer. It isn’t their fault that “everyone wants to live in Watertown” now. Here is a way to give them a break.
Thank you, Councilor.
I am not in your District, but very much appreciate this explanation and analysis of why the Council approved the 2017 OOE as described.
Nice to see an explanation for your reasoning for only raising the residential exemption to 22%. However; This will do little to help many of the citizens who just received a very large increase this year and expect another good sized increase next year. Include the CPA tax of 2% (which you supported) coming in 2018 and the taxpayers are still going to take a beating. It is becoming obvious that Watertown must seriously consider looking at ways to reduce its spending, and I would appreciate a member of the town council raising this as an issue at a town council meeting and then get a sub committee to start looking into where and when the cuts can occur.