LACONIA — "OK, wonderful news," Mayor Ed Engler remarked wryly after City Manager Scott Myers told the City Council this week that the annual increase in the city's share of the cost health insurance for its employees is projected not to exceed 12 percent, a figure that would add more than $300,000 to the 2016-2017 municipal budget, which is already outrunning the limits of the 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.
This year, for the first time since the tax cap was first applied 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 Dec. 31, the first three quarters of the tax year, the net increase in the value of new construction was $28.5 million, $4 million ahead of the pace last year, which closed with $29 million worth of new construction.
Myers expects the value of new construction to end the year on March 31 to be about $31 million, which at the 2015 tax rate of $22.20 per $1,000 of assessed value would represent an increase of $688,200 in the amount to be raised by property taxes to be shared between the city, school district and county. That would amount to slightly more than half of the $1,289,636 increase of a year ago.
Moreover, on the initiative of Councilor Lipman (Ward 3), who chairs the Finance Committee, the council trimmed the 2015-2016 budget by approximately $200,000, sharing the cuts evenly between the city and the school district. Together with raising the assessed valuation by $5 million, the cuts were intended to reduce the projected 36-cent increase in the 2016 tax rate by about 17 cents. As it happened, because the assessed valuation rose by $34 million, from $1.849 billion to $1.883 billion, the tax rate did not increase at all, but instead decreased by 20 cents, from $22.40 to $22.20 per $1,000 of property value.
More importantly, the $200,000 reduction in the current budget will carry forward to the 2016-2017 budget. In other words, by choosing to spend less than the tax cap allowed this year, an equal amount will be foregone when budgeting for next year.
In October, Myers 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 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.
"This is significant," Myers told the council of the "not to exceed 12 percent" increase in health insurance costs. He anticipated that the increase would be closer to 10 percent when the New Hampshire Interlocal Trust sets the final rate in the spring, but added that would represent an increase of some $300,000. The health insurance stabilization account, which can be drawn on to offset unforeseen spikes in costs, has a balance of $170,581.
Myers said yesterday that departments have submitted their budget requests and the personnel department has begun projecting the increases in payroll. "This is going to be a challenge," he said.