'When Do the Taxpayers Get a Break?'

The debate this year over taxes was unusual only insofar as how many councilors strongly objected to another increase for property owners.

"Why can't we just for once give the taxpayer a break?" asked Councilor-at-Large Dave Gravel. He argued the city was in healthy financial standing with the largest amount of cash reserves on hand in years, if ever, and many taxpayers are still trying to revive from the down market and economy.

Gravel said he couldn't support another tax increase ($94 this year) and instead asked Mayor Ted Bettencourt to use $4 million from reserves (free cash) to cover the total spending increase in Fiscal 2014.

The plan from Bettencourt and city finance officials, which was approved Thursday, was to reduce the burden on taxpayers by using $1.5 million from free cash, which was recently certified at just over $13 million.

Gravel also noted that if assessed home values do rise as expected over the next couple years, that will generate tax revenue in a much more palatable manner to taxpayers.

He said many homeowners are misled by the annual tax presentation because their homes are worth more than the average stated by city assessors. For example, the average single-family home was valued at $307,144 last year versus the average homeowner's property at $289,900.

Councilor-at-Large Anne Manning-Martin, who expressed similar concerns over the past couple budget cycles and tax hearings, agreed with Gravel Thursday night.

She said the city expects to save millions on employee health insurance, there are savings from consolidating some city jobs, increasing recycling to reduce tipping fees and some other measures.

"When we do these things, it's under the guise of saving taxpayers money, but every year we raise taxes. We save them money, but then raise their taxes," she said. "I wonder when we will be able to reward the very people that allow us to be in this position."

Ward 1 Councilor Barry Osborne likewise jumped in, asking for a concession from Bettencourt and what the "magic number" is on a sufficient level of reserve funds.

"Where's the line and when do we give a break to residents?" he asked, acknowledging the need to plan ahead for city projects and maintain a high bond rating, but also arguing that the city can give back a little more.

Osborne noted a lot of growth in his ward between residential and commercial developments, as well as many above-average home values. "There's going to come a time when we have to give back [to taxpayers]."

The city also continues to tax well below its levy limit -- $6.7 million below, in fact, which is referred to as excess levy capacity.

"There is a time to dip in further to the reserves, but I don't think this is the year to do it," Bettencourt replied. He said taking $4 million from reserves might feel good now, but only would delay the inevitable and no one would be smiling come budget season.

He argued the city would then be faced with laying off police officers, firefighters and teachers or asking residents to double up on a tax increase, or continuing an unsustainable cycle and draw from reserves again.

Finance Director Patti Schaffer explained that bond rating agencies consider whether a municipality has a plan to replenish its reserves after drawing down on them when bond ratings come up for review. High ratings mean low interest costs on borrowing for capital projects.

She said agencies also look at how a city intends to pay its long-term debt without relying on reserve funds.

Gravel responded that he understands the general principles and going from $13 million in free cash down to $1 million would yield a "junk bond rating," but down to $9 million didn't "seem so awful" to him.

Bettencourt said he made it a priority to build up reserves over the past two years because there is major spending coming due soon, such as the city's share of construction costs on the new regional vocational school in Danvers and the city's new middle school. In particular, he focused on the new voke.

"I'm still very concerned about the new vocational school and what that will cost the city," he said. "It's a wonderful school, state-of-the-art, but make no mistake about it, it's going to be very expensive."

The first construction payment was due this year at $200,000, but that only increases from here and Peabody's share of operational costs are still unknown. It depends on the city's final enrollment numbers at the school.

Given the current prediction for 162 students when the school opens next fall, that's $3.2 million in one year, based on projected expenses.

Bettencourt easily envisions a scenario where the city needs to draw on its reserves to pay the bill or continue to borrow money at a low interest rate, which is possible due to the city's high bond rating at AA1.

He added that he too believes current growth and revenue projections for 2014 should help alleviate the burden on homeowners.

Ward 6 Councilor Barry Sinewitz reiterated some of his own misgivings over Peabody's part in the megavoke, particularly over the unknown costs.

"When this council voted on the vocational school without knowing what the operational costs were, that was the most irresponsible thing to do," he said. "We're screwed. We got into this thing and we can't get out."

Ward 5 Councilor Dave Gamache said the city is "leaving money on the table" now in regard to landfill fees and other some areas, which he hopes city officials actively pursue negotiations on in the next year.

He talked at length about the ash monofill Covanta is operating on Farm Avenue -- it's the only one around and now that there's renewed activity at the site, Peabody should seek to get a "bigger bang for the buck."

Gamache said that could easily be another $500,000 or so in new revenues that could reduce future tax increases.

Ward 4 Councilor Bob Driscoll interjected that he sees a lot of good investments the city is making and in reality only asking taxpayers to pay another $7.84 a month.

Councilor-at-Large Mike Garabedian took it one step further -- he says it's just $1.80 a week and maybe $2 if your home is worth more than the average.

Ward 2 Councilor Arthur Athas pointed out Bettencourt pledged more reserves toward the tax rate this year than last and that it is a one-time funding source.

"I don't want to see taxpayers [taking] a $6 million to $7.5 million hit next year," he said.
 
Ultimately, the council voted 7-3 to transfer $1.5 million from reserves. Gravel, Manning-Martin and Ward 3 Councilor Rico Mello voted "no" while Garabedian, Driscoll, Athas, Sinewitz, Tom Gould and a reluctant looking Osborne voted "yes."

Councilor Jim Liacos was absent from the meeting due to a death in his family.

Osborne then made a motion to reconsider that vote, but it failed, 4-6, with just himself, Gravel, Manning-Martin and Sinewitz supporting it.

The council adopted the proposed classification factor, which yields a tax rate of $12.40 for residential and $24.46 for commercial, and that was approved on a similar 7-3 vote.