Understanding the Overlay Reserve Account
Recently, the Town’s overlay account has been the topic of much discussion. Questions have been raised as to how it is set, how much is set aside annually and how much remains from past years. We hope to answer these questions and provide other information in this article.
The overlay reserve is an account required by state law and is established annually to fund anticipated property tax abatements and exemptions, and to set a reserve for uncollected taxes in that year. An abatement is a reduction or elimination of a real or personal property tax. It is granted only if the taxpayer applies for it. A tax exemption is granted to certain residents who qualify (widows and widowers, blind, elderly and disabled veterans) and apply for it.
The overlay reserve is not established through the annual budget process, but rather is raised through the setting of the tax rate in November of each year. It is the responsibility of the Board of Assessors to formally set this amount based on the historical experience of the Town. The Assessors are assisted in this process by the Assessing Department, the Treasurer and the Finance Department. The amount determined is documented on the Tax Recapitulation Sheet, which is then submitted to the Massachusetts Department of Revenue (DOR) which reviews and approves it.
The overlay reserve funds can span multiple years. Prior years may include uncollectible taxes that are still in question plus any potential liability associated with a pending Appellate Tax Board (ATB) case from that year. In addition, DOR requires the town to hold in overlay estimated revenue from the property tax paid on poles and wires by telecommunications companies. These payments are subject to a court challenge by these companies and until the issue is settled, we are required to reserve these payments.
When tax receivables are collected and/or ATB cases resolved, the Assessors can determine how much money from the overlay account can be certified as surplus and then released to free cash. The DOR suggests that the time frame in which to conduct such an annual analysis is September – October after the town accountant has closed the fiscal year and produced the final balance sheet. Once the money is in free cash, it may be appropriated by Town Meeting for any lawful use. Massachusetts state law allows the Board of Selectmen toask the Board of Assessors to consider releasing overlay funds, but cannot demand that this be done.
Over the years the overlay reserve, along with the number of requested abatements, has grown. In 2009, a study on assessment practices was completed by a consulting firm (Regional Resource Group) at the request of the Board of Selectmen. The study concluded that the assessing department had systemic issues with valuation and inexperienced staff. More importantly it found that residents of Wayland had no faith in the assessment process. The Department received 398 abatement applications that year, an amount that far exceeded similar size communities. This trend was a result of many of the items raised by the study, coupled with some local pressure for residents to file abatement applications. In general, this resulted in the Assessors setting high overlay amounts because
- the department had a history of large abatement volume and Appellate Tax Board cases
- the items identified in the assessment study had not been 100% rectified
- the Assessing Department continued to be understaffed until September 2010
- Wayland offers a match of 100% to the state exemptions programs, i.e., senior, veteran, etc.; Wayland also provides a match to residents who receive the state circuit breaker tax credit.
Under our new Director of Assessing, Ellen Brideau, the Assessing Department has made great strides over the past year. In fact, because of the improvements already recognized in the department, the Finance Department has already forecasted a lower overlay for FY2012. Assuming our progress continues, we can expect the overlay to continue to decline in following years.
While the overlay reserve has been larger compared to other towns over the years, we are confident that the causes have been addressed and will result in lower allocations in the future. The Board of Assessors and Assessing Department have worked hard to identify the problems of the past and have changed practices and procedures accordingly. The Selectmen, Finance Committee and Board of Assessors are planning to hold a joint meeting on September 26 to review the status of the overlay funds after which the Board of Assessors will vote on an appropriate amount to release to free cash. This will be discussed at an open meeting, and citizens are encouraged to attend. In November or December, a similar joint meeting will be held to review the calculation of overlay for FY2012 and to document the need for any adjustment in the April 2011 estimated provided at Town Meeting. We look forward to this public process designed to improve public confidence in the determination of overlay and the basis for changes in revenue estimates before submitting the tax rate for approval by state officials. After completing the FY2012 process, we will welcome constructive suggestions to improve the procedures for future years.
Submitted by the Board of Selectmen
Tom Fay, Sue Pope, John Bladon, Steve Correia and Joe Nolan