WINCHESTER — Residential and commercial property values increased so much in Winchester’s recent reassessments that the city could lower its real estate tax rate by 19 cents in fiscal year 2024 and still collect as much tax revenue as it is during the current fiscal year.
That’s according to City Manager Dan Hoffman, who held initial discussions Tuesday with City Council’s Finance Committee regarding Winchester’s proposed real estate tax rate for FY24, which begins July 1.
The rate for fiscal year 2023, which ends June 30, is 93 cents per each $100 of a property’s assessed value. Because of the recent spike in real estate valuations, the revenue-neutral rate for FY24 — the rate that would bring in the exact same amount of tax revenues as FY23 — would be 74 cents per $100.
To illustrate how property owners would pay more in real estate taxes in FY24 if the city’s tax rate remains 93 cents, we’ll use the example of a house that last year was valued at $300,000. In the recent reassessments, Winchester properties increased in value by an average of 30%. That means the $300,000 home from last year is now valued at $390,000. Based on the 93-cent rate, last year’s real estate tax bill for that house would have been $2,790, but this year’s would be $3,627.
Hoffman said the city’s projected revenues for FY24 from all sources — taxes, fees, state and federal funding, etc. — are the highest in Winchester’s history. However, with a local inflation rate of 6½%, expenditures are also at an all-time high, so he is not proposing any tax cuts at this time because the extra money will be needed to maintain government operations.
“That 6½% has hit us on everything from materials to fuel,” he said. “If you look at just the things that we absolutely have to do — continue to fuel police cars, continue to patch sidewalks and paint roads, [buy] chemicals for the pools in Jim Barnett Park — all of those things … start to add up very quickly.”
On Tuesday, he presented the Finance Committee with three FY24 budget options, each of which is based on the 93-cent real estate tax rate.
“The revenue-neutral rate of 74 cents was just not realistic,” Hoffman said.
All three scenarios reflect a marked increase from the city’s current operating budget of $100,675,000. (The FY23 budget approved by City Council last year was for $93,025,000, but adjustments were made over the past several months to account for a series of revenue and expenditure changes.):
- Option 1 is for a $117,295,000 budget, which is an increase of $16,620,000 from the current operating budget. It would incorporate $3,071,500 from the general fund, which is, in effect, a savings account set up by Winchester to cover unexpected costs, revenue shortfalls and so on.
- Option 2 is for a $117,487,000 budget, which is an increase of $16,812,000 from the current operating budget. It would not use any monetary reserves from the general fund.
- Option 3 is for a $118,223,000 budget, which is an increase of $17,548,000 from the current operating budget. It would incorporate $3,271,500 from the general fund.
“Those are your placeholder amounts,” Hoffman told the committee, meaning that City Council can use any of his three options as a starting point for creating a final FY24 budget.
If council picks an option that involves drawing money from the general fund, it shouldn’t cause the city any financial hardships. Winchester Finance Director Celeste Broadstreet told the Finance Committee that city policy requires the amount of money in the general fund to be equal to at least 20% of the current operating budget. At the moment, she said, the fund balance is equal to 24.7% of the FY23 budget of $100,675,000.
The next step in the budget process is to advertise the proposed real estate tax rate for FY24. The advertised rate may not be the final rate, though, because it will be presented to the public as a “not to exceed” rate. In other words, if the city advertises a 93-cent real estate tax rate, City Council will not be allowed to adopt a rate higher than that amount. However, it can adopt a lower rate if it chooses.
Hoffman indicated the inflation-fueled rise in the amount of real estate taxes paid by the city’s home and business owners should be temporary because he anticipates a correction in the real estate market by the time Winchester conducts property reassessments again in two years.
“Most economists are looking at the possibility of a much softer market in the coming years as the feds try to get inflation under control,” he said.
As a result, property values should drop and, correspondingly, real estate tax payments should decrease.
Winchester’s operating budget for FY24 will ultimately be decided by City Council, meaning its members will have to choose between higher real estate taxes to fund local government or lower real estate tax bills that, while beneficial to property owners, would make it a challenge for the city to keep pace with inflation and address its infrastructure and operating needs, according to Hoffman.
“This is going to be a strange budget year,” he said.
According to Winchester’s FY24 budget approval timeline, City Council will initiate discussions regarding Hoffman’s proposed real estate tax rate on Tuesday, which is the same day Winchester Public Schools will present the panel with its funding request for the new fiscal year. On April 25, council will adopt a real estate tax rate and Hoffman will formally present a draft FY24 operating budget to the panel. A public hearing and adoption of the overall city budget will occur on May 23.
Attending Tuesday’s meeting of City Council’s Finance Committee were Chairman David Smith and members Corey Sullivan and Richard Bell.
