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Property Taxes, Budgets & Services
by William Fraser, City Manager

Taxable properties, tax exemptions and local expenses are key elements of local budgets and tax rates. All of these impact the tax rate but they are not the biggest part of the story. The major factors behind Montpelier’s budgets and tax rates are service delivery and service population. And with Act 60 and Act 68 leveling the field for school taxes, the focus must be on municipal services.

If we look at communities around the state with high tax rates we start seeing some interesting parallels. There’s our Central Vermont counterpart, Barre City claiming the top municipal (non-school) tax rate in Vermont. We also find Springfield, Rutland City, Middlebury, Windsor, Newport City, Rockingham/Bellows Falls, and Brattleboro. The similarities are strikingly obvious. All are older communities who serve as regional centers for other towns near them. Unlike a Burlington or South Burlington, they have neither the population base nor the “grand list” base to spread the costs of service delivery very widely. As a result, they all provide many direct services and maintain older infrastructure for use by people from an entire region but only paid for by residents. Many of these (Montpelier, Barre, Rutland, Middlebury, Windsor, Newport) were historically part of larger municipalities but were split off (i.e. Barre City and Barre Town). This resulted in greatly reduced land areas compared to most Vermont towns.

This notion of expanded service needs and delivery can be most visibly illustrated by the provision of Fire service.. There are only 12 full time or “paid” fire departments in all of Vermont, the 220+ others are all run by volunteers. Out of these nine top tax communities, however, seven have paid departments - only Middlebury and Newport still use volunteers. And the other five communities in the state with paid departments fit the mold as well. Burlington of course has the largest population base in the state. Hartford and South Burlington maintain lower municipal rates through a property base which is 1 ½ to 2 times more per resident than Montpelier. The remaining two, St. Albans City and St. Johnsbury, have the highest municipal tax rates in Franklin and Caledonia counties respectively but their relatively low school rates keep them out of the very highest total tax rates. All other towns and cities in Vermont have volunteer Fire Departments.

Obviously Fire Departments are not the only service being delivered in these communities and are not the only costs driving local budgets. The jump to a paid department, however, represents a major policy and cost shift for any town and is only made if the local people believe the need is justified. The presence of a paid Fire Department is almost always indicative of expanded overall local service needs - often to handle demands created by non residents.

Montpelier is really the “poster child” for this service phenomenon. Our daytime population of approximately 20,000 represents jobs, customers and economic activity. But those individuals also get into accidents, use parking spaces, speed, get injured or sick, commit crimes and cause wear and tear on roads and facilities. Under the very limited revenue raising options available to Vermont’s towns and cities, virtually all of these costs fall to the 8,000 or so local property tax payers. For example, the city handles over 18,000 to 20,000 police incidents (large and small) annually. At more than two calls for service per capita, this is the highest police activity rates in Vermont except for Barre City. By comparison, Burlington - even with the colleges and being the center of the metro area - only handles about one police incident per capita.

One contributing factor to this situation is the steady population growth in our neighboring, more rural, towns. The most recent census showed a combined increase of 915 residents (+11.5%) in Berlin, Calais, East Montpelier and Middlesex. At the same time, Montpelier’s population dropped by 349 residents (-4.1%). This is something of a “chicken and egg” situation since many people will say that they moved to Berlin, Middlesex, or East Montpelier to avoid Montpelier’s taxes yet have handy access to our downtown, community facilities and, yes, local services. Once again, their presence in our community is felt positively through business, the arts and civic efforts but the cost of services falls on Montpelier residents alone.

Let’s compare 2005 tax rates and local services within our immediate region. Tax information is taken from the 2006 Annual Report of the Vermont Department of Taxes. An Effective Tax Rate is determined once the property values in various communities have been “equalized”, that is taking into account the different overall community assessment ratios. The Actual Tax Rate is the rate that residents saw on their bills and is applied to their non-equalized tax bills. When comparing communities, it is much more accurate to look at the Effective rates rather than the Actual rates.

