Full-Reval Mill Rate Debated

How low could the mill rate go if the mayor scraps his planned reval phase-in?

36? 32.7? Somewhere in between?

Top city budget officials and committee alders debated that question during the first ​“workshop” on Mayor Justin Elicker’s proposed $633 million budget.

That question and debate loomed over the latest meeting of the Board of Alders Finance Committee. The meeting was held in person Monday night in the Aldermanic Chamber on the second floor of City Hall.

The workshop offered the first opportunity this budget-making season for alders to question top city finance officials about the mayor’s proposed proposed $633 million Fiscal Year 2022 – 23 (FY23) general fund budget, which, if adopted, would go into effect on July 1.

The mayor’s proposed FY23 general fund budget is 4.42 percent larger than the current fiscal year’s, marking an increase of around $26.8 million. Click here to read the mayor’s proposed budget in full.

While City Budget Director Michael Gormany and city Acting Assessor Alex Pullen spent most of their opening presentation Monday night giving a big-picture overview of the proposed budget’s revenues and expenditures, many of the committee alders’ questions focused in on one of the more complicated and consequential parts of the plan.

That is, the mayor has proposed slightly lowering the mill rate from 43.88 to 42.75, or by around 2.58 percent. In tandem with that mill-rate-shave, the mayor has proposed phasing in over the next five fiscal years the 32.6 percent jump in property values resulting from the city’s latest full revaluation.

As the mayor did during a March 1 press conference and at a March 9 virtual town hall, Gormany and Pullen pitched the phase-in plan as a way to cushion the blow of much higher property values hitting local taxpayers all at once.

“A phase-in is allowed by state statute, and allows municipalities to gradually increase [property] values over a period of up to five years,” Pullen said. He said the mayor’s proposed reval-phase-in plan would mean ​“that homeowners will not feel the full brunt of the revaluation increase” all at once.

Pointing to a spiky bar chart showing property-value jumps in Newhallville, Fair Haven, and Chapel West that outpaced the city as a whole, Pullen said, ​“The fact that the reval resulted in some neighborhoods having increases of over 60 and 70 percent while others had more modest increases led the mayor to have a phase-in to make it so that residents did not feel all of this impact in one year.” 

A recent Independent analysis of this plan, meanwhile, points towards luxury developers and megalandlords being two of the biggest winners of such a plan.

Hypothetical Mill Rate #1: 36.00

In their modeling of what tax bills could look like if the city scraps the phase-in and adopts the full new revaluation all at once, Pullen and Gormany used a hypothetical mill rate of 36.00.

For a sample property in Morris Cove that increased in assessed value from $123,340 to $167,370, Pullen said, the current tax bill is $5,412, the tax bill under the hypothetical 36.00 mill rate and the full reval would be $6,025, and the tax bill under the proposed 42.75 mill rate and phased-in reval would be $5,649.

“With the phase-in at the new mill rate, [the tax bill] still goes up, but it doesn’t go up as much,” Pullen said. 

He pointed to three other examples in East Rock, Fair Haven, and Newhallville that showed similar relatively modest increases in tax bills under the phase-in plan.

“In most of these examples, as a result of the phase-in, they’re saving a significant amount of money” in comparison to the full reval and hypothetical 36.00 mill rate, he said.

Pullen’s big picture takeaway on the reval phase-in plan: ​“Everyone pays a little so that some don’t have to pay a lot.”

He said that the median tax bill citywide with the full reval and hypothetical 36.00 mill rate would be $6,182, while the median tax bill with the reval phase-in and the 42.75 mill rate would be $5,414.

What other options did the administration consider when looking at the mill-rate-shave/reval-phase-in plan? Hill Alder and Finance Committee Vice-Chair Ron Hurt asked.

“That is a great question,” Gormany replied. ​“We were looking at all options relating to fully implementing the reval, the impact it would have on residents.”

He repeated that the administration looked at a hypothetical mill rate of 36.00 if new higher property values were adopted all at once. (Click here for a spreadsheet that Pullen shared by email Tuesday that shows how much in property taxes most properties would owe with a 42.75 mill rate and a reval phase-in, and how much they would owe with a 36.00 mill rate and no phase-in.)

“Obviously, there was really no good solution, because properties went up disproportionately across the whole city,” Gormany continued. It’s not like all properties in all parts of town went up by the same percentage. ​“There was going to be some winners and some losers. We were trying to take into consideration what would be the best option citywide.”

Ultimately, they landed on the five-year phase-in plan with the proposed 42.75 mill rate.

“We were really looking at trying to give a break to the taxpayers because the property values went up so disproportionately,” Gormany said. ​“There was really no easy solution to do this. … We really tried to do what’s bet in looking at the neighborhoods, and how much people can afford to pay one year as an increase.”

