10 years of the tax cap

04-28 income tax art

Low inflation weighs on Laconia’s effort to keep taxes down


LACONIA — During the past 12 years, the city has worn the property tax cap as if a school boy wore the same suit from the day he entered first grade until he received his diploma at graduation, as city managers and city councilors have tailored successive budgets to the fit the limits of the cap amid changing circumstances just as a seamstress alters a suit to fit a growing boy.

Since the tax cap was introduced with the 2007 budget, changes in both economic conditions and public policy have have added to the pressures and volatility of its application. The advent of the recession and waning of inflation reduced the value of the two multipliers for calculating the annual increase in the tax commitment. At the same time, the state has reduced or withheld aid to municipalities and school districts while transferring costs to them. Together, these factors have weighed heavily on budgeting within the limits of the tax cap.

Voters adopted the tax cap by referendum in 2005 and it has applied to the municipal budgets since fiscal year 2007. The tax cap limits the annual increase in total expenditures funded by property taxes to the rate of inflation, measured by the Consumer Price Index — Urban (CPI-U), for the prior calendar year, plus an additional amount representing the value of new construction, which is calculated by multiplying the value of building permits less the value of demolition permits issued between April 1 and March 31 by the prior year's property tax rate. The total incremental increase permitted by the cap is divided between the budgets of the city and school district.

In other words, the cap applies two factors, both beyond the control of the city, to limit the increase in the amount raised by property taxes from one year to the next. The amount raised by property taxes, or tax commitment, includes the dollars raised by the local city and school tax rates as well as those raised by the state education property tax and the county property tax. Property taxes represent approximately 73 percent of all the revenue that funds the municipal budget.

The balance consists of revenues accruing to both the city and the school district. Licenses and permits, along with other charges and fees, account for most city revenues, with motor vehicle registration fees representing the lion's share. Both the city and particularly the school district receive aid from the state.

Apart from 2009, when the CPI-U fell to zero, both the rate of inflation and value of construction were relatively strong in the first four years of budgeting to the tax cap. The CPI-U ranged between 2.8 percent and 3.8 percent and the value of construction topped $25 million. The tax commitment rose $1.8 million in 2007, $1.5 in 2008, $1.5 million in 2009 and $1,6 million in 2010, which reprint increases of 5.6 percent, 4.5 percent, 4.2 percent and 4.5 percent.

But, in 2011, following another year without inflation and construction values tumbling to $15 million, the cap allowed the tax commitment to increase by a mere $270,000 and the tax commitment shrunk by $121,267. Since the onset of the deflationary economic environment, marked by low inflation and interest rates, the CPI-U has topped three percent just once and has been less than two percent for five of the past seven years. At the same time, only twice in this period has the value of construction exceeded $20 million, reaching $29 million and $32 in 2016 and 2017.

With the reduction in the multipliers, the incremental increase in the amount raised by taxes permitted by the cap shrank to $429,926 in 2012, $571,638 in 2013, $800,634 in $827,048 in 2014, $1,157,846 in in 2016 and $751,572 in 2017.

The recession also affected revenues from sources other than property taxes. Fees from motor vehicle registrations, which typically returned $2.2 million or more a year began falling in 2009, dipped to $1.9 million in 2010 and 2011 before returning to prior levels in 2015. Low interest rates shrank returns on municipal investments from around $300,000 a year to less than $100,000.

Meanwhile, in 2009 the state eliminated revenue sharing with cities and towns, which the years before amounted to the more than $600,000 in annual revenue to the city. The same year also adjusted the formula for distributing a share of annual increase in the Rooms and Meals Tax to municipalities, freezing the total funds disbursed by population. As a result although the city has continued to receive between $700,000 and $800,000 a year, since returns from the tax have risen, it has foregone revenue it would have received had the formula not been changed.

Apart from reducing payments to municipalities, the state has also transferred costs to them, which can only be defrayed by property taxes. In particular, after contributing 35 percent of the employer contribution to the New Hampshire Retirement System for the pensions of school teachers, firefighters and police officers since 1977, the state trimmed its share to 30 percent in 2010, 25 percent in 2011, 3.5 million in 2012 and the next year eliminated it altogether. In the 2018 city budget, the increased contribution to the retirement system represented more than half the incremental increase in the tax commitment allowed by the tax cap.

The impact of deflationary economic conditions and austere fiscal policy on the mechanics of the tax cap is reflected in the slowing rates of increase in the tax commitment. In the first four years after the cap was introduced, from 2007 to 2010, the amount to be raised by property taxes increased by between $1.4 million and $1.8 million or by between 5.6 and 4.5 percent a year. Since then annual increases have not exceeded $827,000 and percentage increases have not exceed 2.8 percent and in 2011 decreased by 0.3 percent.
If rising costs, especially health insurance and retirement contributions, cannot be met within the limits of the cap, priorities must be reshuffled or expenses cut.

Despite these fiscal challenges, the city has made significant investments, including construction of a new middle school, major improvements at the high school, improvement and expansion of the central fire station, reconstruction of the main street bridge, increased spending on street repairs, extension of the downtown river walk and a number of the projects.

Nevertheless, critics of the tax cap contend that it subjects the city's fiscal fortunes to forces beyond its control and in the changed economic and fiscal climate, binds the municipal budget process to satisfying a mathematical formula rather than addressing the needs of the community. Although the tax cap can be overridden by a two-thirds majority of the City Council, for the moment it appears to be a political imperative to uphold it. And continue wielding needle and thread to make the suit fit the school boy.

