This article, which explains how the tax rate is calculated, is a follow up to Marblehead 2020 Tax Rate drops sharply
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.
Here are the numbers for Fiscal Year 2019 and 2020, remembering that the FY runs from July to June.
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 2019 tax levy of $61,400,179 becomes the base for FY 2020. Add $1,535,004 for Prop 2.5% and $303,231 for new growth and the new figure is $63,238,414. To this number is added the debt service – Principal and Interest on the town’s debt, much as homeowners pay P&I on their mortgage – to give a total amount to be raised of $69,809,220.
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 2019 the tax rate was $10.74, achieved by dividing the almost $67.8 million to be raised by the $6.3 billion of Assessed value. And in FY 2020 the calculation is $69.8 million divided by $6.7 billion, which produces a rate of $10.39. While the tax rate will decline in 2020, the median tax bill, based on the higher Assessed Values, will increase by $236, or 3.5%, to $7,003.
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 tax. 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.
The historic link between tax rates and median prices
This chart shows the tax rate for each Fiscal Year together with the median price for the year used for the calculation (e.g. the median price for 2018 is used for the 2020 tax rate).
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 2021?
The residential real estate market in Marblehead has been firm again in 2019 (and 2020 prices will be the basis for the FY 2021 tax rate). At this stage it looks as though the SFH median price will be around $710,000, a modest 3% increase from 2018’s $689,500. But bear in mind this is the median price of the roughly 240 SFHs that will sell this year out of the more than 6,200 SFHs in Marblehead. This does not imply that the Town’s Assessed Value will increase by 3%, including as it does all types of property.
Nevertheless, it seems reasonable at tis stage to expect that the tax rate in FY 2021 will be similar to that for FY 2020.
Market Analyst | Team Harborside | teamharborside.com
Sagan Harborside Sotheby’s International Realty
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