Special Town Meeting Article 5 Explained

A Memo From Town Manager Robert W. LeLacheur, Jr. CFA on Senior Tax Relief

The Board of Selectmen voted to hold a Special Town Meeting on  September 12^th in order to approve four senior tax relief Articles. The first three Articles involve a relatively small senior population in town, but the relief proposed is meaningful. The fourth Article is more broadly based and the subject of this memo.

In preparation for a future Override, almost two years ago Town Finance staff began researching tax policy that could assist the Reading seniors for which property taxes were a high financial burden. Town Public Safety and Human/Elder Services staffs interact with these seniors daily, and know they face both medical and financial challenges to remain in their Reading homes. Many of them have lived in town for decades.

No such tools existed in state tax policy to accomplish this assistance. Several months ago the town learned of two relatively recent so-called Home Rule Petitions – in Sudbury and in Wayland – that aim to protect their senior taxpayers. The Reading Assessing division and the Town Manager began researching these options, asking peer communities, local legislators, and the state Department of Revenue. The research showed that interest was high, but only these two communities had made an effort. Such a Home Rule Petition, if approved by the September Town Meeting and then by the state legislature and the Governor, would take effect only in Reading, beginning next July 2017.

To be eligible for the Reading property tax exemption, the senior:

1. has filed and been deemed eligible for a prior year Schedule CB (Circuit Breaker) for the purpose of state income taxes;
2. has owned property in Reading for at least ten previous consecutive years; and
3. applies annually to the Board of Assessors for the exemption.

Here are the qualifications for state income tax relief Schedule CB for 2014:

1. You, or your spouse if married filing jointly, must be at least 65 years of age before January 1, 2015 to qualify for this credit. Also, you must file as single, married filing jointly or head of household to qualify for this credit. If married filing separately, you do not qualify for this credit;
2. The assessed value of principal residence as of January 1, 2014 must be $691,000 or less;
3. Qualifying Income (includes MA Adjusted Gross Income (AGI) + social security benefits + untaxed pensions + miscellaneous income – certain income tax exemptions) is capped at $56,000 (single); $70,000 (head of household); or $84,000 (married filing jointly); and
4. Real estate taxes paid in calendar year 2014 for your principal residence (plus some adjustments, including 50% of water & sewer charges) must exceed 10% of the Qualified Income above.

The state tells us that in 2014 the average CB income tax benefit in Reading was $856, and that 645 local residents qualified. Thus the income tax relief was 645 x $856 = $552,120. We know some of those residents that qualified under CB rent property and others have not owned property for ten years. Both factors shrink the pool that is eligible for local property tax relief. We don’t know how many seniors did not file Schedule CB that might otherwise do so in order to obtain a property tax benefit, however.

If this Home Rule Petition is approved, the Board of Selectmen at their Tax Classification Hearing each November will set the exemption between 50% and 200% of the Schedule CB income tax relief. The exact % multiplier will be determined by how many seniors qualify for the exemption, and the total amount of senior tax relief desired by the Board.

If only that 2014 income tax pool were fully eligible, the total local tax relief would be between $276k (at 50%) and $1.1 million (at 200%). The Board indicated a strong desire to set the % figure to keep the total amount under $1 million, and that a reasonable annual goal would be the 125% midpoint, or about $0.7 million of tax relief. Please see the following table for some examples of possible local senior property tax relief seen by applicants:

According to state tax policy, by default only the rest of the residential taxpayers would bear the full cost of this tax relief. However at a recent meeting the Board of Selectmen indicated a unanimous desire to share this tax relief across all classes of property by splitting the tax rate. Here are some examples of what this proposed senior tax relief will cost various taxpayers:

While the early staff research was designed at helping seniors stay in their homes during an Override, the Board of Selectmen recently decided that the two concepts should be separated, and each decided on their own merits.

Therefore on September 12, Town Meeting will be asked to approve Senior Tax Relief, and on October 18 the voters will be asked to approve a $7.5 million Override. As always, we welcome your questions or comments at any time!