Tax Cap Would Impede Restoration of Cut Services

While Town Administrator Galen Stearns hasn’t run the numbers yet, he confirmed this week that Derry’s tax cap would affect the restoration of services that might be cut in an effort to trim the tax rate.

At the Town Council’s direction, Stearns has drafted a proposed budget that would cut the tax rate by $2 per $1,000. While he is also exploring other ways to cut expenses, the capstone of Stearns’ first presentation was the reducing of several jobs from full time to part time, plus the elimination of 39 full-time and seven part-time positions.

Stearns said Derry’s tax cap is mandated by its charter. The property tax rate must be equal to the tax rate plus any changes in the New England Regional Consumer Price Index (CPI), and may not go above that.

“Each year the town has to calculate what its maximum tax rate can be according to the CIP,” Stearns said.

Sec. 9.4 of the charter states, “In establishing a municipal budget, the Town Council shall be allowed to assume an estimated property tax rate only in an amount equal to the equalized tax rate established during the prior fiscal year increased by a factor equal to the average change in the Northeast Region Consumer Price Index for All Urban Consumers (CPI-U) as published by the United States Department of Labor Bureau of Labor Statistics for the calendar year immediately preceding budget adoption.”

The applicable Boston-Brockton-Nashua CPI for 2014 averaged out at 1.6 percent. Stearns explained, “That means the town could not increase its tax burden by more than 1.6 percent and could not increase its tax rate by more than 16 cents.”

Stearns emphasized that the Town of Derry is the only Derry entity constrained by the tax cap. The county, school district and state education tax do not have a tax cap, and they’re out of town control.

What does this mean for budget cuts?

Stearns declined to speculate on how long it would take to restore cut positions and services under the tax cap.

“I have not run those numbers,” he said. But he noted, “If we reduced the town budget by 10 percent, we could not increase it the following year by 10 percent. We can only increase it by the amount of the CPI.”

If the CPI increase is 1.5 percent, then, Stearns said, the town can increase its budget by 1.5 percent, but the other 8.5 percent in cuts would have to wait to be restored.