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$6 Million Bond Position Paper |
| Should the town take out a $6 million dollar bond for the purchase of open space (to prevent tax hikes)? | |
| NO. Other, better alternatives have not been explored. | |
The ADT reluctantly recommend against passage of the DO-IT bond initiative in the March 9th election. The DO-IT proposal is an interesting “first cut” at managing Derry’s growth and slowing the ever-increasing rise in taxes. Unfortunately, some of the assumptions needed to make its economics work are, at best, fragile. If the assumptions fail to hold, taxpayers will be further burdened, perhaps for some, past their limit. However, DO-IT has surfaced an intriguing concept for aligning Derry’s real estate tax base with its system of taxation. Variations on their proposal may yield a big win for the taxpayers. In particular, Mr. Lee’s proposal offers some potential benefits for Derry and deserves further study, but passage of the specific initiative on the ballot has too many unknowns. Derry DO-It (Derry Open-Space Initiative Team) should be applauded for taking the initiative to develop the $6 million land acquisition bond proposal. Derry desperately needs more of its citizens involved, working to improve the quality of life in Derry and searching for innovative ways to reduce our local taxes. The DO-IT group believes its bond referendum scheduled for the March 9th ballot achieves both of these goals. It proposes the town bond $6 million and use the proceeds to acquire undeveloped land. By so doing they hope to slow Derry’s growth and therefore slow the increase in school enrollments. The logic of their position is as follows: -- A new home might add an average of 1.5 additional children to the school population -- Each additional child in school cost the taxpayers $5,912 per year -- This equates to $8,868 in school costs per new household -- If the new home is assessed at $200,000 it will generate $6,434 in taxes -- Thus, each new home costs the town’s taxpayers an estimated average of $2,450 per year Now for some analysis of the economics of this proposal: (these are ADT’s assumptions not DO-IT’s) -- Annual payments on a $6 million dollar bond are $475,000 (20year bond at 5% interest) -- To have the tax savings (see above) offset the bond payments, the town would have to avoid the building of at least 194 new homes (calculated by dividing the $475,000 payment by the $2450 savings per home) -- Theoretically then, the town could spend $30,927 per lot to stem the population growth. So far, so good. However, as with any proposal involving forecasted events there are a number of underlying assumptions that must be considered. As it is said, “the devil is in the details.” 1. Chief among the assumptions is the premise that the land to be acquired would have been turned into residential lots if not for the town’s purchase. If, for example, half of the land would have remained undeveloped for the twenty years, then the economics begin to fall apart, allowing only $15,463 to be spent per lot acquired. Do-IT can make a good case here that there is a high probability of development. The Department of Transportation estimates 5000-7000 new housing units will be needed by 2020 in Derry. 2. The estimates detailed above assume that, if not for the land acquisition bond, all 194 homes would be built immediately. If instead, the lots were to be developed evenly across the 20 years of the bond, school savings would only cover a cost of approximately $15,000 per lot. 3. Inherent in the proposal is the assumption that taking the 194 lots off the market succeeds in reducing the growth of the town’s population. Alternatively, it could simply redirect the new population into buying the remaining developable properties, driving the prices up and encouraging other landowners to sell to developers. (The plugging of one leak may not keep this boat from swamping.) Other considerations: In this document we have only explored the immediate tax consequences of this bond proposal. There are undoubtedly esthetic and quality of life considerations that must be considered and balanced against the Derry taxpayer’s ability to shoulder this additional burden. The most direct beneficiaries of the bonding will be the sellers of the land and the abutters whose property values increase. It appears that the Derry Town Council will have control over the distribution of these benefits. To the best of our knowledge, no criteria have yet been established for judging the appropriateness of any given land purchase. Will favoritism be seen in the choice of parcels? Mr. Hugh Lee has suggested an alternative to the town’s acquisition of land. He suggests contracting with landowners to add 5 acre minimum subdivision codicils to their land deeds. This is a particularly interesting suggestion in that it would: -- Stretch the buying power of the $6 million bond. It would certainly cost less to buy the addition of such a codicil than it would to buy the property outright. This, in turn, will increase the amount of land that can be saved from development. -- Buying these rights would have roughly the same impact as 5 acre minimum zoning, without the legislative taking of property rights. -- The property that has the five acre rights acquired will remain on the tax lists whereas lots that are acquired outright by the town are off the tax list, perhaps forever. -- Under Mr. Lee’s proposal, the land remains under private ownership. No town resources are required to maintain the land. (Land owned collectively by the town tends to suffer from what economists refer to as the “tragedy of the commons.”) -- Five acre lots are likely to draw more high value homes into Derry. Higher value homes finance more of the school tax burden. A $400,000 assessed value home would pay for the $8868 in school costs and contribute an additional $4000 to help pay for police, fire, town administration, etc.
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© Copyright 2004, Alliance of Derry Taxpayers. All rights reserved.
