What is an override?
The state of Massachusetts, under the Proposition 2 1/2 statute, limits how much real estate and personal property tax revenue can be annually raised by the city without voter approval. An override is a measure, approved by voters in a referendum, to override that limit and raise additional revenue.
Why does Northampton need to pass an override?
Proposition 2 1/2 limits the amount of property revenue increase that can be raised to 2.5 percent annually. But Northampton’s annual cost increases — from wages to health insurance to asphalt — average approximately 3.4% percent, which creates systematic revenue shortfalls.
Over the last decade, cuts in state aid to Northampton have compounded the problem.
Without periodic overrides, the only way we in Northampton can balance our budget is by laying off workers and cutting services.
Why does Northampton need to pass an override this year?
Northampton voters enacted a $2.5 million override in 2013. When Mayor David Narkewicz proposed the 2013 override, it was part of a Fiscal Stability Plan designed to last four fiscal years. In addition to addressing the immediate revenue shortfall, the plan would establish a Stabilization Fund to help prevent future shortfalls over that span.
Thanks to sound fiscal management, economic growth and the adoption of newly available revenue sources — the hotels/meals tax and the retail marijuana tax — the City of Northampton was able to extend the duration of the 2013 override for a total of seven fiscal years.
Every year in the budget message, at budget town halls and in presentations to the School Committee and City Council, the mayor has given an update on the status of the Fiscal Stability Plan. He has explained that we would eventually need to draw down the Stabilization Fund and, without a new override, face a revenue shortfall that would then widen every year.
Now the inevitable revenue shortfall has arrived, requiring an override to avoid devastating cuts. That is why the mayor proposed this override, and why the Northampton City Council voted to hold a March 3rd override referendum.
(You can review here the Mayor’s new slideshow review of the Fiscal Stability Plan and catch up here on past budget presentations.)
How much revenue will the override raise?
As with the 2013 override, the 2020 override proposal would raise $2.5 million. This would prevent an immediate revenue shortfall of $1,122,223, prevent a bigger shortfall in Fiscal Year 2021 of $2,332,793 and is intended to keep the budget balanced for the next four fiscal years.
What will be the cost of the override for typical property owners?
The override will increase annual property taxes by 67 cents per $1,000 of property value. That means, the annual increase would total:
• For a $100,000 property, $67
• For a $200,000 property, $134
• For a $300,000 property, $201
• For a $400,000 property, $268
• For a $500,000 property, $335
You can calculate the estimated increase for your specific property here, with the city’s online calculator.
How low are Northampton’s property taxes now?
Northampton currently has one of the lowest property tax rates in Western Massachusetts: $16.80 per $1,000 of property value.
Furthermore, Northampton was recently reduced its property tax rate, following a state-required 5-year revaluation of property values, from $17.37 in Fiscal Year 2019 to $16.80 in Fiscal Year 2020. The Proposition 2 1/2 statute caps the overall amount of property tax revenue cities can collect. Therefore, when property values increase, the tax rate goes down. The revaluation process does not increase the amount of revenue that can be raised from property taxes.
How do we know that the city administration has been responsible and frugal in managing taxpayer money?
Because in 2016, Northampton’s bond rating was upgraded by Standard and Poor’s to AAA status, the highest ranking available. This rating was upgraded and has been maintained because of the city’s strong financial policies and practices, and also because the city is conservative in its management and budgeting practices. The bond rating allows the city to borrow at favorable interest rates, helping us stretch our taxpayer dollars, and avoiding more frequent overrides.
How can we prevent the override from making Northampton unaffordable for low-income seniors?
When the City Council approved the March 3rd override referendum, it also expanded the tax exemptions for low-income seniors. As of fiscal year 2021, the following changes have been implemented for exemptions:
• The maximum property exemption is increased, from $650 to $1000.
• The age of eligibility for property tax exemptions is reduced, from 70 to 65.
• The income limit for property tax exemptions is increased, from $22,758 to $24,758 for single persons, and from $27,137 to $34,137 for married persons.
• The asset limit for property tax exemptions is increased, from $28,000 to $40,000 for single persons, and from $30,000 to $55,000 for married persons.
• These changes have been made to be in effect for Fiscal Year 2021, and are not contingent on passage of the override.
There are other exemptions for certain veterans, surviving spouses, minor children of deceased parents, and people who are legally blind as well as additional programs for seniors and veterans that provide additional tax breaks. The Assessors Office can help you determine if you qualify for one or more exemptions or abatements.
Why is the override necessary after the state of Massachusetts enacted the Student Opportunity Act?
The Student Opportunity Act is primarily designed to boost state aid for schools in low-income communities. Northampton does not fall in that category, and will only receive approximately $80,000 per year in additional new aid for our schools–equivalent to a 1% increase. That is not nearly enough to avoid the necessity of an override and prevent a revenue shortfall.
Why is the override necessary now that Northampton receives marijuana tax revenue?
The additional revenue stream from the local marijuana tax helps the city’s finances, but it does not resolve the fundamental problem: Proposition 2 1/2 caps local property tax revenue while costs continue to rise. The only way to keep up with rising costs is through sound fiscal management, which includes periodic overrides.
Furthermore, we cannot know how much revenue the marijuana tax will continue to provide during the next several years. The amount generated in the third quarter of 2019 was about $100,000 less than in the second quarter. As more and more marijuana stores open across the region, Northampton may not continue to receive as much revenue in future years as in our first year under the new law.
More details about Northampton’s marijuana tax revenue can be found in the Mayor’s slideshow review of the Fiscal Stability Plan