  Montpelier Barre City Berlin Calais Middlesex East Mplr .
Population
7,945 9,166 2,889 1,544 1,790 2,651
2005 Actual Tax Rate
$2.82 $2.85 $2.65 $2.56 $1.97 $2.65
2005 Effective
Res. Tax Rate
$2.35 $2.35 $1.92 $1.69 $1.90 $1.83
’05 Actual Res. School Rate
$1.55 $1.22 $2.07 $1.88 $1.54 $1.96
’05 Effective School Res. Rate
$1.29 $1.01 $1.48 $1.24 $1.48 $1.35
‘05 Actual Municipal Rate
$1.27 $1.63 $0.58 $0.68 $0.43 $0.69
’05 Effective Municipal Rate
$1.06 $1.34 $0.43 $0.45 $0.41 $.48
Police Dept.
18 Full Time
6 FT Dispatch (for 18 towns)
2 CSO FTE
19 Full Time 7 FT, 2 PT Dispatch
1 CSO Reader
19 PT reserve
5 Full time   None -
State Police only
None - State Police only State Police, Sheriffs
2 Constables
Fire Dept.
17 Full Time
3 Part Time
14 Call Force
17 Full Time 14 Call Force All Volunteer All Volunteer All Volunteer All Volunteer
Ambulance
Full Time EMS Direct Service provided by Fire Dept. Full Time EMS & Paramedics through Fire Dept Contract with Barre Town. No Fast Squad, Fire Dept helps Contract with Barre Town. East Mplr. Fast Squad Contract with Montpelier. Volunteer Fast Squad Contract with Barre Town. Volunteer Fast Squad
Amb. Avg. Response Time
4 minutes 3 minutes 8 minutes 15 minutes 11 minutes 12 minutes
Road/Maintenance Crew
17 Full Time 12 Full Time 4 Full Time 4 Full Time 3 Full Time 3 Full Time
Roads
56 miles total
2 miles dirt
49 miles total 51 miles Town - several dirt 26 miles State 72 miles total 69 miles dirt 65 miles total
44 miles dirt
59 miles total
45 miles dirt
Sidewalks
35 miles total 23 miles total None None None None
Bike Paths
1.75 miles total paved 1 mile None None None None  
Tax Payments allowed
4 times/ year. Can do auto deduct from bank account 4 times/ year.
Can do auto deduct from bank account
2 times /year. No auto deduct. 1 time/ year. No auto deduct. 2 times/ year. No auto deduct. 1 time/ year. No auto deduct.
Recreation Facilities
Hubbard Park No. Branch Pk. Swim. Pool
2 Rec Fields Rec Center Civic Center Tennis Cts Playgrounds Mountaineers
BOR Arena Barre Aud.
7 Playgrnds Swim. Pool Tennis Cts
2 Rec Fields 3 Parks  
Outdoor skating   None Wrightsville Beach - regionally funded facility Rec Field  


This chart illustrates some of the tax, cost and service differences between Montpelier and its neighbors. One immediate observation is that the School Tax Rates are fairly constant throughout. In fact, Montpelier’s effective school rate is lower than all of the U-32 towns except for Berlin.

The most notable observation, of course, is that the average effective residential tax rate for the 8,877 residents in the surrounding four towns was 27.7% less than the Montpelier resident rate. Note that the total effective tax rate for Barre City, however, is exactly the same as Montpelier and services are similar. What services do Montpelier residents receive for this extra tax burden that people don’t get in the other Towns?
  • Full time Fire and Ambulance service based in downtown Montpelier. Volunteer Fire and Ambulance departments do excellent jobs but they can’t match the response time or training level of full time staff people. Dispatch records show an average ambulance response time of 4 minutes locally compared to 11.5 minutes in the combined towns. This difference may not seem like much but sit and watch the clock sometime thinking you’re waiting for someone to provide emergency medical assistance to you or a family member. The Full time Fire Department is actively involved with fire prevention efforts as well as emergency response, is active in development review and has advocated for safety and prevention initiatives such as sprinklers and increased building inspection.
  • Full Time police service based in downtown Montpelier. A 9-1-1 emergency call gets a local police officer at your door within minutes. Officers are on patrol 24 hours per day, seven days per week. One officer is involved with the school system full time. In communities served by State Police, one Trooper may be on duty covering many towns.
  • Full Time dispatching service – That same 9-1-1 call is answered in the Montpelier police station by people familiar with the community. In almost all other towns and cities in the region, emergency calls are answered by a centralized state dispatcher in Williston and then relayed to local emergency providers.
  • Paved and quickly plowed roads. 97% of Montpelier’s roads are paved compared with 20% in neighboring towns. Gravel roads mean more dust, “dings” on vehicles and difficult access during certain seasons (mud) and weather conditions. When you’re in a business rush or personal emergency, can you rely on being able to pass over your road year round? Neighboring road crews do a fine job but with an average of one person per 17.5 miles of road, one cannot expect the same service as Montpelier who staffs one person per 3.5 miles of road. And the neighboring crews don’t have any responsibilities for snow bank removal in downtown, sidewalk plowing/ maintenance, street lights or traffic signals.
  • Public Information. Montpelier residents have many more opportunities to stay in touch with their local government than their neighbors do. Virtually all municipal and school meetings are broadcast on local Cable TV. Both the City and School maintain comprehensive web sites for on-line access. The City’s Annual Report has won awards for public presentation the last two years. Both the School and the City contribute regular features in the Bridge newspaper. This year the city is developing a new initiative to create a wireless internet environment in the downtown area and, eventually, throughout the community.
These are the major examples. The list is much longer though; it includes a full slate of recreation programs, municipal water and sewer systems (rather than wells and septic tanks), storm drain systems to avoid washouts and direct drainage away from properties, the City Hall Auditorium and Arts Center, the swimming pool and rec facilities, and administrative conveniences like quarterly tax payments with automatic bank deductions if you want them.

