Election 2019: City of Lowell Income Tax Proposal

On Tuesday, City of Lowell voters will decide whether they are willing to pay more in taxes in order to improve the quality of local roads. City leaders say they need more revenue to fix the streets, and that an income tax is the most palatable way to raise the necessary money.

“A lot of our problem is the way local governments are structured,” says City Manager Mike Burns. He notes that between reductions in state revenue sharing payments and restrictions on how the city can use its state gas tax money, there is relatively little available for local street repairs. “There’s not enough money coming in to address it,” Burns says.

The idea of a city income tax was first discussed during a February 2018 Committee of the Whole meeting. Lowell City Council subsequently commissioned a study to explore the feasibility of a city income tax and were presented the results in December 2018. In June 2019, the council voted to put the issue on the November ballot for voters to consider. To help offset the impact of a city income tax on residents, a second proposal on the ballot will lower city property taxes by 5 mills if approved by voters.

Proponents of a city income tax say the current proposal is the most equitable way to raise money for the roads. Rather than having residents bear the entire cost of street repairs, as is the case in the current funding model, non-resident workers who may travel on city roads daily will be contributing as well. Plus, the reduced property tax rate will benefit city homeowners.

Opponents of the proposal say residents already pay too much in taxes. They argue the city should look for other ways to pay for repairs such as through existing revenues, grants or some other less onerous funding mechanism. Even with the 5 mill property tax reduction, most working households will likely see their overall tax bill increase, and some worry that will deter people from living within the city limits or establishing a business here.

Lowell City Income Tax Proposal

On Tuesday, November 5, City of Lowell voters will see two proposals on their ballot. Burns acknowledges the language of the proposals can be confusing, but it legally had to be written in this way. In plain English, the proposals do the following:

  • Proposal 1 asks voters if the City of Lowell should be authorized to assess an income tax for 15 years. A yes vote is a vote for the city income tax. A no vote is a vote against the city income tax.
  • Proposal 2 asks voters whether property taxes should be reduced if the city income tax proposal is passed. The ballot proposal language references a reduction of 6.7597 mills from the maximum authorized by the Headlee Amendment. Given the current tax rate charged by the city, this results in a 5 mill reduction if passed. A yes vote is a vote for reduced property taxes. A no vote is a vote against reduced property taxes.

Note: Proposal 1 must pass for Proposal 2 to take effect. In other words, residents will only see a property tax reduction if the city income tax is enacted.

What Happens if the Lowell City Income Tax Passes?

If approved by voters, the city income tax would go into effect on January 1, 2020, and Lowell residents and workers would file their first city income tax returns in the spring of 2021. The reduced property tax rate would go into effect in July 2021.

The city income tax would be set at 1% for city residents and 0.5% for non-residents working in the city limits. Corporations would pay a 1% tax although Burns says there will be a way for owners exclude that business income on their personal return to avoid it being taxed twice. If passed, the local property tax rate would drop from 15.7 mills to 10.7 mills.

Not all income sources would be subject to the city tax. Nine categories of income will be exempt from the tax including the following:

  • Retirement income
  • Gifts and bequests
  • Welfare assistance
  • Unemployment benefits
  • Military pay

The city expects to contract with Innovative Software Solutions to administer the income tax. In the first year, the city anticipates $1,542,320 in revenue from the tax. That money would be distributed as follows:

  • $608,859 will go to the General Fund to replace lost revenue from reduced property taxes
  • $155,761 will pay for the cost of administering the income tax
  • $777,700 will be used for street projects

Assuming a 4% annual increase in income tax collections, the city anticipates the amount available for street repairs will increase every year until it reaches $1,685,231 in 2035. After 2034, the city income tax would sunset and in 2035, the local property tax rate would revert to 15.7 mills.

Department of Public Works Director Dan Czarnecki has developed a 12-year plan that outlines how the income tax money would be used for street repairs. The plan calls for a mix of reconstruction and maintenance to bring 77% of city streets to good condition by 2030. As currently drafted, the plan calls for work on Amity in 2021, around Monroe in 2022 and in the Valley Vista neighborhood in 2023.

What Happens if the Lowell City Income Tax Doesn’t Pass?

If the city income tax doesn’t pass, Burns says he is looking at how to make the best use of the currently available funds. The year, the city received $432,886 in gas tax revenues from the state. However, the use of this money is restricted by the state. Only $119,602 can be used for local streets, and the remaining $313,284 must be used on major streets. Of Lowell’s 20.28 miles of roadway, only 6.89 miles are classified as major streets.

For Fiscal Year 2019, the city transferred $100,000 from the General Fund to the local street fund, but that money has been eaten up by maintenance costs, leaving nothing for road repairs. “Last year, we basically covered our expenses,” Burns says. “We haven’t done a local street [project] since I’ve been here.”

Instead, money from the local street fund has been used almost entirely for the following expenses:

  • Maintenance such as filling pot holes and clearing catch basins
  • Personnel costs
  • Professional contractual services
  • Street sweeping
  • Traffic control such as lane striping
  • Snow removal

Of these, Burns estimates snow removal is most expensive, costing more than $80,000 last year.

To free up more gas tax money for local streets, the city is working on a Stormwater, Asset Management and Wastewater plan. Once completed, the state will lift the restriction on gas tax dollars and no longer require that most of the money be reserved for major streets.

In the meantime, Burns recently discovered the major streets fund has a $400,000 balance, and he plans to use that next year to repair Howard and Suffolk Streets. Plus, the city manager is looking into other funding options such as Community Development Block Grants which are offered by the federal government and have been used in the past to pay for street projects in Lowell.

Where to Find More Information on the Lowell City Income Tax

The City of Lowell has an informational section on their website regarding the income tax proposal. It includes the ballot language, frequently asked questions and a calculator where residents can determine how much the proposal will cost them personally.

There is also an Informational Meeting PowerPoint that includes detailed information on current city revenue and expenditures. The page also has links to a video of an informational meeting held by city officials earlier this fall.

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