This Tuesday Belmont, MA, the town where I live, makes a contentious decision: To vote for or against an increase in property taxes. It’s a contested election: I’ve received three flyers in favor and four against, to say nothing of comments online and by folks I meet around the town. I want to work out a good way to think about this kind of choice.
The Mechanics
Belmont is in Massachusetts, and thus, due to previous state-level history, is subject to Proposition 2 and a half, which limits the rate at which the town government can increase property taxes year over year without the consent of the voters. The limit is 2.5%, not adjusted for inflation. Belmont’s expenses have been growing faster than this limit for many years, increasingly constraining the budget, so some change is necessary. The specific point at issue is whether to override the limit, and permit a one-time increase in the tax rate, amounting to $8.4 million in annual revenue for the town. This new rate then becomes the new base from which Proposition 2 and a half counts future increases.
The Contention
Reading the messaging of the two campaigns, for the override and against, they are talking past each other. The “No” campaign stresses the cost, and implies in its messaging that Belmont’s spending is out of control, that the town government is incompetent or corrupt, and that passing the override is just rewarding wasteful spending with more money.
Conversely, the “Yes” campaign stresses the things the override money will buy, or the losses its absence is projected to inflict: Laying off schoolteachers, possibly closing a whole elementary school, cuts to school extracurriculars, fewer firefighters, pushing the cost of trash pickup directly onto residents, and loss of access to the regional library network due to insufficient library funding. Implicit in this messaging: the town government consists of dedicated civil servants spending the town’s limited resources as best they can, presenting the voters with the stark consequences of their action or inaction.
Yet neither campaign seems to be trying to address the essential disagreement: is the town government a trustworthy steward of public funds or is it not?
Is Belmont Government a Good Value?
The question of the town’s efficiency isn’t obvious. The budget for Fiscal Year 2022 (from here)1 was $139 million dollars of revenue and $134.5 million dollars of spending, which are staggering numbers. Do you know what you can buy for $134.5 million dollars? Me neither.
As of the 2020 US Census, Belmont’s population was 27,295, with an estimated (by some random website) annual growth rate of 1.53%. That gives us more human numbers: In 2022, Belmont spent ($134.5 million) / (27,295 * 1.0153 * 1.0153) = $4,780 per person on town services. But what do those lucky enough to live in Belmont get for that money?
Looking deeper into the budget, we see the biggest subcategory is $56.4 million = $2004 per person for education, dominated by Belmont’s public schools. Belmont’s public schools are off the charts for educational attainment, serving 4,356 enrolled students in 2022, for a cost per student of $12,948. But is that a high budget or a low? Well, private school tuitions run $20,000 per year or more, so that’s one datum; and we can compare Belmont to nearby towns: Arlington, Lexington, Watertown, and Waltham.2
| Town | Pop. | Students | School budget (millions) | Per resident | Per student |
|---|---|---|---|---|---|
| Arlington | 46,837 | 5,866 | $ 80.1 | $1710 | $13,654 |
| Belmont | 28,137 | 4,356 | $ 56.4 | $2004 | $12,948 |
| Lexington | 35,370 | 6,790 | $123.8 | $3500 | $18,233 |
| Waltham | 64,217 | 5,496 | $ 93.4 | $1454 | $16,994 |
| Watertown | 35,018 | 2,571 | $ 52.8 | $1508 | $20,537 |
Two things jump out at me from this data:
- First, per student, Belmont’s public schools are very efficient. Belmont spends the least of the peer towns per student, and yet achieves superb results, second only to Lexington, which has the highest-achieving public schools in the entire country.
- But second, per resident, Belmont’s public schools are actually the second most expensive, again behind only Lexington.
So on one hand, public school funding in Belmont is a good value—relatively little money produces good outcomes. On the other hand, Belmont is very enrollment-heavy—far more public school students per resident than nearby towns (again, except Lexington). So it seems like people with school-age kids are moving to Belmont (and Lexington), and I could see how that would frustrate long-time residents who are facing rising property taxes even though their own kids have graduated long ago.
What about other town services? Unfortunately, it’s harder to do a clear comparison, because the different towns break their budgets down differently. That said, my gestalt sense from looking over neighboring towns’ budgets is that Belmont is not an outlier—I don’t see a clear case that Belmont government wastes money, at least not compared to how things are in Belmont’s neighbor towns. And if we add the supposition that the school district is broadly similar in efficiency to the rest of the town government, then I think it’s safe to conclude that yes, Belmont town services are a good value.
At least, I haven’t seen any evidence to the contrary presented by the “No” campaign.
Should we Buy?
Even if something is a good value, that doesn’t mean everyone has to buy it. I feel like the substance of the “Yes” campaign’s messaging is that, indeed, we should. I actually think that this question is not very amenable to a general analysis, but rather, this is what elections and referenda are for: ask everyone who lives in Belmont whether they prefer to live in a town that funds its schools and public services adequately or tries very hard to reduce costs, and whether they are willing to pay for that funding through property taxes, or would prefer to keep the money for themselves.