Big toys need super storage

New boat facility plans floated in Gilford, Belmont


GILFORD — A second phase of boat storage on Glendale Place cleared a regulatory hurdle Tuesday, as demand persists across the Lakes Region for places to store boats.
The new indoor boat storage facility will accompany an unrelated but nearby project that aims to allow island residents to store their boats in an open lot, also on Glendale Place.
Toy Box II LLC received a special exception from the Gilford Zoning Board of Adjustment Tuesday to allow indoor boat storage at 49 Glendale Place, a loop road near the Glendale Yacht Club. The applicant already offers storage units on a neighboring lot, with about 17 years of history there, town staff reported. The plan for phase II needed a special exception to allow boat storage in the resort commercial zone. A single driveway will provide access to both sites, according to the proposal.
The proposed indoor boat storage now awaits site plan approval from the Gilford Planning Board, which is scheduled on May 15
A different type of accommodation for boat owners in the Glendale area was granted by the Gilford Planning Board on March 20. Randy Remick, applicant/owner, received unanimous approval to use an undeveloped lot for outdoor boat storage in the winter and car parking in the summer for island property owners and renters.
The property, located at 28 Glendale Place, is a parking lot, once intended to accompany a neighboring parcel where a decade ago the town permitted a restaurant in the old Glendale fire station.
"Probably 10 years ago that building and this vacant lot next to it were approved primarily as a restaurant," said town planner John Ayer.
Parking is an allowed use, but boat storage is a special exception already granted by the Zoning Board of Adjustment, according to the applicant. The parking area will be gravel with 24 spaces, with a paved entrance, and marketed primarily to island property owners or renters. The applicant plans to install plastic bumpers with numbers on them so everyone will be assigned a parking space.
The applicant said he hopes to alleviate parking in the town's Glendale parking area.
The Gilford Planning Board discussed whether the town should require car and boat trailer parking but limit storage of boats, but the board decided that the owner would find no economic incentive to store boats there in the summer. The application was approved unanimously.
Elsewhere, boat storage has remained a popular development. Contractors are poised to build an outdoor boat storage yard for Irwin Marine on the Laconia-Gilford town line. Those plans face planning board review in both Gilford and Laconia and state review for wetlands mitigation. The proposed site plan calls for expanding Irwin Marine's boat storage yard onto 242,394 square feet, or more than five acres.
In Belmont, two applicants received approval in recent weeks for storage facilities, both of which will accommodate boats, according to Elaine Murphy, land use administrative assistant in Belmont.
Both asked for manager's apartments as part of the developments and required zoning board approval this week.
Vault Motor Storage on Higgins Drive applied for a variance to add a single-family dwelling in the industrial zone, clearing the way for a manager's apartment for the proposed storage facility. Northland Group LLC, with property located across from the Belknap Mall on Route 3, sought a special exception to add a single-family dwelling in the commercial zone, also for a manager's apartment for the self-storage facility.
Vault would offer "high-end boat storage," and Northland would provide outdoor space for boats, Murphy said.
Vault Motor Storage LLC earlier this year announced its plans to build on a model of state-of-the-art construction and technology with a nearly 200,000-square-foot storage facility on Higgins Drive. Charlie Morgan of Vault Motor Storage LLC said the footprint is 89,000 square feet with two floors, allowing storage of RVs and automobiles, high-end automobiles and boats.

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Boat storage has become a booming business along Glendale Place in Gilford. (David Carkhuff/Laconia Daily Sun)

City debates in-law apartment rules


LACONIA — People wishing to create an in-law apartment in their homes would need to seek a city board's approval under a proposed ordinance, even though a new state law is intended to reduce regulations for such construction.

The City Council will consider the issue in a public hearing on May 8.

A state law that goes into effect June 1 allows these so-called "accessory dwelling units" as a matter of right, allowing their construction with a simple building permit.

As an alternative, the law allows a process in which people would need to seek a "special exception" from the local Zoning Board. That's the procedure city staff is recommending for City Council approval.

Mayor Ed Engler questioned that approach at Monday's council meeting.

"What scares me about that is that, in theory anyway, the Zoning Board could say 'No,'" Engler said.

A board, perhaps responding to the sentiment of neighbors, could turn down such a project and put the city in position of rejecting something allowed under state law.

"They could, and we would end up in court," City Manager Scott Myers said.

Engler gave two reasons for keeping the Zoning Board out of the process.

"One, it's an extra layer of bureaucracy for people who want to do this," he said. "And, two, it's nothing that couldn't be handled administratively and right here in this building when they make the application."

The Zoning Board is set up to make judgment calls. Since these projects will be allowed under state law, subject to certain objective criteria, there is no judgment to be made, the mayor said.

Myers favors Zoning Board involvement, saying this would provide an extra check that the project abides by all relevant regulations.

The city is proposing a series of conditions on in-law apartments as allowed under the state law, including that:

• The property owner must occupy either the primary residence or the new unit as a permanent residence.

• The unit shall contain fully self-sufficient living quarters, consisting of adequate sleeping, bathing and eating accommodations.

• The unit shall not be less than 300 square feet and shall not exceed 750 square feet in most cases. It can exceed 750 square feet if its size is no more than 25 percent of the main dwelling.

The new state law grew out of a study by the New Hampshire Center for Public Policy Studies, finding that there is a demand for such housing, as people want smaller homes with a more urban feel. Such units can also offer older people greater opportunities to "age in place" without the need to move to senior housing.