There are also many great things that Montpelier residents support that neighboring residents can also benefit from at no cost or greatly disproportional cost. Hubbard Park and North Branch Park are two prime examples. Others include the Kellogg-Hubbard Library, sidewalks and bike/pedestrian paths, street sweeping, fire prevention efforts, the Montpelier Arts Fund, downtown enhancement initiatives - not to mention Design Review and Planning efforts which are occasionally causes of controversy but which regularly help keep the city looking as wonderful as it does for all to enjoy. And everyone enjoys events like Independence Day, First Night, and other celebrations.

If the State of Vermont paid “full” property taxes for all of its tax exempt buildings and properties, wouldn’t we be just fine?


Act 60 has changed the way we look at property taxes for education. With the shared, state wide education grand list the effect of the state’s property tax exemption is spread over the entire funding pool - not just any one community. The state has, essentially, met its education portion of taxes through the Act 60 and Act 68 formula. In addtition, $941,776 in income sensitivity payments were made to local residents to reduce their school property taxes. Over $420,000 in reduced Machinery and Equipment taxes is realized by local businesses. On top of that, the State provides a “circuit rider” program which reduces overall property taxes for people with lower incomes. In 2005, this program brought $601,503 in tax relief to Montpelier.

At the same time, the State’s total Payment in Lieu of Taxes (PILOT) has grown to $577,600 or about 11 cents on the tax rate. This is approximately 60% of their estimated “full” taxes for municipal services. If the State paid “full” municipal taxes, then, the tax rate would be another 8-10 cents lower, a savings of $108-$136 on the average residential tax bill.

City officials are continuing to fight hard for full payment of municipal taxes by the state. Residents, though, should be aware that much of this benefit is already in place and full PILOT will not create major tax reduction in the form of hundreds upon hundreds of dollars!

The presence 2,255 state jobs in Montpelier certainly creates the service demands discussed earlier but also provides economic benefits to the community. Most importantly, the state has come a long way toward assisting Montpelier – and particularly our most needy residents - with our tax burden. Its not valid to say “Its the state’s fault”. How does one explain the high local taxes in Barre, Rutland and the others with much less of a state presence?

The grand list (the total of all assessed valuation) is flat or too low - shouldn’t we develop more taxable buildings and properties to reduce taxes for the rest of us?


Clearly an expansion of the grand list would spread local property taxes further. We’ve already referenced communities with per capita Grand Lists that are 1.5 to 2 times greater than ours who provide full services for much lower taxes. South Burlington, for example, delivers essentially the same services as Montpelier for an effective municipal tax rate of 42 cents (vs. 1.26 here). Its also probable that housing development might reverse or slow the trend of declining enrollment in the schools which is driving “per-pupil” spending up.

Some caution needs to be exercised though. With Act 60 equalizing grand lists around the state, an expansion of tax base doesn’t always translate to direct benefit to the host community. A major consideration is the impact of any additional service demand created by the newly developed property - are we canceling out new revenue with new expenses? Are development proposals in keeping with the size and scale that’s acceptable to the community?

