Stats: that elusive commercial tax dollar

At the last Economic Development Committee meeting, the topic of the relationship between residential and commercial taxes came up again. The EDC has been gradually backing off of earlier assertions that an increase in the commercial tax base would have a noticeable effect on residential taxes in Bolton. And with good reason. It is hard, I’ve found, to prove a meaningful connection. Even harder to quantify it.

Case in point #1: Northboro.  What is the impact to the average family’s property tax bill of adding 400 new apartments and a 600,000 square foot shopping center to the commercial tax base in Northboro? A reduction of $20. Wow. (Boston Globe)

Case in point #2: Marlborough. A town that in FY ’10 generated  as much in commercial/industrial/personal property taxes as it did in residential property taxes ($42 million each), and whose per capita commercial/industrial revenue is a whopping $900…is looking for an additional $1.4 billion of nonresidential property assessments over the next 10 years in order to stabilize residential taxes. The more growth you have, it appears, the more you need to pay for it. (Boston Globe)

Common sense would suggest that if you could in fact freeze all other variables in the revenue and cost sides of town budgeting, and at the same time increase the commercial/industrial tax base, the result would be that you’d have the happy choice of either: 1) decreasing residential property taxes; or 2) slowing the increase of residential property taxes; or 3) funding increases in, or restoration of, items in the town budget. Makes perfect sense. But in real life, it’s extremely difficult to show it or to prove it on a consistent basis. I’ve been trying.

Commercial/Industrial Tax Revenue Per Capita—FY '10

To illustrate the point, here are two charts. The chart above shows the dollars of commercial/industrial revenue per capita in Bolton and in the ten comp towns we have been using in our stats charts (FY10). I pulled out the “per capita” numbers here because I wanted to get a feel for the relative concentration of commercial/industrial activity for the size of towns in our comp list and how that may or may not impact the average residential tax bill. Bolton is in the middle of the pack (surprisingly) as far as concentration of commercial/industrial tax base–five towns above us and five below us. The chart below shows the average residential property tax bill (FY10) for the same group of towns. We are above average in this category–three towns are higher than we are, two are close, and five are below us.

Average Residential Tax Bill—FY '10

At first glance, the numbers for Berlin would seem to confirm the notion that there is a relationship between commercial tax revenue and residential tax bills—high commercial $’s per capita in Berlin, low residential bill. But if you drilled down into the Berlin town budget components you’d see other things that drive the town budget and tax bills. You’d see, for instance, that Berlin only spent 38% of its total town budget on education in FY9 compared to 62% in Bolton, that the average house in Berlin was assessed at a figure some 21% lower than an average house in Bolton, that Berlin has a lot more farmland in Chapter 61A (tax advantaged) than we do. Also, because of their higher levels of state aid and other sources of revenue, the Berlin tax levy needed to cover only 77% of their total budget as compared to our levy that covered 85% of our budget. All of which is to say that there are several factors operating in Berlin that advantage their residential tax profile. So it gets murky. At least for an aging English major like me.

The example of Boxboro, however, is even more surprising because our towns are so similar. Boxboro is the same size as Bolton in population and its budget is structurally closer to ours than is Berlin’s. Boxboro spent about the same as we did proportionally on education (61% of town budget versus our 62%). A house in Boxboro is assessed at about the same as one in Bolton (Boxboro average valuation was higher than ours by just 4% in FY10), and their average residential property tax bill is very nearly the same (the difference was $173, ours being the higher). And yet, Boxboro was generating over 3 times the commercial/industrial tax revenue as Bolton was in FY10 on a per capita basis ($726 per capita versus $212 on basically the same population). In actual dollars, that is a difference of $2.6 million in commercial/industrial tax revenue between the two towns. That is a big number and represents well over $100 million in assessed value. I don’t know where that money went in Boxboro, but it apparently did not go toward offsetting the residential tax burden since the average bill is very nearly identical to ours. Like I said, it’s murky.

And then there is Harvard, Lancaster, and Stow—all three with lower commercial bases per capita than ours and also with lower average property taxes. Go figure.

On the other hand, you’ve got Carlisle, the one town in this group that most probably does illustrate the relationship between residential property taxes and commercial/industrial taxes. And probably that is because the imbalance is so extreme. They have the highest average residential tax bill by far of all these comp towns, and almost no commercial activity whatsoever. Bingo.

So, I submit that in the real world it is hard to establish any predictable connection between commercial tax base and residential tax levels, except in the most extreme cases. Does that mean we should not bother encouraging business to come to Bolton or to expand in Bolton? No, of course not. But we’d better not promote business expansion because we think that our residential property tax bills will be much changed as a result. Other imperatives should guide an economic development strategy.

—Roland

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