Chilmark will end the fiscal year with a negative cash flow and will have to borrow more than $2 million to finance operations because the state Department of Revenue (DOR) hasn’t certified the town tax rate. The DOR has lingering questions over how the town assesses some properties.
Because this is a revaluation year, the assessed value of many properties are going up, and the town has to go through a complicated process that involves a public disclosure period, public hearings, and distribution of impact letters to property owners.
Normally the town has a preliminary certification from the Department of Revenue by the middle of October and can set the tax rate by late November or early December. Tax bills are normally mailed out by May 1, at the latest.
But this year the DOR wants to know more about how certain properties were assessed. Among other things, DOR officials have questioned how the town assessed property values in Seven Gates Farm and beach rights for properties near Squibnocket Beach.
The situation is complicated by the lack of home sales in the town in recent years. Normally, the record of home sales gives the DOR useful information about property values and assessments. But in Chilmark, where properties routinely sell for millions, there may be only a handful of property sales in any given year.
It is also difficult for the DOR to get a complete sample of the market and home valuations, since homes along the same street or in the same neighborhood may sell at vastly different prices, due to things like beach access or views.
Because of the questions, coupled with this being a revaluation year, the town has yet to certify its tax rate with the state. As a result, the town has already been forced to borrow $2.1 million in revenue anticipation notes, a short-term debt security issued on the premise that future revenues – in this case tax collections – will be sufficient to meet repayment obligations.
The town borrowed the money from the Edgartown National Bank with a rock bottom interest rate of 0.39 percent, according to town treasurer Melanie Becker. But in accordance with state law, the short-term note must be repaid by the end of the fiscal year on June 30.
At the regular selectmen’s meeting on Tuesday, assistant tax assessor Pam Bunker explained that the town took out the short-term loan on the premise the state would certify the tax rate in time to get tax bills out by May 1.
Ms. Bunker said the town still needs to hold public hearings regarding revaluation. The tax bills will not be out until the last week of July or the first week of August, she said. “And that’s if the state cooperates with us,” she added.
And, the town may need to borrow again, not only to pay back the $2.1 million in revenue anticipation notes to the Edgartown National Bank, but also to raise additional funds to cover operating costs and pay bills through the month of July.
According to Ms. Becker, the town will have to go out on the open market to borrow the money, and there is no guarantee the town will again secure an interest rate as low as 0.39 percent.
Ms. Bunker said the town has done everything it could to comply with the DOR’s request for information, including providing detailed analyses of property assessments in Seven Gates Farm and the Squibnocket area.
“We have been consistent within the statistical constraints they requested, but they keep asking for different backup documentation, which we continually resubmit,” she said.
Earlier this week, Ms. Bunker spoke with Marilyn Brown, the chief of local assessments for the DOR, and Robert Nunes, the deputy chief of revenue, who asked about beach rights and the recent sale of Blue Heron Farm and properties in Seven Gates Farm.
Ms. Bunker said DOR officials seem satisfied and gave the town permission to at least conduct the public disclosure process and conduct the public hearings relating to the revaluations. But because of the delays, the tax bills still won’t go out until after the start of the new fiscal year.
“What strikes me is we are the same town we have been for the past many years, and these types of discrepancies [in assessments]have been here for years and years . . . this delay has put us in a position where we have to borrow $2 million just to pay our bills,” selectman Warren Doty said.
“We have people calling town hall and saying, where is our tax bill, we want to pay. And we are saying, no not yet,” Mr. Doty added. “Up to now our system has been excellent, and I don’t think we need to change our system. I think we need the state to come around and cooperate, instead of doing this dance where they just keep asking us new questions.”
Town resident Judy Jardin, also the treasurer of Aquinnah, said that town has had similar problems with the DOR, which has delayed the tax bills. “We too are getting all those calls; in fact we changed the message on the answering machine so it was just explaining what was going on,” she said.
Ms. Jardin said Aquinnah has not has the same problem with cash flow, since tax bills are sent out on a quarterly basis and not on a semi-annual basis, as is the case in Chilmark.
“This town, we are in a world of hurt because we are going to have to borrow $2 million . . . you have a tax collector employed for 35 hours a week but only sending out tax bills twice a year. That is why most of the towns have changed for this very reason — to improve tax flow,” Ms. Jardin said.
Ms. Jardin said her understanding was that the DOR has cut back staffing, and a new person is working with town officials on the Cape and Islands, which could contribute to the questions and delays regarding the tax rate in Chilmark.
“So we are looking like fools when in reality they are the fools,” responded Jonathan Mayhew, chairman of the Chilmark selectmen.
Mr. Mayhew said he worried the town’s cash flow problems could negatively affect its bond credit rating. “It’s just funny we just got a higher [bond]rating, and now we have this crazy brouhaha,” he said.
Selectman Bill Rossi suggested the town send out preliminary bills based on the preliminary tax rate, to try raise revenue. But it was unclear whether it could do so legally, and selectmen agreed to seek advice from town counsel Ronald Rappaport.
Selectmen scheduled an emergency meeting with Mr. Rappaport to discuss the possibility of sending out preliminary bills and other issues relating to the current situation surrounding the tax bills.
“I support town counsel looking into it,” Mr. Doty said. “We need to push people and make it known that we consider ourselves a very solvent, financially stable town, and we can’t borrow money because of some paper work snafu or some disagreement over beach rights ,which only represent a small percentage of landowners in the town of Chilmark.”