Property Tax Information

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Notice Regarding Preliminary Tax Bills


Summary:


Fiscal Year 2023 Preliminary Tax Bills (July and October) are likely to seem higher than usual due to property values in Gardner increasing approximately 19% but the City’s new tax rate adjusting for these increased valuations cannot be set until December 2022. The Fiscal Year 2023 Actual Tax Bills (January and April) are predicted to be lower than the first two quarters to account for the difference.


Introduction:


The City’s new fiscal year began on July 1, 2022 and runs through June 30, 2023. The City of Gardner bills real estate taxes on a quarterly basis, with bills being issued in July, October, January, and April. However, while there are quarterly bills, the bills are mailed twice a year with the July and October bills mailed out at the same time in July and January and April bills both being mailed in January. The bills for July and October are known as preliminary tax bills. The bills for January and April are known as actual tax bills.

According to Massachusetts General Law and the restrictions of Proposition 2 ½, the City cannot raise taxes more than 2 ½% each year. For the current fiscal year, the total amount of property taxes that Gardner can collect is $31,271,792.


What is the difference between a Preliminary Tax Bill and an Actual Tax Bill?


Massachusetts Law does not allow the City to set its tax rate until the November/December of each year. This is because the City Assessor’s Office and the Massachusetts Department of Revenue have to certify that the previous fiscal year ended correctly and any “New Growth” (new construction that did not exist when the existing tax rate was set last December) can be accounted for in the City’s property records.

What is the tax rate based off of?


As stated above, the City legally cannot collect more than $31,271,792 from real estate taxes in the 2023 fiscal year. This number is then divided among the property owners depending how much their property’s assessed value is. Per state law, values are based on how the real estate market was performing two years prior.


Since the City is limited in how much it can collect in taxes, as valuations increase, the tax rate decreases, since again, the City cannot go over its legal limit.


In December of 2021, the City Council voted to set the current tax rate at $18.59 per every thousand dollars that a property is valued at. This was based on property values associated with real estate market trends in 2020. In December 2022, it is expected that the City Council will vote on this year’s new tax rate based on how the real estate market was performing in 2021.


What was the difference in real estate values in Gardner in FY2022 versus FY2023?


Real Estate Valuations and Municipal Taxation procedures are heavily regulated by state law and regulations and restrictions issued by the Massachusetts Department of Revenue. Property values issued by the City Assessor’s Office must be certified by the Massachusetts Department of Revenue every year through a process known as the LA-4 Process.

Every five (5) years, the City is also required to contract with inspectors known as “Data Collectors” who are required by state law to inspect properties in Gardner to ensure that the City’s property record cards are accurate and up to date. This is currently ongoing in the City as required by state law.

Based on this process, in 2021, the average single-family home in the City of Gardner was valued at $237,944. This was based on trends in the real estate market from 2020.

Based on this process for 2022, the average single-family home in the City of Gardner is now valued at $283,445. This is based on trends in the real estate market in 2021. These values are still in the process of being certified and are subject to change.

This represents approximately a 19% increase in valuation.

How does this impact my tax bill?


Since 1) property taxes are based on valuations and 2) the tax rate that gets set by the City Council and approved by the State Department of Revenue, you may see a larger than usual increase in your preliminary tax bills sent in July and October of 2022.


This is because the City is required to issue tax bills on the new higher valuations for these two bill cycles, while at the same time, the City is required to use the tax rate set in December 2022 for these bills as well. As such, we have a situation where we are seeing higher values using a tax rate that was approved when values were substantially lower. Therefore, your preliminary tax bill will likely seem to have a larger increase than usual.

However, again, the City can only collect up to its limit in taxes, so mathematically as valuations increase, the tax rate has to decrease. It is predicted that the new tax rate set by the City and the State in December 2022 – the rate that will be used for the FY2023 actual tax bills in January and April will be much lower.


 For Example:


If a property in the City pays $12,000 a year in taxes, one could assume that because tax bills are issued on a quarterly basis, that the house would pay $3,000 a quarter in taxes as that is the total they pay for the year divided by four. However, when you look at the way this year’s tax rate systems are working, it could likely mean that the property would pay $4,000 for quarter 1 (July Bill) and $4,000 for quarter two (October Bill), with only $2,000 for quarter three (January Bill) and $2,000 for quarter four (April Bill). The first two quarters are higher due to last year’s tax rate, the second two quarters are lower because the tax rate was adjusted in December to meet the valuation trends. However, the amount collected is still capped at the same amount.


For More Information:

Contact Gardner City Hall 978-632-1900


Setting the Tax Rate


Each year the City 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 City must document all proposed spending and all sources of estimated revenue.

Since Massachusetts has spending limitation legislation (Proposition 2 1/2), there are exclusions and overrides that, once approved through special action by City Council 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 4 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).

Forms Submitted


Typically, Gardner submits the following forms with its Recap.

LA-4

A parcel count and value summary of real and personal property sorted by State land use classification. The LA4 is the "parent" document for a municipality's fiscal year valuation. All documents relating to the municipality'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 City to increase its tax levy by the amount of new taxes generated by these properties. Without a provision for taxing "growth" Prop. 2 1/2 would prevent municipalities 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 City 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

The 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 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.

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.

Unsubmitted Documents


Documents that are used in conjunction with the Recap but not submitted.

The Cherry Sheet

Named for the red paper on which the document was once printed, lists the money the State intends to distribute to the City in the upcoming fiscal year.

The C.S.1 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".

Levy Limit Worksheet

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.

Spending, Property Taxes & the Tax Rate


We are developing this portion of the City's website with the hope that it will evolve into useful a source of information for residents, taxpayers and others with an interest in Gardner finances.

We have made an attempt to simplify this information when possible but unfortunately tax laws and regulations tend to defy attempts at simplification. Please let us know if there is information you would like added or explained in greater detail.

Proposition 2 1/2

"My taxes increased by more than 2.5%! How is that possible?"

One thing we should make clear is the intent of Proposition 2 1/2 is that Proposition 2 1/2 is not tax limitation legislation like California's Proposition 13 and Florida's so-called "SOH." Prop. 2 1/2 is more a limit on spending. The legislation dictates a city or City cannot raise in property taxes (the total tax levy) more that 2.5% of the total value of the City in any single year, that 2 1/2% of the total value of the City's taxable real estate is the Levy Ceiling. Further, with a number of annual built-in exceptions and provisions for overrides and exclusions, it cannot increase its tax levy by more than 2 1/2% a year or it will surpass its Levy Limit.

Gardner would have to nearly triple its spending to hit the levy ceiling but, as with most communities in Massachusetts, is frequently up against its annual levy limit. Why?... For something with such a major impact on municipal finance, the 2.5% figure is purely arbitrary; at the time the legislation was written there was no formula to arrive at the 2.5% number, it just seemed appropriate to the authors and was voted as written. Like all limits on spending, it makes no sense without limits on costs. But... we have it and work within its limitations as best we can.

Values & Tax Rate

In Massachusetts real estate is taxed based on its market value but the city cannot raise more money in taxes simply because the City as a whole increases in value due to increased demand or inflation. When values go up the tax rate must go down proportionally. The same is true but in reverse when values drop; the tax rate increases as values decrease as long as spending remains unchanged.

Built-in exceptions allow a spending increase of more than 2.5% of the prior year's tax levy.

Growth / New Growth

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, previously tax-exempt properties that have been sold to a taxable entity. Without a provision for taxing "growth" Prop. 2 ½ would prevent cities from generating revenue from newly developed or improved properties and eventually services demanded by those new properties would overwhelm the community's finances.