PROPERTY TAXATION

Tax Levy Computation

The principal revenue source of the City is the tax on real and personal property. The amount to be levied in each year is the amount appropriated or required by law to be raised for municipal expenditures less estimated receipts from other sources and less appropriations voted from funds on hand. As to the mandatory inclusion of debt service and final judgments, see "Source of Payment and Remedies," above.

The estimated receipts for a fiscal year from sources other than the property tax may not exceed the actual receipts during the preceding fiscal year from the same sources unless approved by the State Commissioner of Revenue. Excepting special funds, the use of which is otherwise provided for by law, the deduction for appropriations voted from funds on hand for a fiscal year cannot exceed "free cash" as of the beginning of the prior fiscal year as certified by the State Director of Accounts plus up to nine months' collections and receipts on account of earlier years' taxes after that date. Subject to certain adjustments, free cash is surplus revenue less uncollected overdue property taxes from earlier years.

The following table illustrates the manner in which the tax levy was determined for the shown fiscal years.

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(1) Legislation was enacted in 1991 to help municipalities compensate for local aid reductions by the Commonwealth for fiscal year 1992. Under the law, municipalities were allowed to defer budgeting for teacher's summer compensation payable by the end of the fiscal years 1992 and 1993. Municipalities that chose to defer such amounts are required to amortize the resulting budget deficiency by raising at least one fifteenth of the deferred amount in each of the fiscal years 1997 through 2011, or in accordance with a more rapid amortization schedule. The City of Revere used the deferral for fiscal 1993 only, and it amortized $83,350 of the fiscal 1993 deferral in fiscal 1994 and $119,136 in fiscal 1995. There was no amortization in fiscal 1996. $53,333 was amortized in fiscal 1997, and this is the minimum reduction required in every subsequent year until fully paid.

(2) Reflects temporary borrowing costs for the Garfield School project which were subsequently approved for state reimbursement.

(3) Amount raised to eliminate a $208,000 uncollectable receivable for a Community Development project in the late 1980's and $500,000 to eliminate an employee health care deduction deficit.

Assessed Valuations and Tax Levies

Prior to a 1978 amendment of the Massachusetts Constitution, a single tax rate applied for each fiscal year to the assessed value of all of the taxable real and personal property in a city or town. The rate was equal to the amount to be raised in the city or town divided by the total assessed valuation as of the prior January 1. Assessed valuation was required to be based on 100 per cent of fair cash value.

The 1978 amendment authorized the legislature to classify property for the purposes of taxation according to its use. The legislature has in substance created three classes of taxable property: (1) residential real property, (2) open space land, and (3) all other (commercial, industrial and personal property). Within limits, cities and towns are given the option of determining the share of the annual levy to be borne by each of the three categories. The share to be borne by residential real property must be at least 50 percent of its share of the total taxable valuation. The effective rate for open space must be at least 75 percent of the effective rate for residential real property. The share of commercial, industrial and personal property must not exceed 175 percent of their share of the total valuation. A city or town may also exempt up to 20 percent of the valuation of residential real property (where used as the taxpayer's principal residence). Property may not be classified in a city or town until the State Commissioner of Revenue certifies that all property in the city or town has been assessed at its fair cash value. Such certification must take place every three years.

Related statutes provide that certain forest land (which is to be valued at not exceeding $10 per acre), agricultural or horticultural land (assessed at the value it has for these purposes) and recreational land (assessed on the basis of its use at a maximum of 25 per cent of its fair cash value) are all to be taxed at the rate applicable to commercial property.

A professional revaluation of all property in the City to full and fair value in compliance with Massachusetts law was completed in fiscal years 1987, 1990, 1993 and 1996. (See "Property Tax Limitation").

The City has used multiple tax rates under classification since fiscal 1983 when it revalued all real and personal property in the City to full value.

The following table sets forth the trend in the City's assessed valuations, tax levies, and tax levies per capita.

(1) Valuations are equalized by the State Commissioner of Revenue for purposes of distributions to and assessments upon municipalities. The equalized valuations used here are as follows: for fiscal year 1997, equalized valuation as of January 1, 1996; for fiscal years 1996 and 1995, equalized valuation as of January 1, 1994; and for fiscal years 1994 and 1993, equalized valuation as of January 1, 1992.

Tax Rates per $1000 Valuation (Classified)

(1) Revaluation years.

Largest Taxpayers

In fiscal 1997, the ten largest taxpayers in the City aggregated $97,077,400 or 6.1% of the total 1997 assessed valuation of $1,595,541,420. The following is a list of the ten largest taxpayers in the City based upon assessed valuations for fiscal 1997.

Source: Board of Assessors.

State Equalized Valuation

In order to determine appropriate relative values for the purposes of certain distributions to and assessments upon cities and towns, the Commissioner of Revenue biennially makes his own redetermination of the fair cash value of the taxable property in each municipality as of January 1 of even numbered years. This is known as the "equalized value." The following table sets forth the trend in equalized valuations of the City of Revere.

Source: Massachusetts Department of Revenue.

