Wednesday, June 22, 2011

City Council is right on this one, wrong on that one

We've talked before about the proposal by Councilor Ronan to have a separate vote on any property tax increase. Currently, the tax increase happens automatically when the budget passes. As a result, the mayor, in the planning process, includes a maximum allowable by prop two and a half increase in the budget proposal every years. When council passes the budget, the tax levy is included and passed by default. I would quite literally kiss councilor Ronan's right cheek for proposing this separate vote. It was passed unanimously in committee, much to the mayor's dismay (Sorry, I'm not with the mayor on this one. Anything that brings more accountability to taxation is a good thing), and is on the agenda for the city council meeting tomorrow night. Council telling the mayor how much he or she can spend seems to make much more sense that deciding after the fact what to cut, possibly leading to them cutting the wrong things.

The plan is to have the council vote by the first meeting in February on the tax levy for the next fiscal year, and tell the mayor what tax revenue he or she has to work with. This makes the council much more accountable for raising taxes, and puts them on the record. It also gives the mayor a firm figure to work with when budget planning, without the assumption that the mayor can tax to the highest.

I think it's fair, when considering this to look at tax rates in Salem and the surrounding communities.

Tax Rates, by town

Salem currently has a residential tax rate of $15.05, and a commercial tax rate of $29.08. You pay that higher rate on personal property as well (vehicle excise). All amounts are per $1,000 in value. So on a $300,000 house, your tax bill would be $4,515.

Looking at surrounding communities, very few have higher tax rates.

Lynn is worse. They pay 16.22 residential, 32.41 on commercial and personal property.

Wenham is higher on residential, at $17.17, though that same rate is charged on commercial and personal property. So if you buy a new $20,000 car in Salem, you're looking at a first year excise tax of $581.60. That same car, in Wenham, nets you an excise bill of $343.40. More than $200 more to have that car in Salem. Wenham's residential rate is the result of years and years of proposition two-and-a-half overrides.

Marblehead is $10.21 across the board. Georgetown is $11.67. Boxford is $13.71. Middleton is $12.17.

Beverly, just over the bridge, has a residential rate of $12.41, and a commercial/personal property rate of 22.59. So the tax bill for the same $300,000 house in Beverly is $3723. or $792 less than a house of the same value in Salem.

Our other neighbors, Peabody and Danvers, have respective rates of $11.58 ($3474 on our 300k house, more than $1,000 less than Salem) and $13.40 for residential. Their commercial rates are higher, but both are well below Salem's as well.


Would this measure guarantee us lower taxes? Of course not. But it would put more pressure on the city council to not go to the max every year. Arguments against this?

On the other hand, council still struggles to find fat to trim in the budget submitted by the mayor, so there might not be much to gain here. At least with this mayor, but she won't be here forever. The A&F committee has passed the budget back to the council, with a recommendation to trim $90,000. (Not 90 million, as Patch reported before I corrected them.) If the mayor's budget is that lean, I don't see how you can tax that much less. I'm also not sure that the $20,000 expenditure for a city council budget analyst was really worthwhile. Finding $90,000 in savings, a third of which sound QUITE questionable (remember, the source is the Snooze), isn't great ROI. Definitely not worth the great self-congratulation we talked about previously. Ronan might be right about cutting that expenditure.

Here's an interesting fun fact, though. The proposed Salem Public Schools budget for next year is $49,5000,000 (not including the "interesting" plan to open a charter school of our own, but more on that some other day). Beverly, with a nearly equal number of students gets by with about 4 million less. The total Salem budget for next year, however, is nearly 30 million dollars more than the total budget in Beverly. Let me remind you that the total population of the two cities is nearly identical, with Salem having 41,340 people, and Beverly having 39,502. Beverly collects less, and they spend less.

Why are our schools so much more expensive, for the same number of students? I suspect we have a much higher percentage of students we've chosen to classify as special needs (about 25%, much higher than average), and we also have a larger number of ELL (English Language Learner) students. The ELL issue isn't going away soon, and it's a cost we just have to deal with. The classification of special needs students should be addressed.

I think 40B development is a big part of the problem here. Her love of 40B is the issue where I disagree with the mayor most vehemently, and it's the only one where I just don't get where she's coming from. I'm not sure how else to explain us charging, and spending, so much more than our next door community with nearly the same population. The more 40B rental housing we allow to be built, the more pressure there will be to keep raising the levy to the max every year. 40B rental housing costs taxpayers more than it brings in tax revenue. Additionally, Salem is already well above the threshold of 10% affordable housing where 40B kicks in. It shouldn't be being used any more.

I'd urge all of you to contact your city councilors and ask them to vote for councilor Ronan's bill.


There was one other item on the city council agenda that caught my eye.

