SalemNews.com, Salem, MA

December 20, 2013

Mayor defends tax rise

By Alan Burke
Staff Writer

---- — PEABODY — Mayor Ted Bettencourt is defending the decision to raise taxes — rather than tap the city’s reserve fund — as necessary to Peabody’s economic health. Not everyone agrees.

Taxes were approved to rise $94 per average property (valued at $288,000) by the City Council on a 7 to 3 vote last week. The increase is needed because the city has embarked on several ambitious projects, including the construction of a new middle school, the renovation of Crystal Lake and the installation of an artificial turf football field at the high school, Bettencourt said. Additionally, he stressed that Peabody faces the unknown when it comes to yearly costs associated with both the South Essex Sewer District and sending students to the new North Shore Technical High School in Danvers, set to open next fall.

In a city famed for keeping taxes low, however, some councilors complained that there is enough money in the city’s reserve fund to provide a tax break for hard-pressed Peabody residents. Member Dave Gravel points out that with the city’s reserves at $13.1 million and its stabilization fund at roughly $4 million, that gives a more than adequate $17 million financial cushion.

Colleague Anne Manning-Martin agrees, seeing this as a debt owed the taxpayers.

“It’s their money. At what point do we return it to them? I thought this was the year,” she said. And what are all the city’s recent efforts at savings for, she asked, citing the mayor’s successful effort to decrease health care costs by moving city workers to a statewide plan. “We do these things ... to get support for the taxpayers.”

Retiring ward Councilor Rico Mello also voted to support accessing the reserves.

Most councilors backed the mayor, however, though Gravel believes he would have had more support if the budget were handled differently, with the tax classification conducted simultaneously with the vote on the budget — a vote that currently takes place in the spring.

“That’s the highest reserve we’ve ever had,” he said. Acknowledging the mayor’s concerns, he countered, “It’s my opinion (if we do access the reserves) that’s not going to impact the bond rating at all.”

“I sympathize with that point of view,” said the mayor. “As mayor, it’s very tempting to dip into the reserves.”

Among the things stopping him is the advice the city gets from its financial consultants at First Southwestern and from Finance Director Patty Schaffer, who has served in three city administrations.

“I give great credit to her recommendation,” he said.

The city currently enjoys an Aa1 bond rating from Moody’s, which is only once removed from the highest rating possible. Maintaining this healthy assessment over time makes it possible to borrow money at low interest rates, an important advantage given that some of the city’s largest expenses, like the multimillion dollar Higgins school, are borrowed over a period of years.

“Taking $4 million from the reserves would erode our financial strength and put our bond rating at risk. ... We did dip into the reserve for $1.5 million,” which the council approved, he said. But stopping there is “prudent,” he said. “In every bond rate review we’ve had, Moody’s has stressed the strength of our reserves.”

Bettencourt noted that the city wasn’t alone in asking residents to pay more, but he added, “Our tax increase compared to other cities and towns is lower.”

In answer to a question, he said his approach on this matter is part of his approach to finances in general, one that recognizes how bad things can get and how quickly that can happen.

“It is a decision I made when I became mayor — I wanted to build up the reserves. I’m very cautious. Should there be an emergency, I want to have the money to handle the emergency,” he said.

Alan Burke can be reached at aburke@salemnews.com.