What phase-in options are allowable by the law? Westville Alder and Finance Committee Chair Adam Marchand asked. Does it have to be in equal increments over five years? Or could the city have done ​“a curved slope and increase,” or over three years instead of five? Could you phase in for some sectors of the grand list but not others? ​“What are the rules?”

“There are specific state guidelines that tell you what you can do in terms of the phase-in,” Pullen replied.

He said the city does have the option to ​“phase it in over a different amount of years not to exceed five, but we did not have the option without getting special state legislation to phase in for one section of town and not the other, or for one property class and not the other.”

If the alders sign off on the reval phase-in for the FY23 budget, Fair Haven Alder Ernie Santiago asked, what might the mill rate look like five years from now?

“I think none of us has a crystal ball,” Gormany replied. He said that the administration will take a look at what the mill rate should be every fiscal year over the course of the phase-in. So just because the mayor has proposed a mill rate of 42.75 for FY23 doesn’t mean that’s the mill rate the mayor will propose for every year of the phase-in.

“In theory, we could lower the mill rate based on how the phase-in is going.”

Hypothetical Mill Rate #2: 32.70

Prospect Hill/Newhallville Alder Steve Winter pressed Gormany and Pullen on how they settled on 36.00 as a hypothetical mill rate if the city full adopted the reval.

“With the budget we received, the city brings in $274 million from real estate and personal property taxes,” Winter pointed out.

But if you were to take the full reval real estate and personal property taxable grand list of $8.3 billion and multiply that by 36.00 mills, he said, that would yield $300 million in revenue, ​“which is well above what’s budgeted.”

“I don’t feel like 36 provides an apples to apples comparison about not phasing in the full reval,” he said. 

He argued that the mill rate could likely go much lower than that, perhaps as far down as 32.70.

“One of the things we look at as we’re preparing the budget are different scenarios, different revenue scenarios, different exemption scenarios, different expenditure scenarios,” Gormany replied.

He said that the hypothetical mill rate of 36.00 takes into account certain of those assumptions if the city were to fully adopt the reval all at once.

“I applaud looking at it in that simplistic manner, which is not totally incorrect,” Gormany said to Winter. But ​“there are various other assumptions that go into” putting together the tax side of the budget.

If the math that leads to a 32.70 mill rate is ​“simplistic or inaccurate,” Winter said, then what are the assumptions that would make a 36.00 mill rate and the full reval an ​“apples-to-apples” comparison to a 42.75 mill rate and the phased-in reval.

“When we do the tax budget, we have to look at how much do we think we’re going to lose in appeals,” Gormany said. ​“That’s different when you’re doing a phase-in that when implementing the full reval.”

He said the full-reval scenario would also likely change certain other revenue assumptions in the mayor’s proposed budget.

In particular, the mayor has proposed allocating $10 million in federal American Rescue Plan Act (ARPA) money to bolster the general fund’s revenue. 

In the full-reval scenario, ​“would we need the full $10 million of ARPA funding, because we’re bringing in more money on the reval?”

Are you saying that the city would lose $25 million due to tax appeals and ​“other factors” in a full-reval scenario? Winter asked. Is that why the city used a hypothetical full-reval mill rate of 36.00 rather than 32.7?

“I think we could certainly look at that,” Gormany said. ​“The 36 mill rate is if we implemented the full reval. I think that’s the mill rate we would be at.” 

In the Independent’s analysis of the mayor’s budget, this reporter used a hypothetical mill rate of 33.59, based off of how much the city would need to collect in real estate tax revenue if the full reval were adopted right away. That hypothetical mill rate takes into consideration the same assumptions the city is using for the mayor’s proposed FY23 budget for appeals, undercollections, and elderly homeowner tax relief applications.

What About A Quicker Phase-In?

What if the city phased-in the reval over two or three years, rather than the mayor’s proposal of five? Winter asked. Would it be possible for the administration to provide numbers for a shorter-term phase-in?

“We can come up with that data,” Pullen said. But that would just relate to the underlying assessments. Calculating an alternative mill rate off of those scenarios would require a whole other set of work.

Gormany said that putting together the mayor’s proposed budget takes around four months. ​“It’s not an easy process. We have to look at high-level budget scenarios and kind of run thoe numbers. It’s not as easy as just saying the mill rate is going to be 35,” or any other hypothetical number.

“There are going to be certain assumptions we’d have to make with a two-year, three-year phase-in that’s going to change the revenue generation and some other factors.”

“I think that would be helpful context for us,” Winter said. ​“I do think this is a large decision that we only make periodically.” He asked the chair of the committee to formally request from the Elicker Administration data on what an ​“intermediate” phase-in could look like.

“I will take that into consideration,” Marchand replied.

The Finance Committee is slated to hold its first public hearing and first set of departmental workshops on the budget on Thursday, March 17 at 6 p.m. at City Hall.