From Councilor Ryan:
ORDER: That the Committee of the Whole meet with Lisa Abbate for a presentation on a study by the Brattle Group regarding the Salem Power Plant closing and what clean up aspects they can be held accountable for.
The Brattle Group report, according to Lisa Abbate's A Vision for Salem, lays out a plan for Salem to recognize even more revenue from that site than the city is getting from Dominion. Here's the problem. The report is absolute rubbish, with zero basis in fact. Most of what it proposes is utterly illegal. The city admitted as much at the HDSNA meeting I wrote about here. Worse, it produces far less revenue than they want you to think.

Let me spare you the torture of reading the ridiculous report (though some of the ridiculous footnotes almost make it worth it. Wiki-answers? Seriously? You're citing Wiki-answers?). Basically they propose that the city find a developer to buy the site, and build ALL of the following on its 52 acres of buildable land:

  1. 180 single family homes on 17 acres
  2. A 4 acre retail development (strip-mall) similar to 400 Highland Ave
  3. A 15 acre apartment building, similar in size and scope to Jefferson at Salem Station
  4. A 4 acre office park
  5. A hotel, roughly twice the size of the Hawthorne Hotel
  6. A recreational, city owned marina.

So you have 180 homes, 200 hotel rooms, 266 apartment units, stores, offices, and boat slips. You're talking about adding thousands of cars a day to Derby Street, a massive increase in sewer and water usage and infrastructure, and that's the smallest of the problems.

Let's look at each.

180 single family homes

That's pretty dense on 17 acres. More than 10 per acre. But hey, Salem is dense. Of course, there is one gigantic issue that isn't addressed in the Brattle Group report at all. HOUSING OF ANY KIND IS ILLEGAL IN A DPA. As one of only 11 DPAs in the state, the chance of this designation going away is pretty slim. It's debatable if it would be allowable under Chapter 91, as well. I don't believe the zoning laws wouldn't support single family homes on less than a tenth of an acre lot, either.

A 4 acre retail development

This is probably allowable under DPA. DPA allows for DPA supporting uses on 25% of the property. Retail is included. It's questionable if it would be allowed under Chapter 91. They'd have to prove that this retail development "serves a proper public purpose that provides greater benefit than detriment." I mean, we're talking about a strip mall. Also, the existing infrastucture won't support the traffic.

A 15 acre apartment building, similar in size and scope to Jefferson at Salem Station

So add the traffic of another 266 housing units. Also, HOUSING OF ANY KIND IS ILLEGAL IN A DPA. Do we really want another Jefferson apartments? This may also fail Chapter 91.

A 4 acre office park

Reread what I wrote above about the retail development. Same applies here.

A hotel, roughly twice the size of the Hawthorne Hotel

This proposed 200 room hotel specifically violates permitted DPA uses, and is illegal. The Brattle Group, Lisa Abbate, and that Marblehead lady have all failed to mention this.

A recreational, city owned marina

Several things strike me as odd about this part. A big part of the plan here is a private developer buying the land and developing it. Nowhere does the report include the city buying any land. Where will they get a marina? In fact, they include the following footnote. "Note that these calculations do not account for capital costs of building the marina." So they haven't figured in their projects of Salem's rosy future the cost of buying the waterfront. In fact, their cost estimate for building the docks is based on the property assessment of Hawthorne Cove Marina, and not any construction costs. Laughable. Most importantly, RECREATIONAL MARINAS ARE ILLEGAL IN A DPA. DPAs are about protecting industrial uses requiring waterfront access, not Chip and Muffy taking out the Sea Ray.


Here's the biggest ridiculousness of the whole thing. All that development, this beautiful vision of Salem, that will save the day? They project that it will produce a whopping 1.6 million dollars in annual tax revenue. Wait, the power plant pays 4.5ish, right? Their math must be wrong? Abbate's website (I refuse to link to it out of principle) states that the purpose of this study was "to research and show a variety of possible redevelopment options that meet or exceed current tax payments from Dominion." Now I'm confused. 4.5 million is greater than 1.6 million, right? Almost three times more. How does this have the property meet or exceed Dominion's current tax payments?

Right, here's where the utter ridiculousness kicks in. The report takes that 1.6 million, and starts adding on to it. The marina doesn't pay taxes. It is city owned, and in fact we bought land (unaccounted for) and built the marina (vaguely accounted for). However, we will charge people to illegally keep their boats there. That produces, according to this rosy forecast, will gain us $165,000 in profit. Let's say they're right. Now we're up to $1,781,430. Still well short of 4.5 million. Luckily, we have a hotel here, and they charge a hotel tax. They estimate 75% occupancy year round. (Why hasn't anyone built a third hotel yet?) This would produce $514,650, based on a rate of $200 per night. I know I'd pay that in December, wouldn't you? But hey, it's their assumption, so I'll use it. We are now up to $2,296,080, or the halfway point to our 4.5 million. Because surely, this didn't decrease the rates, or tax revenues at the other hotels in town, right?

