Commentary––

Demystifying The Mill Rate And Budget

By Jim Gaston

Over the past few weeks there has been significant inquiry as to the workings of the mill rate and the budget. The most common mill rate question: Why does the present revaluation raise taxes for the majority of property owners even before any budget increase is addressed? In other words, why isn’t any increase in the revaluation of a property offset by the reduction of the mill rate?

For my engineer and mathematician friends the answer is easy … because the application of the mill rate (tax per thousand dollars of assessment) is a constant and that constant is applied to multiple variables –– the change of each property values, the change of property values as related to the total revaluation assessment as a whole, and the change of each property value related to another. Of course to those of us who are mere mortals with digits and figures, an example is the best explanation.

Looking at the Prior Evaluation Chart 1, assume there are 100 houses (or real properties) in the town and 20 are assessed at $300, etc. If the budget needs of the town is $300 the 1 mill tax rate will yield the $300 needed. Properties with assessed values of $1,000 will pay $1, $2,000 will pay $2, $3,000 will pay $3, etc. Now, looking at the Subsequent to Revaluation Chart 2, if the lesser valued properties appreciate faster than the higher valued properties (assessed after revaluation accordingly) and the mill rate is reduced to 0.5 mill so as to maintain the two lesser value property tax rates of $1 and $2 respectively, the total taxes actually received drops to $220 creating a deficit ($80 below the required $300 pre-revaluation budget needs). Turning to Chart 3 we see that in order to just maintain the $300 pre-revaluation budget needs the mill rate must increase to 0.61 mil. That rate is an increased tax of $1 to $1.22 and $2 to $2.44 for the lesser value but faster rising properties, and a $4 to $3.66 and $5 to $4.57 drop for the greater value but slower appreciating properties.

This example is similar to what has happened in Newtown. Generally, the properties under the assessed values of approximately $239,000 have appreciated faster than the higher assessed properties, including commercial properties

The Budget Puzzle

With an understanding of revaluation and the mill rate we turn to the town and school budgets. There appears little question that Newtown faces an unusual year, a “Perfect Storm” if you will. Newtowners are confronted with a hardening economy, a growing town with increasing costs for basic services, and the revaluation disparities discussed previously. Another fact, the proposed budgets are not “austere,” but actually bare-boned. The $250,000 cut from the Board of Selectmen’s proposal and the $400,000 cut from the Board of Education proposal slices into bone. No doubt, the bone grinding budgets grate hard on the bone-dry finances of those most needy in Newtown, too. I submit that the Board of Finance members spent at minimum 40 to 50 hours researching, analyzing, and assessing the financial means and needs of the town as related directly to the budgets. The cuts implemented by the Board of Finance addressed neither speculation nor conjecture, but facts and specifics. The Board of Education cuts were premised on consideration of expected savings from the retirement of teachers, the reduction of requested new teachers, and the elimination of certain emergency reserve funds. A few good and well-intentioned people have represented that another $500,000 should be cut from the school budget. No basis or specifics have been provided as to how that figure is derived, or from where the cuts will be taken. The Board of Education in its recent meeting has made it clear it will not jeopardize the educational integrity of the school programs by significantly increasing class sizes. Upon specific inquiry from the Board of Finance, Dr Pitkoff itemized a thought list as to what programs might be eliminated upon implementation of budget cuts. That list reads as follows:

The Board of Finance cut $400,000.

We also know in this budget equation that large budget cuts result in only marginal tax savings to property owners. For example, for a property assessed at $150,000 the incremental tax savings for the property owner per $100,000 budget cut is $5.60 per year. Another $500,000 budget cut would save the $150,000 assessed property owner a yearly savings of …$28.00. For a property assessed at $200,000 the $100,000 incremental savings per year is $7.50, for $275,000 –– $10.25, for $300,000 –– $11.20, for $400,000 –– $14.92, for $500,000 –– $18.64.

In short, when evaluating the budgetary proposals and weighing the marginal savings with the potential educational program cuts it is essential to address the specifics. An analysis of financial facts necessarily results in a financial, not political decision. It is my understanding that the Board of Finance was created for the purpose of making financial decisions. Newtowners now have a financially grounded budget. If it is voted down it will be up to the Legislative Council to politicize the process that in effect axes town and longtime school programs.

Finally, it should be recognized that the revaluation has disproportionately affected those most financially marginalized. In addition to slowing growth and preserving the services that drew many of us to Newtown in the first place, further tax relief is necessary to keep those most marginalized living in Newtown. For those who have long lived in Newtown, it is their right. Moreover, diversity is an asset to all. It is suggested that the Legislative Council request the Board of Finance review the tax relief programs available to those most needy, then amend its ordinance accordingly. The Legislative Council did a good job a few years ago addressing the subject; unfortunately revaluation requires us to revisit the issue. It is possible to have fairness for all and protect those values and assets that make Newtown so desirable.

(Jim Gaston is a member of Newtown’s Board of Finance.)