On Thursday, March 25th the Finance Director presented updated figures on the cost of separation at the Selectboard question and answer meeting. This update was necessary because so many of us have had questions about what will happen if the Village of Essex Junction decides to separate from the Town of Essex if merger fails to pass on the April 13th, 2021 revote.
These questions have prompted an update to the figures provided by the Finance Director in September of last year. The original figures can be found here. The updated numbers can be found by watching the Selectboard meeting from March, 25th, 2021. Discussions about the financials start at 1:35:00 on the YouTube timeline.
The correct approach to any decision is to take into account all the ramifications of your actions in order to come up with the best choice. For this reason, we want to be sure that we all understand the potential consequences of a “no” vote on merger. The results are quite clear.
Village taxes will go down and TOV taxes will go up regardless of merger or separation. Status quo is not an option. Separation, if the merger fails, is a unilateral decision the Village makes. Residents living outside of the Village will not get to vote on that choice.
For this reason, let’s take a closer look at the two big takeaways from the figures presented by the Finance Director on separation.
(1) Separation offers the Village greater tax savings than merger. This contradicts arguments that the Village is “threatening” the rest of the Town with separation. There is no need to threaten anyone if you can unilaterally decide to separate and get a better deal than merging. Unfortunately, many of us have been repeatedly told that the Village is not fiscally responsible, that they have voted for “boutique” services and that is why they have such high taxes. Clearly, this is not the case and we all feel very misled by the disinformation that has been circulating for so long. It has done everyone living in the Town a disservice, as it has muddied the waters and prevented people from making sound decisions based on real and credible information.
But now we have an opportunity to get a hold of the facts. One of the first items that we need to grapple with is that the Village’s budget is self-sustaining. A large part of the Village’s tax decrease from separation comes from the fact that they will no longer have to pay for duplicative services which they don’t use.
| Village Tax Change |
Town outside Village Tax Change |
|
| Separation Tax Change | Decrease by 27.74% | Increase by 31.50% |
| Merger Tax Change | Decrease by 22.32% | Increase by 26.50% |
(2) The second key piece of information that those of us living in the town outside of the village need to understand, is that the tax changes that result from separation are so drastic because the Village makes up 42% of the grand list. Put another way, the Village separating from the Town means that the Town of Essex will lose 42% of its tax base. The graph below illustrates the impact of this loss.
As you can see, if the Town of Essex loses 42% of its tax base, this will cause a budget shortfall of $2.69 million dollars for the new Town outside of the Village entity. This number is derived by taking the current property tax revenue for the entire Town of Essex, subtracting the tax revenue that comes from the Village, which then gives us the figure for the New TOV-only Tax Revenue. We then subtract the current TOV-only budget from the TOV-only Tax Revenue and this yields the $2.69 million budget shortfall that the Finance Director outlines in her Thursday, March 25th presentation.
This is very important information that every resident living in the Town should have. The consequences of the Village separating are dramatic. It means that the residents living in the Town outside of the Village will have many difficult discussions and decisions to make in order to find a balance between raising taxes and drastically reducing services. For some, this may be an acceptable outcome. For many others, especially those on a fixed-income, this change will be a burden that is much more challenging to bear than the incremental, phased-in, 12 year increase that come with merger.
Doing the Math
All of the information above was derived from information shared by the Finance Director at the Selectboard meeting on 3/25/2021 and the most recent Essex Tax Rates. Below is an explanation of the work.
First, we start with the tax levy should the Towns separate. The FY22 budget for the entire Town is $14,265,056 and the Village is $3,745,866. If you unwind the financial agreements and split the police department, the total FY22 Separation Tax Levy for both the TOV and Village are shown below. The TOV loses about $3.3 mil, which gets moved back to the Village.
If we then take the FY21 Grand List values and multiply them by the current tax rates in the Town and Village, you will see how much revenue each tax creates for their respective areas. The most important take away from the image below is the red arrow and the green box.
The red arrow is an indication of how much tax revenue the Town General Fund will supply to the TOV post-separation. This is the TOV Grand List value of $15,665,029 times the TOV’s Town General Fund tax rate of .5264. The total is $8,246,071.
The green box is the amount of tax generated by the Village for both the Town General Fund and the Village General Fund. In a separation situation, the Village would move their contribution to the Town General Fund back to the Village’s General Fund. To calculate these numbers, simply take the Village Grand List value of $11,167,367 and multiple it by the Town General Fund of 0.5264 and the Village General Fund of 0.3334 to get $5,878,502 and $3,723,200, respectively.
The image below tax the FY22 separation levy for both the TOV and the Village and then subtracts the projected tax revenue for each region. The TOV has a budget shortfall of $2,695,837.38 and the Village has a budget surplus of $2,532,688.79.
Below is the calculation for the tax changes for separation. Remember from above, separation impacts only the Town General Fund tax rate for the TOV. This new value is calculated by dividing the FY22 Separation Levy of $10,941,909 by the TOV’s Grand List of $15,666,029 for a new Town General Fund tax rate of 0.6985. The Village’s separation is the FY22 Separation Levy divided by the Village Grand List of $11,167,367 for a tax rate of .6330 in the Village.
Ultimately, there is a tax increase of 31.50% for the TOV and a decrease of -27.74% for the Village as shown in the table below.
To project the cost of merger on the tax rate, you need to keep in mind that tax rates are targeted to be equal for both the TOV and Village and that the budgets are merged. The merged budget total is $18,010,922.
The TOV contributes approximately 58% to that budget and the Village contributes approximately 42%. Multiply those percentages by the merged total budget to get the TOV and Village General Fund Tax Revenues as shown below. Note that the calculation of the revenue below is the actual percentage contributed by the TOV and Village instead of the approximate values noted above. In other words, instead of using 58% as the TOV contribution, we use the TOV’s actual grand list value divided by the Town’s total grand list.
If you divide the General Fund Tax Revenue for each region by their respective grand list values, you’ll get the new General Fund Tax Rate. As the Town Capital Rate is already paid by everyone in the Town, this tax was left in here.
We did not include the Village Economic Development Fund in the final tax rate calculation because the tax is only paid by the Village and it is only 0.0100. Its impact on the final results is arguably negligible. Also, if the Village were to continue paying towards their own Economic Development tax, the purpose of this analysis would be lost. That purpose is to show what taxes would look like if they were equal across the entire Town.
In a merger situation, the TOV has a tax increase of 26.51% and the Village has a tax decrease of 22.32%.
In summary, for residents living in the Town outside of the Village, merger is still cheaper than separation.