The exact extent and severity of service cuts is a point where I think the “Yes” campaign is being a bit alarmist. They discuss a particular plan brought forward by the town’s select committee; but that is just a plan, that will play out over multiple years, and things change. The town government will do its best with the resources they have; Belmont may be able to obtain additional state aid; Belmont voters may pass a different override before the most severe cuts materialize; Belmont may be rescued by a magnanimous benefactor.
Nonetheless, barring a stroke of good fortune, some cuts somewhere will be real. And, as far as I can tell, Belmont is spending its tax money effectively—it doesn’t seem like residents could buy the same things for themselves by keeping the funds away from the town government. So the choice really is between more services or less. And, of course, a town with good town services is a town where people want to live, which attracts buyers and raises the home values of the very people who are considering an increase in their property taxes.
Which brings me to the next point that has shown in up in this debate in Belmont.
Can we Pay?
One theme the “No” campaign has harped on is the bind that Belmont’s fiscal situation places on seniors and residents on a fixed income. The prototypical exemplar has lived in Belmont their whole life, doesn’t have a large pool of savings outside the value of their home, and is being pushed out by a double whammy of a rising property tax rate, joined with a rising assessed value for their home, which leads to a property tax bill that skyrockets year after year. On top of financial strain due to our recent Covid-induced bout of general inflation.
The cruel capitalist says “Your house is too expensive for you to afford? Sell, move somewhere cheaper, and pocket the difference!” But that’s not really a nice message to send to people who have chosen to retire in Belmont, where they presumably have long-term connections, a home, a sense of community. Facing a choice like that, such a person would reasonably be angry, and would reasonably want to vote against any further town taxes that are driving them to this bind. And, no longer having to work, they have the time to form political opinions, and to express them by voting.
But wait a minute. How are we in a situation where people want to vote against increasing the value of an asset that they own? What? So this objection isn’t really about having enough wealth at all, it’s about liquidity. Our prototypical senior (or senoir couple) is facing $10,000 per year in property taxes on a $1 million house they own outright. They’re not poor, precisely, but if they don’t have the money to pay the tax bill, they could be in real trouble, because the bulk of their wealth is tied up in that house. And getting that wealth out means either selling the house, and being forced through a disruptive move whose result is to leave their friends and community, or going through the hassle and humiliation of taking out a home equity loan or a second mortgage. Just to pay property taxes on a house that’s already theirs.
This is where a little socio-financial engineering might come to the rescue. Imagine yourself in this position, and imagine that you’ve read and believed what I’ve said so far. So you’d really like your public schools to have a band (and maybe you have grandkids or grand-nieces or -nephews that might even play in it). And you’d definitely like the town’s fire department to be well staffed and well equipped. But you just can’t afford your rising taxes. Even though you know, somewhere in the back of your mind, that paying for these things now raises the value of your house, and it’s money that will either come back to you if you do decide to sell during your lifetime, or at least will come back to your children when they sell after you’ve passed on.
But what if this just wasn’t a problem? What if paying your property taxes now were just optional? You get a tax bill, it says “Here’s what the town government has assessed for this year,” and there’s a check-box there labeled “Defer”. Simple as that—you just decide, every year, how much you’d like to (or can afford to) chip in to the town budget now, and the town gives you an automatic, at-cost loan for the rest. Maybe something like 2–3% annual interest, whatever it costs the town to finance the unpaid taxes. No fuss, no hassle, no stigma, no late fees, no collections, this is just the way it’s done, everybody eligible defers their property taxes if they feel like it.
Too good to be true? Well, the town will collect eventually—when the house changes ownership. What if, every time a house is sold in Belmont, part of the seller’s proceeds goes to pay off all previously deferred property taxes. All the real-estate agents know about it, it’s not something unusual or bothersome for the buyers, it’s just the way things are done here. House sells for $960,000, real-estate agent takes their fee, bank takes their mortgage close-out if there is a mortgage, title transfer, attorneys’ fees, and the town takes their deferred property taxes. No big deal.
And if the house isn’t sold but inherited, and the heirs decide to keep it, they have some polite interval in which they have to settle the deferred taxes. Maybe they just come due at the next tax date, or maybe there’s some pay-down plan that spreads the liability over several years, but in any case, the town gets its due without having to wait another generation. Again, no fuss, no stigma, no approvals processes, no humiliating means-testing—if the town has assessed the land+building as worth $800,000, then surely they can float a loan of $10,000 secured by that building without checking anything else.
If that was how things were done in Belmont, would the override vote be quite so contentious, I wonder? Would anyone be quite so upset about $704 dollars per year of additional taxes on a $1 million house, if they could just defer the excess, and have their heirs pay it off from the increased value of that same house when eventually settling the estate?
Details
Obviously a property tax deferral scheme like this has a bunch of details that would need to be worked out. First, who’s eligible? Belmont has to collect their property taxes sooner or later, so we can’t have them float intergenerationally forever. Perhaps the legal age of eligibility for Social Security benefits makes a good cutoff? If you’re under 67, you’re on the hook for your full property taxes every year, sorry. But if you’re over, it’s defer at will.
