With inflation measuring near zero, tax cap space will be limited next year

LACONIA — As preparation of the 2016-2017 municipal budget gets underway, City Manager Scott Myers has directed department heads not to increase operating expenses in anticipation that rising personnel costs will exhaust the increase in the amount to be raised by property taxes permitted by the city's property tax cap.

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.

In 2014 the CPI-U was 1.6 percent, which enabled property tax revenue to rise by $640,036 without breaching the cap. The value of new construction was $29 million, which represented additional property tax revenue of $649,600. Altogether the tax cap enabled the amount raised by property taxes to increase by $1.3 million, which was divided between the city, school district and county according to their respective, traditional shares of the total property tax commitment.

But, this year, for the first time since the tax cap was introduced in 2006, the CPI-U is projected to be at or near zero. In other words, the only increase in the amount to be raised by property taxes will be that represented by the value of new construction. Between April 1 and September 30, the value of new construction was $24.9 million and Myers expects that by March 31, 2016 it will reach the $29 million recorded in the last tax year.

The 2015 property tax rate remains to be set, but at the projected rate of $22.58 per $1,000 of assessed value, new construction would represent an increase of about $655,000 in the total amount raised by property taxes — less than half the increase of a year ago— with approximately $252 allotted to the city, $362,000 to the school district and $41,000 to the county.

Myers said that he does not expect any significant increases in revenue from sources other than property taxes that would mitigate the effect of the tax cap. He projected the return from motor vehicle registrations, the single largest source of revenue, to increase this year by $150,000, from $2,175,000 to $2,325,000, but through September receipts are only $2,323 ahead of the pace set last year. Nor does Myers anticipate any major increase in revenue from the state in the form of highway block grants or rooms and meals tax distribution.

Meanwhile, Myers said that a cost-of-living adjustment (COLA) of 2.5-percent, awarded by the collective bargaining agreements negotiated with the four unions representing municipal employees, will add some $250,000 to the city payroll, which approaches $10 million. In addition, some employees will be eligible for step increases and rising wages will trigger increases Social Security payments and retirement contributions. Finally, Myers expects the employer's share of health insurance premiums to increase.