Property Taxes and the Tax Rate

Key Documents-Tax RECAP , Cherry Sheet, Levy Limit Worksheet

Setting the Tax Rate and Associated Magic

Each year the Town must have its tax rate approved by the Massachusetts Department of Revenue prior to issuing tax bills.

In order to have the tax rate approved the Town must document all proposed spending and all sources of estimated revenue.

Since Massachusetts has spending limitation legislation (Proposition 2 ½), there are exclusions and overrides that, once approved through special action by Town Meeting and voters, require additional documentation. Property being taxed for the first time also requires specific reporting.

The Assessing Department gathers all documentation necessary to set the tax rate and submits it to the Massachusetts Department of Revenue along with a summary of that information on a document referred to as the Tax RECAP. The Tax RECAP is a four page document that summarizes all revenue and spending for the fiscal year. The RECAP is accompanied by a number of back-up documents which are for the most part summaries of financial information submitted throughout the year or worksheets that explain how certain information on the recap was determined.

Specific documents accompanying the recap may change from year to year and municipality to municipality depending on the type spending (Community Preservation fund, bonding, transfer), and the type of government (city, town, town meeting, town council).

Typically Falmouth submits the following forms with its RECAP:

LA-4 A (I should say THE) parcel count and value summary of real and personal property sorted by State land use classification. The LA4 is the “parent” document for a town’s fiscal year valuation. All documents relating to the town’s value are checked against the LA4.

LA-13 The LA-13 summarizes the value of property that is being taxed this year for the first time- aka- "growth" or "new growth". These properties include new homes, additions and new subdivisions. Documenting this valuation change is important because it allows the town to increase its tax levy by the amount of new taxes generated by these properties. Without a provision for taxing "growth" Prop. 2 ½ would prevent towns from generating revenue from newly developed or improved properties.

LA-15 The LA-15 summarizes property sales as they relate to past and proposed assessed values. The LA-15 is submitted in years when there is not a full revaluation, it verifies that the Town is assessing at 100% (within 10% of 100%) of market value each year.

LA-5 The LA-5 is a summary of the "Classification Hearing" conducted by the Board of Selectmen each year prior to the setting of the tax rate. The LA-5 shows property values by the five major classification types, Commercial, Industrial, Residential, Open Space, Personal and the percentage of the tax levy each will pay. The LA-5 is the “parent” of all documents relating to the distribution of the tax levy among property classes.

B1 Accounts for Free Cash revenue and spending

B2 The B2 lists appropriations from special sources. The special sources are often accounts that have a dedicated source of funding and requirements as to what is purchased with the funds. The "Golf Fund" for example contains revenue generated by the municipal golf course and proceeds from the Fund are used to make payments on the bonds issued to purchase the golf course. The B2 also documents transfers from previously voted appropriations. Since virtually all spending is accounted for on the RECAP; any spending that does not involve taxation in the current year AND does not fall into any other category will probably end up on the B2.

A3 Documents spending from "Revolving Funds"- Spending from a revolving fund does not require a specific vote; the D.O.R. uses the A3 to keep tabs on how much is being spent through the various revolving funds.

A4 The A4 summarizes spending from the Community Preservation Fund (CPF). The CPF is used for specific projects in a manner proscribed by law, the A4 documents that we comply with the law when spending these funds.

DE1 The DE1 lists all outstanding and recently retired debt that is exempt from the limitations of Prop 2 ½ (except the debt of the Community Preservation Fund). The DE-1 subtracts from the annual debt payment any "reimbursement" the Town receives relating to the specific debt. The “reimbursement” is generally School Building Assistance (SBA), a State program that pays a portion of school construction costs. “Reimbursement” can also be premiums paid to the Town by banks that handle bond sales, or any offset that reduces the amount paid on bond that was voted exempt from Prop.2 ½. The intent is to only exempt the amount that is actually spent as opposed to the amount of the payment.

OL1 The OL1 is used to show that the "Overlay" is properly funded. The Overlay is money set aside each year in order to fund tax refunds from that year’s levy. The refunds are generally tax exemptions for the elderly and infirmed, exemptions for veterans and tax abatements.

Documents that are used in conjunction with the RECAP but not submitted:

The Cherry Sheet (C.S.1-EC), named for the red paper on which the document was once printed, lists the money the State intends to distribute to the Town in the upcoming fiscal year.

The C.S.1 E-R (see second page) lists the charges the State will DEDUCT from the “Cherry Sheet” for services provided by the State and County. The C.S.1-ER is not named after a paper color; as far as I know it has no name other than "NOTICE TO ASSESSORS OF ESTIMATED CHARGES". It comes with the "Cherry Sheet" and is thought of as a bill from the "company store"…bad news.

The Levy Limit Worksheet shows compliance with Prop.2 ½ by listing the tax levy along tax "growth" and any debt exclusions, capital expenditure exclusions, or overrides. The yearly payment to the Cape Cod Commission is also listed here because it is treated as exclusion.