April 20, 2014

Tax rate may rise another 2 cents

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Option tax shortfall could cost taxpayers

By Ben Moger-Williams
Observer staff

Next week the Williston Selectboard must decide whether to tack on another 2 cents to the municipal property tax rate, or sideline some projects in next year’s budget. Based on first-quarter sales tax revenue, the town estimated Monday it will see a budget shortfall of nearly $300,000.

The town gives an estimated tax rate based on the budget at town meeting, but the actual rate is not officially set until the beginning of the fiscal year, on July 1. A 2-cent tax hike would result in a tax rate of 24 cents per $100 of assessed home value – up from the 22 cents estimated on Town Meeting Day. The current tax rate is 18 cents. However, the board may also decide to keep the 22-cent rate, and, in order to make up the difference, not spend money on certain budgeted items. The board could also raise the rate less than two cents and sideline fewer projects.

If approved, the tax increase would mark a first in recent memory.

“This is the first time since I’ve been manager in this community where the recommendation on the tax rate – at this point – has been higher than estimated in March,” said Town Manager Rick McGuire at the Selectboard meeting Monday. McGuire became town manager in February 1998.

Local sales tax revenue dropped about 22 percent in the first three months of 2007, compared to the same period last year. The drop off – likely caused by changes in state tax law that took effect in January – has officials worried that the town will receive $272,471 less than originally budgeted.

Williston collects a 1 percent local option tax on goods and services, and relies on the tax to cover nearly 40 percent of the town budget. Income from the local option tax also helps keep property taxes at bay. For example, last year, without the tax, Williston residents would have seen a 42-cent tax rate, instead of an 18-cent rate, according to town data.

Since it was put in place in 2002, income from the local option tax has increased virtually every single quarter. McGuire said he knew the tax law changes would likely affect revenue, but not by how much.

“We have no way of calculating the impact,” McGuire said. “We took a reasonable shot, but the impact was far greater” than the town anticipated.

At the beginning of the year, the state removed taxes on some items – like clothing – and began taxing others – like beer. Another change resulted in a rule where items purchased in one town but shipped to a different location would be taxed only in the destination town.

If the Selectboard chooses to increase the tax rate, the owner of a $300,000 home would see municipal property taxes of $720 (not including school tax), or $180 more than last year.

The increase is not a sure thing, however. At Monday’s meeting, the board asked town staff to look into possible ways to reduce the tax shortfall’s impact on the $7.25 million budget. Since the budget was approved by voters, the board cannot change anything, but it can decide to not spend money on certain items. McGuire said town staff this week will work on presenting different options to the board.

The final tax rate will be set at a Selectboard meeting on Monday, July 2 at 7 p.m. in Town Hall.

Other towns are feeling the effects of the tax changes, too. Manchester Town Manager John O’Keefe said his town, which also employs the local option sales tax, was hit by a drop in sales tax revenue.

O’Keefe said the fourth quarter of last year was their highest quarter on record since the inception of the tax in 1999. Revenue hit $402,000, he said. But the first quarter of 2007 brought in the lowest the town has ever seen – only $164,000.

“If this current trend continues, we’ll be 37 percent under,” O’Keefe said. “It clearly begs the question: what do we do next?”

O’Keefe said the town would not increase the tax rate, but would use the town’s $1.1 million taxpayer relief fund, and look into instituting a rooms tax and a meals and alcohol tax, which Williston already has. Williston does not have a taxpayer relief fund, but does have a General Fund Balance, which is used to offset the tax rate. The fund balance is already being used to lower taxes by 3 cents.

WATER, SEWER RATES OK’D

For the first time in five years, the town made no change to the municipal water rate. In a memo to the Selectboard dated June 20, Public Works Director Neil Boyden recommended the water rate for Williston remain at $2.15 per 1,000 gallons of usage. He also proposed increasing the sewer rate for the town from $2.85 per 1,000 gallons to $3.15, an 8.7 percent increase. Boyden said the sewer rate increase is due mainly to rising fixed cost increases and an increase in the wholesale rate at the Essex sewer treatment plant. The board approved Boyden’s recommendations on both items.

In addition, the board approved an increase of 2.2 percent for sewer capacity fees. Purchasers of sewer capacity in fiscal year 2008 will now pay $5.05 per gallon, up from $4.95 per gallon. The increase reflects the rise in inflation, according to the U.S. Department of Labor Consumer Price Index, Boyden said.

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