Marblehead’s property tax explained

(Editor’s note: This is the first in a two-part series on how your tax bill is calculated, including the assessment process.)

In February 2023, the town administrator presented the State of the Town, in which the budget for the following fiscal year was outlined.

In simple terms, the budget, based upon a 3% increase in expenditures, looked like this:

RECEIPTS	($ million)	% of total
Property taxes	$82.18	78.1%
State aid	$8.25	7.8%
Local receipts	$5.59	5.3%
Other	$0.04	0%
Funds to reduce tax rate	$9.20	8.7%
TOTAL	$105.26	100%

EXPENDITURES	($ million)
General fund	$92.91
Debt service	$10.78
Town Meeting appropriations	$103.69
Cherry Sheet offset	$0.03
State assessments	$2.81
Overlay	$0.30
TOTAL	$107.03

SURPLUS/DEFICIT: $1.78 million deficit

Additionally, the following fiscal years were projected to show increasingly large deficits. Expenditures will continue to increase, largely as a result of employee contracts, while revenue increases are limited by Proposition 2 1/2, which limits the increase on the total of all property — not on individual properties — to 2 1/2% each year.

The purpose of this article is to explain how the property tax rate is calculated, bearing in mind that property taxes produce nearly 80% of the town’s revenues.

The tax rate for FY 2024 (July 1, 2023 to June 30, 2024) has been set at $8.96, down from $10 in FY 2023 following a 16% increase in assessed values.

The formula for calculating the property tax is:

• Take the dollar amount of the previous year’s tax levy.
• Add 2.5% for Proposition 2 1/2 and also add any “new growth” (such as new construction or a condo conversion). This figure is the new tax levy.
• To this figure is added debt service — the principal and interest payable on the town’s debt — to produce the total tax levy.

The tax rate is then calculated by dividing the tax levy by the assessed value of property.

Crucially, that calculation is based upon prices as of Jan. 1, 2023, using data from sales in calendar year 2022.

What that means is that 2023 sales are used for the calculation of the tax rate in FY2025 — not FY2024.

Here are the numbers for Fiscal Years 2023 and 2024, remembering that FY 2024 runs from July 2023 to June 2024.

FY 2023

• Aggregate assessed value: $7,908,527,005
• FY 2022 tax levy: $67,106,065
• 2.5% increase: $1,677,652
• New growth: $434,109
• FY 2023 tax levy (sum of three lines above): $69,217,826
• Debt exclusions: $9,898,848
• Total tax levy: $79,116,674

Tax rate (Total levy divided by total assessed value times 1,000): $10.00

Of that $10 rate, $8.75 is attributable to the FY 2023 tax levy and $1.25 is attributable to debt exclusions.

FY 2024

• Aggregate assessed value: $9,170,927,793
• FY 2023 tax levy: $69,217,826
• 2.5% increase: $1,730,446
• New growth: $468,709
• FY 2024 tax levy (sum of three lines above): $71,416,980
• Debt exclusions: $10,813,091
• Total tax levy $82,230,071

Tax rate (total levy divided by total assessed value times 1,000): $8.96

Of that $8.96, $7.78 is attributable to the FY 2024 tax levy, and $1.18 is attributable to debt exclusions.

The tax levy calculation

The dollar amount raised by the property tax will increase year by year. That is because of the formula: last year’s number plus 2.5% plus new growth.

In the table above, you can see how the FY 2023 tax levy of $69,217,826 becomes the base for FY 2024. Add $1,730,446 for Prop 2.5% and $468,709 for new growth, and the new figure is $71,416,980.

To this number is added the debt service of $10,813,091 to give a total amount to be raised of $82,230,071.

The tax rate

The actual tax rate depends upon the total assessed value of all property: residential, commercial and personal.

The tax rate is calculated by dividing the total dollar amount to be raised by the total assessed value of all property.

Thus, while the dollar amount raised by the tax (and therefore the median tax bill) will increase each year, the headline tax rate will fluctuate depending upon the direction of assessed values.

In simplistic terms, the dollar amount raised before debt service will increase by a little more than 2 1/2% each year, so if the median assessed value also increases by a little more than 2 1/2%, the tax rate will be unchanged.

If the increase in assessed values is less than 2 1/2%, then the tax rate will rise.

And if the increase in assessed values is more than 2 1/2% then the tax rate will fall.

One additional factor is the cost of debt service.

In FY 2023, the tax rate was $10, achieved by dividing the $79.1 million to be raised by the $7.9 billion of assessed value and then multiplying by 1,000 (as tax rates are expressed “per thousand” in value, rather than “per dollar” in value).

And in FY 2024, when assessed values have increased 16%, the calculation is $82.2 million divided by $9.2 billion times 1,000, which produces a rate of $8.96.

The median tax bill, based on the higher assessed values, will increase by $244 or 3%, to $8,318.

Note that the calculation of the tax rate is made simpler by the fact that Marblehead’s Select Board votes each year to have a single tax rate for both residential and commercial property.

In towns that elect to have a differential rate — i.e., by taxing commercial property at a higher rate than residential — there are generally two different tax rates, achieved by dividing the amount to be raised from residential and commercial taxpayers by their respective aggregate assessed values.

How does debt service affect the tax rate?

The announced property tax rate announced each year also includes the cost of debt service:

	FY2019	FY2021	FY2022	FY2023	FY2024
Levy	$9.72	$9.37	$9.25	$8.75	$7.78
Debt exclusions	$1.02	$1.05	$1.27	$1.25	$1.18
Total	$10.74	$10.42	$10.52	$10.00	$8.96

What matters is the tax bill, not the actual rate

While we tend to focus on the property tax rate — and Marblehead has the third lowest rate of the 34 towns and cities in Essex County — what matters more is the actual tax paid.

Let’s assume a tax bill of $1,000 as an example. Now let’s assume that the property has an assessed value of $100,000, which means that the tax rate is $10 per $1,000 ($100,000/1,000 x 10).

If the assessed value was, instead, $120,000, the tax rate would drop to $8.50, but the tax bill would still be $1,000 ($120,000/1,000 x 8.50).

In FY 2024, the total assessed value of property in Marblehead increased 16%, but the actual median tax bill increased only 3%. 

See also: Part II: Answers to frequently asked questions

Former Marblehead resident Andrew Oliver is a Realtor, market analyst and referral specialist.