Second, how much of the operating budget can Belmont afford to make optional like this? The obvious way to handle it is to get a line of credit from a bank: the town passes this tax regime as a bylaw, and then, every year, the town just borrows the amount that people defer, and pays down that debt as catch-up payments come in. Which they inevitably must, since the real estate itself isn’t going anywhere. Ideally, Belmont’s total debt on the credit line at any moment would exactly equal Belmont’s total deferred property taxes owed.
Part of what will be needed for this scheme to work is for the town to get that credit line on good terms, and then not try to make a profit by charging deferring taxpayers excess interest (maybe just a little more to cover the cost of administering the program, but that’s it). The point is that this has to not feel usurious or exploitative to the people eligible to take advantage of it—just the town passing on their own costs, as transparent and fair as can be. How much might of Belmont’s total revenue might people defer? 10%? Can Belmont ink a bank deal where the town gets to just decide to borrow around $10 million any given year, depending on the whims of its taxpayers? What kind of interest will the bank need to charge Belmont for this? It’s important for Belmont to know the interest rate in advance, so the town can be transparent with taxpayers about how much they, in turn, will have to incur in interest if they do choose to defer their taxes.
Third, the total deferred tax liability for a house does need to stay well under that house’s available equity, so that Belmont (or, heaven forfend, Belmont’s bank) is not put into the position of having to seize the house. Partly that can be achieved by limiting the amount of tax that can be deferred, if needed. In an extreme case, consider someone living to 107, having deferred all property taxes starting at 67. Belmont’s current tax rate is 1.057%. Assuming it stays that way, and the house doesn’t change value, and Belmont charges 3% interest per year, the deferred taxes will add up to, um, (goes off and writes a short program to compute the answer) 79.7% of the value of that person’s house by the time they pass away at age 107.
80% is a lot, but it’s not completely out of the question even as it stands. If the house loses 30%-ish of its value near the end of this hypothetical tax-payer’s life, then they could actually be underwater, which wouldn’t be great. But we can fiddle with the rules for this system to prevent this kind of scenario from being a problem. One candidate hack would be to just limit the amount of property taxes that can be deferred. Remember, the goal is to make seniors feel like they can afford to let the town make long-term fiscal decisions, so how about requiring them to pay only as much property tax as was due the year they turned 67, and letting them defer the rest? Then your property taxes due right away don’t suddenly drop to zero when you turn 67, but just stay at the level they were before you became eligible for the deferment program. That’s presumably not too hard to plan for. And then Belmont doesn’t have to finance anywhere near so large a volume of deferrals, especially not right away; and the risk of a house going underwater due to long-standing deferrals is much less.
The one other thing about not going underwater is to make sure that deferred taxes due don’t overlap unfavorably with other loans secured by the house. Part of the point of this exercise is that tax deferrals have the force of law, and are therefore senior to other leins that may be present on the property. For new loans that’s not too big of a problem; Belmont just needs to advertise this program to banks that do business with Belmont residents, and make sure that said banks are aware of any existing tax deferrals and can adjust their loan-to-value calculations accordingly. Future deferrals are a little trickier: what should happen if someone takes out a second mortgage when they’re 63, and then starts deferring their property taxes on the same house when they turn 67? Could the total of mortgage and deferred taxes put them underwater? Will banks refuse to lend to Belmont residents, fearing the potential seniority of the town’s potential future claim? I’m not enough of a financier to invent a solution for this problem on the spot, but surely one exists. Maybe Belmont can maintain a database of residents’ outstanding mortgages and only offer property tax deferments to people with enough home equity that their obligations to Belmont will not end up conflicting with their obligations to their lender. I don’t know.
In any case, I hope Belmont’s leaders will consider an automatic property tax deferral scheme like this, because I think it addresses a real liquidity need for Belmont’s seniors. And perhaps it may help those same seniors take a longer view toward investing in the town, knowing that they won’t be on the hook for those costs until the investment has had time to bear fruit.
Conclusion
So, where are we? It seems that a decision like the Belmont override boils down to three questions:
- Are Belmont property taxes a good value for what they buy?
- Do we want more of that?
- Can we pay for it?
When it comes to Belmont schools, the answer to the first of these questions is a clear “yes”; and given that record, and my brief inspection of budgets for Belmont and neighboring towns, I am willing to argue that the rest of the town budget should get the benefit of the doubt until clear evidence is adduced to the contrary.
The second question I think is essentially personal, but based on the answer to the first, the cuts put forward as consequences of failing to pass the override should be taken seriously. Of course, the particular plan discussed by the “Yes” campaign is just a plan, and things change, and the town government will do its best with the resources they have; but I think the basic tradeoff of taxes for services is real.
And to the third question, I think the answer is also “yes”. But, to make that more clearly true for everyone, Belmont may want to implement a deferred taxation plan, so that residents can put their home equity into investing in the town’s future instead of having to come up with cash they may not have.
Notes
Why 2022? Because that’s the latest year for which actual revenues and expenditures have been compiled, as of the FY2024 budget.↩
I’m not including Cambridge because, while a neighbor, it’s pretty different in character from Belmont, and I didn’t figure out how to get a comparable number from their budget documents.↩