Local assessed valuations are determined annually as of January 1 and used for the fiscal year beginning on the next July 1. The City completed professional revaluations of all real and personal property to full value for use in fiscal 1984, 1987, 1990, 1993 and 1996 and based on the revaluation amounts, local assessed valuations in said fiscal years are believed to be representative of full and fair cash values of property in the City and the City's local tax rates in said fiscal years are believed to have approximated full value tax rates.

Overlay

The City is authorized to increase each tax levy by an amount approved by the State Commissioner of Revenue as an "overlay" to provide for tax abatements. If abatements are granted in excess of the applicable overlay reserve, the excess is required to be added to the next tax levy. Abatements are granted where exempt real or personal property has been assessed or where taxable real or personal property has been overvalued or disproportionately valued. They may abate real and personal property taxes on broad grounds (including inability to pay) with the approval of the State Commissioner of Revenue. The following table sets forth the amount of the overlay reserve for the current and recent fiscal years and the balance in the respective overlay reserve accounts as of June 30, 1996 for the 1993 through 1996 fiscal years.

(1) Tax levy prior to addition of overlay reserve.

Tax Levies and Collections

Prior to the fiscal year 1992, the taxes for each fiscal year were due in two installments on November 1 (subject to deferral if tax bills are sent out late) and May 1. However, beginning in fiscal 1992 the City instituted quarterly billing of real and personal property taxes, with tax bills payable August 1, November 1, February 1 and May 1 of each fiscal year. Interest accrues on delinquent taxes currently at the rate of 14 percent per annum. Real property (land and buildings) is subject to a lien for the taxes assessed upon it (subject to any paramount federal lien and subject to bankruptcy and insolvency laws). If the property has not been transferred, an unenforced lien expires on the third October 1 after the fiscal year. If the property has not been transferred by the third October 1, an unenforced lien expires upon a later transfer of the property. Provision is made, however, for continuation of the lien where it could not be enforced because of a legal impediment. The persons against whom real or personal property taxes are assessed are personally liable for the tax (subject to bankruptcy and insolvency laws). In the case of real property, this personal liability is effectively extinguished by sale or taking of the property as described below.

The City has taken several measures to improve its tax collection efforts. In 1991, the newly elected administration changed the City's policies regarding tax collections. The Treasurer was appointed Treasurer and Collector and additional resources were allocated to aggressively collect taxes. The Treasurer and Collector's Office developed a computer software system that has shortened the time necessary to process delinquencies and file liens on property with the Registry of Deeds. To date, the City has petitioned for foreclosure on any and all properties that are delinquent for more than six months. Currently, the top 20 tax delinquents represent 80% of all tax delinquencies.

The following table compares the City's net tax collections with its net (gross tax levy less overlay reserve for abatements) tax levies for the shown fiscal years.

Tax Levies and Collections

(1) Net after deduction of overlay for abatements.

(2) Actual dollar collections. Does not deduct refunds nor included abatements or other non-cash credits.

(3) During fiscal year 1992, new aggressive collection policies were put into effect that have resulted in higher levels of collections in fiscal 1995 and 1996.

(4) Before the end of each fiscal year all delinquent taxes are turned over to tax title. Therefore, further collections are made under Tax Title Redemption's and are no longer categorized by fiscal year.

(5) Fiscal 1997 collections as of April 30, 1997.

Tax Titles and Possessions

Massachusetts law permits a municipality either to sell by public sale (at which the municipality may become the purchaser) or to take real property for nonpayment of taxes. In either case, the property owner can redeem the property by paying the unpaid taxes, with interest and other charges, but if the right to redemption is not exercised within six months (which may be extended an additional year in the case of certain installment payments) it can be foreclosed or taken by the municipality, becoming a "tax possession," which may be held and disposed of in the same manner as other land held for municipal purposes. Uncollectible real property taxes are ordinarily not written off until they become municipal tax titles (either by purchase at the public sale or by taking), at which time the tax is written off in full by reserving the amount of tax and charging surplus. Tax Title is the actual lien on the deed of the property at the Registry of Deeds. The collections of Tax Titles follows different status than delinquent taxes.

In recent years the City has become more aggressive in collecting property taxes through better use of computer systems. (See "Tax Levies and Collections".) The City has placed $5,242,792 (from fiscal years 1989 - 1992) into tax title. As of December 1, 1993, the City has also filed for tax foreclosure on a total of 159 properties. In fiscal 1993, the City received $848,699 in payments for penalties and interest on outstanding taxes (including excise taxes). The City also received $1,987,224 in payment for delinquent property taxes and interest. In fiscal 1994 the City appropriated a total of $50,000 for the collection of delinquent taxes. In fiscal 1995 the City received $1.3 million from Wonderland Greyhound Park, Inc. for delinquent property taxes which were reflected as tax title receivables at June 30, 1994.

During Fiscal Year 1996 the City Collector's and the City's Treasurer's Office reconciled all outstanding receivables within the City Auditor. The result was a reduction of receivables of over $2.5 million at fiscal year end.

Total amount due in Taxes and Tax Title as of February 28, 1997.

