How Marblehead’s 2021 Property Tax Rate is Calculated

This article, which explains how the tax rate is calculated, is a follow up to Marblehead’s 2021 Property Tax Rate

The formula is actually very simple: take the $ amount of the previous year’s Tax Levy, add 2.5% for Proposition 2 1/2, and also add any New Growth (such as new construction or a condo conversion). This figure is the new tax levy. To this figure is added debt service – the Principal and Interest payable on the town’s debt. – to produce the new Tax Levy.

Here are the numbers for Fiscal Years 2020 and 2021, remembering that FY 2021 runs from July 2020 to June 2021.

The Tax Levy calculation
The dollar amount raised by the property tax will increase year by year. That is because of the formula: last year’s number plus 2.5% plus new growth. In the table above you can see how the FY 2020 tax levy of $63,238,414 becomes the base for FY 2020. Add $1,580,960 for Prop 2.5% and $303,142 for new growth and the new figure is $65,122,516. To this number is added the debt service of $7,290.456 – to give a total amount to be raised of $72,412,972.

The Tax Rate
The actual tax rate depends upon the total Assessed Value of all property: residential, commercial and personal. The tax rate is calculated by dividing the total dollar amount to be raised by the total Assessed Value of all property. Thus, while the $ amount raised by the tax (and therefore the median tax bill) will increase each year, the headline tax rate will fluctuate depending upon the direction of Assessed Values.

In simplistic terms, the $ amount raised before debt service will increase by a little more than 2 1/2% each year, so if the median Assessed Value also increases by a little more than 2 1/2% the tax rate will be unchanged. If the increase in Assessed Values is less than 2 1/2%, then the tax rate will rise. And if the increase in Assessed Values is more than 2 1/2% then the tax rate will rise. One other variable is the cost of debt service.

In FY 20120 the tax rate was $10.39, achieved by dividing the $69.8 million to be raised by the $6.7 billion of Assessed value. And in FY 2021 the calculation is $72.4 million divided by $6.95 billion, which produces a rate of $10.42. The median tax bill, based on the higher Assessed Values, will increase by $319 or 4.6%, to $7,322.

Note that the calculation of the tax rate is made simpler by the fact that Marblehead’s Board of Selectmen votes each year to have a single tax rate for both residential and commercial property. In towns which elect to have a differential rate – i.e. by taxing commercial property at a higher rate than residential – there are generally two different tax rates, achieved by dividing the amount to be raised from residential and commercial taxpayers by their respective aggregate Assessed Values.

How does debt service affect the tax rate?
The announced property tax rate announced each year includes the cost of debt service, which Marblehead tries to keep to 10% or less of the total tax bill.

How has Marblehead’s tax rate changed this Century?
This chart shows the tax rate for each Fiscal Year since 2001

The rate was $10.23 in FY 2001, very similar to the $10.42 in FY 2021. But the median price has increased from $375,500 in 2000 to $717,500 in 2020, meaning taxes paid have roughly doubled in that time.

Remember that for the tax rate to go down, Assessed Values have to increase by more than the approximately 2 1/2% that the total tax levy will increase each year.

What is the outlook for FY 2022?
YTD through the first 11 months, the median SFH sale price has been $750,000, about a 5% increase over the $717,500 for 2019. This may seem low bearing in mind the frenetic bidding wars of recent months, but the median price was just $678,500 in the first half of the year before the bidding wars got under way. I think it is fair to say that the Assessor will have a challenging time when it comes to next year’s assessments. I shall be sure to probe this question when I do my Twenty Questions with the Assessor article for the Marblehead reporter  in January.

FY2022 will be further complicated by the fact that the town’s historical reliance on free cash to balance the budget is no longer sustainable. With all the moving parts, it is too early to make an estimate for the FY2022 tax rate. I shall have a better idea after the town publishes its budget early in 2022.

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Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®

Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
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