How is Swampscott’s 2018 Property Tax Rate calculated?

In my Swampscott’s tax rate goes down – and so do tax bills!! post this week I promised to write another article explaining exactly how the tax rate was calculated. This is it.

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 maximum tax levy. To this figure is added debt service – the Principal and Interest payable on the town’s debt. Note that in recent years, Swampscott has not assessed the maximum allowed under this formula, a decision that has reduced the tax bill for residents. And in fact the average tax bill will decline in FY 2018 for the first time since FY 1994!

Here are the numbers for FY 2016, 2017 and 2018, remembering that the FY runs from July to June.

Swampscott tax calculation

The Tax Levy calculation
The maximum $ amount that can be 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 2017 maximum tax levy of $46,604,909 becomes the base for FY 2018. Add 2.5% and new growth and the new figure is $48,386,446. To both these numbers is added the debt service – Principal and Interest on the town’s debt, much as homeowners pay P&I on their mortgage. Note that the actual tax levy was less than the maximum allowed by just over $1 million in FY 2017 and by just over $2 million in FY 2018. In other words, the amount of taxes raised was reduced by these amounts each year. Note also that the debt service figure for FY 2018 has dropped by over $0.8 million.

The Tax Rate
The actual tax rate depends upon the total Assessed Value of all property: residential, and commercial, industrial and personal (CIP). The tax rate is calculated by dividing the total dollar amount to be raised from each class by the Assessed Value of each class. Thus, the headline tax rate will also fluctuate depending upon the direction of Assessed Values.

In simplistic terms, if we assume that the $ amount to be raised increases by a little more than 2 1/2% each year, then if the average 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 fall.

Looking at the Swampscott residential tax rate, in FY 2017 it was $17.45, achieved by dividing $42.7 million by the residential AV of $2,447 million. In FY 2018 the amount to be raised from residential taxpayers is due to drop slightly to $42.4 million, but because the total residential AV increased by 8.3%, the headline tax rate dropped sharply to just $16.00, the lowest figure since 2009.

How does debt service affect the tax rate?
The announced property tax rate announced each year includes the cost of debt service. One of the factors cited for the decline in the tax rate for FY 2018 is the reduction in the cost of debt service, something which the Town warns may be temporary. The impact on the tax rate can be seen in the table below:

Swampscott property tax

The residential real estate market in Swampscott has been very strong in 2017 (and the 2017 median price will be the basis for the FY 2019 tax rate). At this stage it looks as though the median price will be around $525,000 (a new high), an increase of over 7% from 2016’s $488,000. But bear in mind this is the median price of the SFHs that will actually sell this year, so does not imply that the Town’s residential Assessed Value will increase by 7%.

As to the tax rate for FY 2019, that depends on a number of factors: the amount of debt service, how much of the maximum tax levy is assessed, and the shift to the CIP class being three of them. But he continuing increase in the average Assessed Value will moderate any increases in other areas.

From a real estate perspective, the substantial decline in the tax rate and the reduced shift to the commercial sector are both very welcome news and should encourage more people to decide both to work and live in Swampscott.

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, please contact Andrew Oliver on 617.834.8205 or Kathleen Murphy on 603.498.6817.

If you are looking to buy, we will contact you immediately when a house that meets your needs is available. In this market you need to have somebody looking after your interests.

Are you thinking about selling? Read  Which broker should I choose to sell my house?

Andrew Oliver and Kathleen Murphy are Realtors with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated



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