Taxation to Meet Deficits

Overlay deficits, i.e., tax abatements (or refunds made) in excess of the overlay included in the tax levy to cover abatements, are required to be added to the next tax levy. It is generally understood that revenue deficits, i.e., those resulting from non-property tax revenues being less than anticipated, are also required to be added to the next tax levy (at least to the extent not covered by surplus revenue). Amounts lawfully expended since the prior tax levy and not included therein are also required to be included in the annual tax levy. The circumstances under which this can arise are limited since municipal departments are generally prohibited from incurring liabilities in excess of appropriations except for major disasters, mandated items, contracts in aid of housing and renewal projects and other long-term contracts. In addition, utilities must be paid at established rates and certain established salaries, e.g., civil service, must legally be paid for work actually performed, whether or not covered by appropriations.

In the opinion of Bond Counsel, cities and towns are authorized to appropriate sums, and thus to levy taxes, to cover deficits arising from other causes, such as "free cash" deficits arising from a failure to collect taxes. This is not generally understood, however, and it has not been the practice to levy taxes to cover free cash deficits. Except to the extent that such deficits have been reduced or eliminated by subsequent collections of uncollected taxes (including sales of tax titles and tax possessions), lapsed appropriations, non-property tax revenues in excess of estimates, other miscellaneous items or funding loans authorized by special act, they remain in existence. See "CITY FINANCES - Free Cash."

Property Tax Limitations

On November 4, 1980, the voters of the Commonwealth approved Chapter 580 of the Acts of 1980, an initiative statute commonly known as "Proposition 2 1/2," that, among other things, generally limits the property taxes that may be assessed in any city or town to not more that 2 1/2 % of the full and fair cash valuation of the real estate and personal property therein. The law (as amended to date) is subject to further amendment or repeal by the Legislature.

The Primary Levy Limit

The law provides that no city or town may levy property taxes in any year in excess of 2 1/2% of the full and fair cash valuation of the taxable real and personal property therein as that valuation is certified or determined by the State Commissioner of Revenue (the "Primary Limit"). The law includes a transition provision for cities and towns whose tax levies exceed the Primary Limit so as to limit any required reduction for any fiscal year to 15% of the total taxes levied in the preceding fiscal year until the city's or town's property taxes equal the Primary Limit.

The Maximum Levy Limit

In addition to the Primary Limit, the law imposes a limit upon the amount by which the annual property tax levy may increase from year to year in any city or town in which the total property tax levy limit is at or below the Primary Limit. The property tax levy limit in any fiscal year may not increase by more than 2 1/2 % of the "Maximum Levy Limit" for the preceding fiscal year, as determined by the Commissioner of Revenue, plus a limited additional amount on account of property added to the tax rolls for the first time and property that has realized certain other increases in assessed valuation (other than as a result of a general revaluation of all property in the city or town). In no event may the total taxes which are subject to the limits be increased to an amount which would cause the total levy to exceed the Primary Limit of 2 1/2% of valuation.

The law provides for several actions affecting the Primary and Maximum Levy Limits that cities and towns may authorize by vote at a regular, special or state election.

(1) Any city or town may, by majority vote, exempt altogether from the Primary and Maximum Levy Limits debt service on all bonds or notes issued prior to November 4, 1980 or debt service on any particular bonds or notes issued or to be issued after that date.

(2) Any city or town may by majority vote, exempt altogether from the Primary and Maximum Levy Limits specified amounts appropriated to be raised in the tax levy of a single fiscal year for certain specified capital outlay expenditures.

(3) Any city or town whose tax levy is below the Primary Limit may, by majority vote, increase for any single fiscal year its allowable annual increase, but in no event may the tax levy as so increased exceed the Primary Limit.

(4) Any city or town which is required to reduce its tax levy because it exceeds the Primary Limit may, by majority vote, limit the reduction to one-half of that otherwise required or, by two-thirds vote, limit the reduction to a lesser amount.

(5) Any city or town may, by majority vote, reduce the amount of taxes that may be levied in a fiscal year.

The law also provides limits on the total amount the Commonwealth, a county, district, public authority or other governmental entity (other than regional school, regional water and regional sewerage districts) may assess upon cities and towns for any fiscal year to 102 1/2% of the amount assessed upon cities and towns for the preceding fiscal year plus any increases in costs, charges or fees for services customarily provided locally or subscribed to at local option. Former statutory provisions for binding arbitration in connection with labor disputes involving police or fire department employees' collective bargaining units and for fiscal autonomy of school committees were repealed, although school committees retain the power to allocate expenditures within the total amount appropriated for school purposes.

The City has been in full compliance with Proposition 2 1/2 since fiscal 1984 following completion of a professional revaluation of all real and personal property in the City to full value.

Levy Limits

The following table sets forth the City's tax levies and levy limits under Proposition 2 1/2 for the shown fiscal years.

Initiative Petitions

Various proposals have been made in recent years for legislative amendments to the Massachusetts Constitution to impose limits on state and local taxes. To be adopted such amendments must be approved by two successive legislatures and then by the voters at a state election.