Municipalities that operate on a calendar fiscal year, or something similar (e.g., February-January), are required to do the municipal spending limitation calculation under LD 1 for the first time in 2006. On the next page of the Townsman is a sample Municipal Spending Limitation Calculation worksheet, developed by MMA staff, to help calendar year communities comply with LD 1.
An article, written by MMA’s Geoff Herman, in the March, 2005 issue provided guidance on the procedures for complying with municipal spending limits contained in LD 1 for the fiscal year (July-June) municipalities which had to develop budgets under these limits in 2005. His article gives an excellent overview of the LD 1 municipal spending limits explaining the various steps in the calculation of a “property tax levy limit”.
A quick summary of the “Worksheet to Calculate Municipal Spending Limitation for Calendar Year Municipalities” follows:
Step 1 establishes a base to calculate the “property tax levy limit”. The purpose of Step 1 is to determine the part of your property tax commitment used for the municipal side of the budget. First, take your 2005 property tax commitment and subtract the school and county assessments, and TIF payments if you had any, and finally the overlay. This leaves you with a “core municipal commitment” which will serve as the base for calculating your levy limit.
Step 2 is to calculate a “growth factor” that will be applied to the “core municipal commitment”. The growth factor has two parts: a uniform TPI number (2.62%) that all municipalities use and a property growth factor. These two numbers are added to calculate an overall “growth factor”.
Step 3 shows you how to calculate a property growth factor. Property growth is “new value”. Basically, you are looking at the new construction and other new value that occurred between the valuation dates of April 1, 2004 and April 1, 2005. A quick way of doing this is to subtract the 4-1-04 municipal value from the 4-1-05 municipal value. That number becomes you “new value” and is put over your 2005 municipal value as a fraction that gets converted to a percentage. Communities that have factored or done a revaluation and communities with significant amount of personal property should make a more precise determination of “new value” by looking at each property record individually.
Step 4 takes the “core municipal commitment” and multiplies it by “1 + the growth factor” (see Step 2). For most communities, this will be the “property tax levy limit”. However, you will need to determine whether or not you have received “net new funding” from the state, first.
Step 5 is the calculation of “net new funding”. Simply put, you are adding the three types of state funding (shown in chart) for 2004 and multiplying that total by “1 + the growth factor” and then comparing that number to the actual 2005 funding for those same programs. If the 2005 number is greater that the 2004 adjusted number, then you have “net new funding”; if it is equal to or less than the 2005 number, then the number in Step 4 becomes your “property tax levy limit”.
Step 6 is for those communities that had “net new funding”. In this step, you subtract your “net new funding” from the preliminary “property tax levy limit” established in Step 4.
The final “property tax levy limit” becomes the guideline for the 2006 municipal budget. Again, you are only looking at the part of the 2006 municipal budget that is financed with property tax dollars. Excise tax and surplus revenues and any other non-property tax revenues appropriated for the municipal side of the budget are not included in the LD 1 municipal spending limitation.
If you determine that your municipal budget is not going to stay within the “property tax levy limit”, you will need to have a specially worded article on the town meeting warrant that allows you to override the limit. That article is to be voted on by the written (paper) balloting process.
A sample wording of the article to increase the “property tax levy limit” is as follows:
Article X. To see if the town will vote to [or “Shall the town…” for a referendum question] increase the property tax levy limit of $_________ established for (name of town) by State law in the event that the municipal budget approved under the following articles will result in a tax commitment that is greater than that property tax levy limit.
The sample article assumes the selectmen are recommending appropriations that put the town over the limit. If you have a selectmen’s budget that is under the levy limit but open-ended articles that can be increased by the town meeting, you may want to have the article at the end of the warrant (in case the town meeting goes over the limit). In which case, you would change the words “following articles” in the sample article to “preceding articles”.
If you have questions regarding the spending limit calculation, contact Michael Starn ( email@example.com) or Geoff Herman ( firstname.lastname@example.org) at MMA, 1-800-452-8786.
NOTE: Municipalities that operate on a July-June fiscal year will be doing their second spending limit calculation in 2006. Remember, the 2005 "property tax levy limit" is the base to which you apply the 2006 "growth limitation factor ".