Well crap. That's about it. I mean, they cite some fringe benefits. Tourism will clearly double thanks to this strip mall and hotel. At least that's their assumption. (LOL!) I'm sorry, people don't decide to not come to Salem because of the power plant. Ask tourists if they even knew about it before arriving. They don't.

In the short term clearly there are some construction jobs. Long term, they predict that the hotel, because it is twice the size of the Hawthorne, will employee twice as many people. Um ... OK. But none of this helps us solve the tax revenue problem. Luckily, I just flipped back through the report, and they did find a solution. Let me repeat what they said: "show a variety of possible redevelopment options that meet or exceed current tax payments from Dominion."

Please go grab a mirror. I'll wait. Got it? Now hold it up and look in it. Congratulations! You are the Brattle Group's solution to the revenue problem. Are you ready for this? I'm gonna quote them.

We expect that the removal of the power plant will bring benefits to the quality of life in Salem and reduce house maintenance costs (such as cleaning costs associated with coal soot). The increase in quality of life and reduced maintenance costs would increase property values in the city.  Davis (2008) finds that the addition of a fossil fuel burning power plant reduces property values by 3 percent in the US.  The Davis study focused on cases where new power plants were built between the 1990 Census and the 2000 Census and analyzed the change in  property values for homes within 2 miles of the plant relative to homes further away.  Plants built in the 1990s are presumably much cleaner than older power plants such as the Salem Harbor Plant which was built in 1951. Thus, we have assumed a slightly larger impact on local housing values.  Houses that directly face the plant would be expected to enjoy much more dramatic increases (some local realtors and developers estimated increases in value for those houses to be as high as 20 to 25 percent).  Nonetheless, averaged over all houses in Salem the increase would be more modest.  We assume a 5 percent increase in housing values the year after the  plant is demolished.  Currently, Salem receives $46.8 million in residential property taxes.  Thus, a 5 percent increase would add approximately $2.3 million per year in property taxes in 2008 dollars.

So you, fine taxpayers of Salem, make up more than half of the grand vision of new revenue! I thought the point was to find uses that would generate revenue so that it wouldn't fall on the taxpayers backs. Apparently not, as the "increase in values of Salem properties" is not only the single biggest driver of "replacement" revenue in this plan, it's more than half the total. Nevermind the fact that the 5% increase they use is nearly double the statistic that they cited. Nevermind that a 5% increase in property values doesn't mean a thing with prop 2.5 in place. It's meaningless. The levy can't go up on existing properties more than 2.5% from the prior year, even if the values of homes double. I guess the Brattle Group forgot. (Yes, they are headquartered in MA.) So more than half of this "we can produce as much as Dominion" plan is based on a phantom levy against the current taxpayers that can't happen. That doesn't include all the other illegal stuff, either.

So folks, Lisa Abbate's grand vision for Salem replaces about half of the revenue that Dominion pays. Don't let her lie to you.

Not surprisingly, Brattle Group Principal Phil Hanser doesn't list "The Potential Economic Impacts
of Redeveloping Salem Harbor Power Plant Site" as one of his "Selected Publications" on his brag page. Neither does Judy Chang. The final author doesn't appear to be employed there anymore.

My favorite part of the Brattle report? The final sentence.

The analysis and views contained in this report are solely those of the authors and do not
necessarily reflect the views of The Brattle Group, Inc. or its clients.

Let me translate. "She paid us to say this!"

I did check some of their other publications, and found no such disclaimer on any of them. The Brattle Group knows this report is rubbish. I know it's rubbish, the Salem News knows it's rubbish, heck, I'm sorry, but Lisa Abbate has to know it's rubbish. Why doesn't Jerry Ryan? Why on earth would he want the Salem City Council to give this report any false legitimacy by having it presented to them? They should vote against this order.


  1. Am I the only one that beleaves the power plant isnt going anywhere? Shouldnt we wait and see what happens before we start applying for grants and paying even more consultants? I know it's a good idea to have a plan in place but this isnt even our land. In my opinon best case is it's converted to gas. We dont even know how much land will be left over for redevlopment. We truly are being led by the blind. The only thing they can see is the cash in our wallets

  2. I'm starting to miss your mud puddle updates, G.

  3. It's quite possible the power plant isn't going anywhere. The announcement of the closure may have been all about politics. The work required to make the power plant unnecessary will take years, and hasn't begun.

    By threatening to close, it's easier for Dominion to demand that the ratepayers pay for the improvements needed to meet potential future EPA requirements. If they're told they are needed, they can require the public to pay for the improvements needed to stay open.

    That said, in the event that the plant does close, we'd be silly to not understand what is and isn't feasible with that site ahead of time, rather than being led down the primrose path by the Vision for Salems of the world.

  4. Don't be silly, G. The plant really is closing. Nothing wrong with considering all possible scenarios. If a particular idea is unfeasable it will be exposed as such.

  5. That's what we're doing here Mr. B.


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