On going Grand List growth is unquestionably important to the long term financial health of the community. It’s important, however, that people understand the vast amount of property growth necessary to create substantial tax savings (assuming there were no new costs). As illustration, if downtown were replicated - in its entirety – and those property values added to the grand list, the tax rate would drop about 8 cents or $108 dollars to the average resident. And that’s without any additional cost requirements. To reduce the tax rate by 75 cents which puts us in line with the neighboring communities - would require additional taxable property of which equals about 80% of our current taxable property – nearly doubling the community’s property base. While keeping a steady eye on grand list growth is important, it should not be viewed as the one key element to tax reduction.

Can’t we cut local expenses, reduce the number of city/school employees, etc.?

City Council members and School Board members have been holding down expenses for years. During the late 80's and early 90's, the city council eliminated 10-12 full time positions. Over the last 10 years, at least 7 positions have been reduced and/or reallocated to different priorities. Services have been trimmed, streamlined and made more efficient whenever possible and efforts in that direction are continuous. In the meantime, though, the demand for services has remained constant or increased. We are getting the same amount of police calls, fire/ambulance calls, snowfall, permit applications etc as always. Budgets are scrutinized very closely by the elected officials and the administration - we all pay the same taxes.

As with Grand List growth, cost management is a function of scale. For every $52,000 raised or cut in the budget, average residential taxes change by about $10.00. A budget reduction of $520,000, then, would cut the tax rate by 10 cents or the average tax bill by about $136.00. $520,000, though, represents about 9 full time employees including pay and benefits or about 12.5% of the city’s present tax funded work force of 72 FTE (the rest are funded through fees such as water/sewer rates, parking etc). 9 less positions will result in a direct reduction in the quality of services discussed earlier. There will be less police officers, fire fighters, road crew workers, planning staff, customer service staff, local facilities, etc. Despite the 10 cent tax rate savings ($136 to the average resident), average taxes will still be well above $3,700. Taxes will still be high but services will have diminished noticeably. This is the dilemma that the Council faces annually.

At least 50 cents need to be cut to develop tax rates that are competitive with our neighboring communities. To cut the tax rate by 50 cents, $2,600,000 in expenditures would need to be trimmed - about 40% of the current tax commitment. Obviously local government services as we know them today would not exist - yet average residential taxes would be about $2,600. For what? Schools, of course, and municipal services that resemble those of the neighbors. Who will answer the 1,800 Fire/Ambulance calls? Or respond to the 18-20,000 police calls? Or plow the roads and sidewalks? Who will review development proposals?

Over the last six years, the city budgets have only proposed an average annual tax increase of 1.5%. Cost management remains a high priority for the city. We constantly seek to do things in a more cost-effective manner. Its important, though, to hold the cost issue in perspective as well.

What are we left with?

State laws presently offer very little to municipal governments for revenue sources. We are essentially limited to property taxes and various fees for services. It is often difficult to assess additional user fees when the base tax rate is so high - residents feel they’ve already paid handsomely for something through their taxes and balk at added fees.

Without some major policy change in the state, communities like Montpelier and the others mentioned earlier will continue to fight a difficult battle. Eventually services and maintenance will wane, property owners will let their buildings deteriorate to avoid higher assessments and rental space will become unaffordable. Traditional downtowns and center communities are at as much risk from inadequate tax policy as they are from “sprawl”. One could argue that such tax policy is one of the major forces behind “sprawl”.

Cities like ours need to look for broader revenue raising mechanisms that provide funds from non-residents who use services. In 2004, the Council proposed a local sales tax and rooms/meals tax that would have raised $535,000 in local revenus plus an additional $69,000 in PILOT payments. That proposal was rejected by voters so the city is left scrambling for other ideas within a very narrow legal framework. Surely people in nearby towns directly benefit from their proximity to Montpelier and Barre, why shouldn’t they contribute to the well being of those cities? There are many ideas which need to be considered at the state level in order to keep our traditional community centers viable. Unfortunately it is the state legislature which is empowered to make these decisions, not the local residents.

In the meantime, Montpelier officials will continue to advocate for full state tax payment, seek to develop the grand list and keep expenses in line. We will continue meeting community priorities like high service levels, support to the downtown, completion and maintenance of public facilities and an excellent quality of life. Montpelier, Barre and comparable communities have a tough challenge. As always, please feel free to call me at 223-9502 or send e-mail to wfraser@montpelier-vt.org if you have questions or comments.


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