Column: The New Greenwich Government and Real Estate
By Mark Pruner
Election Day in Greenwich resulted in some significant changes in the power structure here. The two most significant changes are that the Chair of the Board of Estimate & Taxation (BET) will be a Democrat next year and that over 20 new members were elected to the Representative Town Meeting (RTM). In addition, the new Democratic Selectman is likely to be more assertive based on his public statements.
All in all, the government is likely to look at things differently next year. So, the question is how will this affect real estate in Greenwich? For Greenwich, one of our biggest selling points has been our low tax rates compared to other towns in Connecticut and particularly compared to Westchester County where some tax rates are triple what they are here in Greenwich.
One of the main factors keeping our tax rates low is that we have the largest Grand List in the state. The total assessed value of all the buildings, land and cars here are greater than all of the office buildings and other property in either Stamford or Hartford. The result of having a big Grand List is that we have a lot of property over which we can spread our taxes, so our mill rate is low.
Our low rates help to keep our house values high. Mathematically though when you apply a low rate to a high value you come out with a total property tax bill that is somewhere in the middle. Despite our higher values, our tax bills on comparable houses are still lower than Stamford or Westchester. It’s just that it’s not as low as you might think if you only look at the tax rate for each town.
You might also think that if our town budget increased that our taxes would go up, but that is not necessarily so. We have the ability to issue bonds and get someone else to loan us the money. Unfortunately, in the early part of the last century, Greenwich had a very bad experience with bonding. We got ourselves in a deep financial hole in the last century by bonding too much and then being stuck having to repay the bonds when we had other pressing financial needs.
The result was that Greenwich did what few other towns did and went to a pure pay-as-you-go system. Under this system, instead of borrowing for capital expenditures, such as a new Town Hall, we paid for our capital items out of our current tax income. Now this isn’t quite as difficult as it sounds. Under the pay-as-you-go system a capital budget was created of say $40 million and we spent that each year.
In the world of realpolitik, the pay-as-you-go system has one major problem. Since the number of capital items that can be done each year are strictly limited by the amount of the capital budget, less “popular” items like school furnaces and bridge repairs got pushed off, while new schools and parks got funded. Over many years this neglect led to a big back log of items needing repair or replacement.
To solve this problem, the Board of Estimate and Taxation (BET) came up with the PayGo system, which is a euphemism for short term, generally five-year, bonding. To their credit, they have now caught up on nearly all the deferred maintenance items that were neglected under the pay-as-you-go system and they also created a 15 year plan of future maintenance and replacement items.
Some people thought that the PayGo system was a temporary system to catch up on all of this deferred maintenance, but we are also bonding for today’s capital items like the new school auditorium. (It’s actually more complicated than this, but I have limited space to write.)
For this year, the town budget is $442 million dollars. Of that amount, $337 million comes from property taxes. Our general fund indebtedness is around $220 million and this year we are paying $34 million of debt service. (We also have additional indebtedness for things such as sewer bonds, which are paid for from the tax surcharge for properties in the sewer district.) The nice thing about our traditional, responsible budgeting has been a AAA credit rating.
Now, one way to do more capital projects sooner is to go to longer term bonding, which the State of Connecticut allows to be up to 20 years. We could actually lower the mill rate by bonding for every capital item with 20 years, since we would only have to pay for the interest until the bonds came due in 20 years. For our 5-year bonds we are paying around 2%. Longer term bonds would have a higher interest rate, but we could put off paying the principal for a long time.
Now the problem with longer term bonding is that when the bills finally start coming due, you spend a lot of money repaying debt. You can roll it over, but the town has a debt cap policy that is presently around $240 million. You can always raise the debt cap as the U.S. Congress does, but then you really are soaking future taxpayers for bond repayments and today’s taxpayers will be paying higher interest rates due to longer term bonds higher rates.
Another limiting factor is that there will almost certainly be another major tax increase coming for many Greenwich homeowners in a couple of years due to revaluation. Every five years Greenwich revalues its properties so that each property owner pays their share of the budget based on their share of the Grand List. When one area’s property values go up faster than another part of town, (say Riverside compared to backcountry) they pick up a bigger piece of the overall budget and their taxes can jump 20 – 30% and even more in the year following the revaluation when the new assessments are used to calculate property taxes.
Our next revaluation is scheduled for 2020 and even if the budget only goes up a few percent a year in the revaluation year and for at least the next five years, those homeowners in Riverside, Old Greenwich and central Greenwich will likely see double digit jumps in their property taxes.
So, what is the result of all this? If the BET goes to longer term bonding and raises the debt ceiling, you will see more projects get done now and we could even see property taxes go down temporarily. Taxes would then go up when we had to repay the bonds.
Lower taxes and more amenities could increase the value of our houses. Unfortunately, this effect may well be offset by the changes being proposed in the federal tax bills in the U.S. Congress. The result would be higher interest payments going forward, both from more debt and from the higher interest rates on longer term bonding. Eventually, we might see higher mill rates and much less flexibility on what we could spend our money on as debt service sucks up more of our tax revenues.
the town’s debt ceiling;
the lower interest rates that come with our triple A credit rating;
the BET’s policy of keeping our mill rate increases around 2-3% a year; and
the likelihood of some major increase tax shifts to certain areas of the town
there is limited ability make the kind of changes that would significantly impact property values.
The dangerous thing is that small changes now can add up to big negative impacts in the future. If we see any proposals to change any of these policies, then property values can change.
Mark Pruner is an award-winning real estate agent with Berkshire Hathaway. He can be reached at 203-969-7900 and firstname.lastname@example.org