I love the curiosity that some kids have when they’re excited about learning a new skill or topic. You can find yourself in a never-ending cycle of questions and answers, where one answer begets another question and vice versa. Generally, the questions result from a desire to understand more deeply, which I appreciate and try to reward. In government, this type of exploratory q&a can be challenging for both the public and elected officials. I think that there’s a presumption by many that our elected and hired officials must know everything already. The truth is that we’re no different than you — we each bring a unique set of skills and experiences to the table, and many of us tend to approach things like an excited kid who’s learning something new.
Recently, there’s been a lot of curiosity about the impact that major capital investments (Library Expansion, a new Community Center and a new Primary School) will have on our taxes. This is a rational and perfectly reasonable question, so let me attempt to address it.
In Scarborough, we have historically adopted a goal to guide the budget process that the tax rate increase should be no more than 3 percent. For several years, this was one of our only budget goals. The 3 percent target isn’t magical or arbitrary, it’s what is typically required to accommodate inflation and a reasonable expansion of services while making improvements to our infrastructure. We’ve exercised good discipline in recent years to respect this tax increase ceiling:
In 2019, the tax rate was $16.49, a 0 percent change from the prior year; it 2020, it was $14.60, a -10.49 percent change; in 2021, it was $14.86, a 1.1 percent change; in 2022 it was $15.02, a 1.1 percent change; and for 2023 it is $15.39, a 2.5 percent increase.
During revaluation years, we do expect the tax rate to decrease (as happened in 2020) as the process of bringing assessed values in line with the market value of a property causes our valuation to increase faster than spending. Regardless of revaluations, the typical tax bill will go up no more than 3 percent in ANY year in Scarborough if we continue to follow this budgeting goal.
A large portion of your tax dollars are used to fund Capital Equipment and Improvements. In fact, we try to manage the debt associated with these investments to be very near 13 percent of the prior year operating budget, which allows us to smooth the impact of large projects on any individual tax year. The capital improvement program that was proposed during last year’s budget cycle and subsequently approved by the Town Council after a robust public process, will allow us to easily meet the 3 percent or lower policy objective and stay within the 13 percent debt service target. The plan that was proposed and approved, however, DID NOT include a new consolidated primary school.
We recently began modeling the effect of adding a new primary school to the plan, and trying to understand if it could be managed within existing policy objectives, or if there would be a more substantial impact on the taxpayer. The current estimate for the cost of building the school is $137 million (this estimate will be refined as site selection and conceptual planning proceed).
Adding a $137 million primary school would most certainly require us to deviate from our 3 percent tax increase norm at least once in the next 5 years. Our current worst case scenario modeling shows that, all else being equal, immediately funding a $137 million school in addition to the Library, Community Center and other planned capital items will require us to increase taxes roughly 8 percent in 2026. We should be able to manage within our 3 percent target outside of that year. Removing the Library does not have a material impact on that spike in 2026. Removing both the Community Center and the Library would reduce the tax bill increase in 2026 to roughly 7.4 percent.
As with any model, there are several assumptions that contribute to the forecast. Some of them relate to the structure of our debt repayments, others to economic and inflationary forces. Understanding the uncertainty surrounding these assumptions can lead to more informed decisions, so I’ll highlight some of them here:
Growth: It is assumed that we will grow at 1.5 percent per year, on average, due to new development. We grew at 3 percent this year, and averaged roughly 2 percent over the past five years, so this assumption seems reasonable in the near term and represents a considerable slowdown from the current pace of development. That having been said, there has been a strong push to stop anything that sounds like it could relate to growth recently, so there is a big risk associated with this assumption in particular. Nonetheless, growing slower than 1.5 percent per year will result in a higher tax increase, faster growth will reduce the tax impact.
Spending: It is assumed that we will grow our combined school and municipal operating budget at 4.5 percent per year (again on average). This is consistent with historical norms.
Debt Financing: It is assumed that we will strive to maintain a debt service burden as close to 13 percent of the prior year operating budget as possible. Because we take a portfolio approach to managing our debt, answering the question of how any individual project will impact your taxes is complicated. We intentionally structure new debt issuances based upon what debt already exists and what is expected in the future. For example, based upon our newly modeled capital plan WITH a school, it looks like financing the Library Expansion project over 10 years would be most in line with the 13 percent objective. This would account for roughly $110 of the tax bill on a $400k home over each of the next 10 years (1 percent).
Should we finance the project over 30 years, the impact would be closer to $35 (<1 percent) on that same tax bill but over a longer period. Should the project fail at the referendum, it is unlikely that there will be a positive tax impact as our policy is still to maintain a debt service ratio as close to 13 percent as possible. In this case the town manager would most likely execute other projects that have already been approved as a way to maintain this percentage.
Other Considerations: We have been approved to pay for the costs of constructing a Community Center with TIF revenues. The benefit of doing so has not been factored into this analysis, nor has the benefit of paying for 50 percent of the Public Safety Building debt service with TIF Revenues. We have also started to explore the possibility of utilizing TIF revenues for a school. While NOT in minimum receiver status, utilizing TIF revenues to pay for these projects would save us roughly 58 percent. If we move back into minimum receiver status, either due to growth or a reduction in enrollment or a change in the state formula, the benefit would be closer to 10 percent. In either case, there would need to be sufficient growth within our TIF districts to support the payments associated with these projects in order for TIF revenues to be considered a realistic funding source.
So, while I cannot guarantee you that your taxes will go up 8 percent in 2026 in the unlikely scenario that voters approve funding for an expanded library, a new Community Center and a new Consolidated Primary School, it does seem that 8 percent is a reasonable number to plan for if all three projects are supported. This is 5 percent more than I would advise you to plan for in any other year. At the end of the day, voters need to weigh in on whether these major improvements align with their values for our community. Our staff and elected officials will work very hard to minimize any impact on your taxes.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Scarborough Town Council.
Read More: Councilors Corner: Your taxes … your values