Lynn reaches compromise on tax rate

LYNN – After lengthy debate, the City Council reached a compromise Tuesday that increases property taxes to a lesser degree while leaving money in the municipal reserve account in case state aid falls short in 2010.The unanimous vote was a partial victory for Mayor-elect Judith Flanagan Kennedy, who is opposed to spending the reserve or so-called rainy-day fund to balance the budget.According to City Comptroller John Pace, Chief Financial Officer Richard Fortucci and City Assessor Peter Caron, spending the reserve fund puts Lynn’s bond rating in jeopardy with the state Department of Revenue. A poor bond rating translates to higher interest rates when the city wants to borrow money for major projects, such as moving the electrical power lines on the Lynnway.By spending the entire reserve fund, which currently stands at $1 million, Lynn property owners would get a one-time tax break – the average $3,300 annual tax bill would increase by only $125. That was the strategy proposed by Mayor Edward Clancy Jr., but it would leave no money in the account for emergencies.Kennedy and Ward 4 Councilor Richard Colucci led the way toward a compromise. Colucci’s motion to take only $350,000 from the $1 million reserve fund and apply it toward tax relief was adopted unanimously. The vote meant the same $3,300 property tax bill would increase by $149.Had the reserve fund remained untouched, the increase would have reached $161 for the same property tax bill.Most cities in Massachusetts keep at least 5 percent of their overall tax revenue in a reserve account. Lynn has only 2 percent in savings.”Using reserve money is not considered a good practice,” said Fortucci.Pace, the comptroller, said the reserve account would be down to 1 percent if the entire $1 million was used to offset a property tax increase, a move he described as seemingly welcome to property owners in the short run but far more detrimental to the city in the long. “I’d hate to see the erosion of the reserve account,” he said, noting that the DOR is excited about the city’s waterfront development plans, and a low reserve account could diminish that enthusiasm.Caron noted that the city lost millions of dollars in assessed property value over the past year due to dropping foreclosure prices, many involving multi-family structures. As a result, the tax burden is being shifted on to single-family homeowners.Kennedy was first to propose a compromise, asking Pace his opinion on using $300,000 to $500,000 of the reserve funds.When the vote was called, Kennedy, who takes over as mayor in January, said, “I want to start out my administration on a cooperative note.” Stating her willingness to compromise, she also said the practice of dipping into the reserve fund to balance the city budget would stop as of the next fiscal year.Fortucci agreed, noting that the city would be on a more sound financial track if the practice of spending the reserve fund was stopped entirely for the next 5-6 years,which would allow for a better bond rating and lower borrowing rates. As Pace put it, “We have to learn to live within our means.”The council also voted unanimously to spend the $4.6 million free cash account, which is a fund derived from unanticipated revenues such as excise taxes, in order to balance the budget. The latter was not a controversial vote.Residential property generated 77.7 percent of the tax revenue in 2009, while commercial property raised 22 percent. Those rates were expected to change to 75 percent and 24.9 percent, respectively.Lynn Chamber of Commerce Executive Director Leslie Gould spoke against any increase in the commercial tax rate, explaining that the city’s many small businesses are already besieged by escalating costs.