How the tax cap works
To meet the requirements of the City of Dover Charter, the Finance Department annually calculates the maximum amount the City and School portions of the property tax levy can increase in the next fiscal year budget and be adopted by a simple majority vote of the City Council. This maximum amount is widely known as the tax cap. The tax cap's official name is "Limitation on Property Tax Levy Increase" and can be found in
Section 3.1 of Article VI of the City of Dover's Charter. It states, in part:
The City Council shall adopt the annual municipal budget for city and school purposes to limit the property tax levy on taxpayers to the property tax levy from the previous tax year increased by the amount of inflation calculated from the Consumer Price Index-Boston and the net increase in new construction.
Voters instituted the tax cap through a charter amendment in the 2011 municipal election, and it went into effect for the 2013 fiscal year. The tax cap only applies to the City and Local School portions of the property tax levy; it does not include enterprise funds, dedicated funds, capital reserve funds, grants or other revenue sources. The tax cap does not apply to the County or State Education portions of property taxes.
Finance Department staff provides a preliminary tax cap calculation annually in January for budget planning purposes. The final tax cap calculation is determined during the budget season after the net new construction value for the previous calendar year in Dover is finalized.
The Finance Department uses the following steps to calculate the capped tax levy for the next fiscal year for the Local School and City portions of the budget.
1. Start with the current fiscal year's net amount to be raised by property tax levy for the City and Local School portions as certified by the New Hampshire Department of Revenue.
2. Calculate inflation by taking the average percent change of the last three calendar years of the U.S. Department of Labor's Consumer Price Index for Boston-Cambridge-Newton, MA-NH, not seasonally adjusted,
available here.
3. Multiply the previous calendar year's net increase in new construction value by the current fiscal year's certified tax rate and divide by 1,000; this calculates an estimated property tax levy related to increased assessed value from new construction. The net increase in new construction value is the total value of building permits minus the total value of demolition permits based on information provided by city departments.
4. Add the totals from steps 2 and 3. This equals the capped amount the City and Local School portion of the property tax levy can increase in the next fiscal year budget from the current fiscal year.
5. Add totals from step 4 to the current fiscal year's property tax levy in step 1. This is the total amount allowed to be raised by the capped tax levy the City Council can adopt through a simple majority vote. If the proposed budget is above the capped levy calculation, the City Council may still adopt the budget, but it needs a two-thirds majority vote of all elected members of the City Council.
Tax cap calculation for FY2023 budget
The final FY2023 tax cap was calculated on April 18, 2022, and can be
viewed here. Below are the numbers used in the calculation.
1. Current fiscal year net amount raised by property tax levies:
City portion: $34,810,613
School portion: $44,409,622
2. Multiplied by 2.1%, the Consumer Price Index for Boston-Cambridge-Newton, MA-NH, not seasonally adjusted percent change average for the last three calendar years. (2019: 1.9%, 2020: 1.1%, and 2021: 3.3%)
City portion: $34,810,613 x 2.1% = $731,023
School portion: $44,409,622 x 2.1% = $932,602
3. Multiply the net increase in new construction value for 2021 calendar year ($46,377,124) by current fiscal year certified tax rate for City ($8.02) and Local School ($9.93) portions, and divide by 1,000.
City portion: ($46,377,124 x $8.02)/1,000 = $371,945
School portion: ($46,377,124 x $9.93)/1,000 = $460,525
4. Add the bolded amounts for the City and Local School portions in steps 2 and 3 to calculate the capped tax levy increase for fiscal year 2023:
City portion: $731,023 + $371,945 = $1,102,967
School portion: $932,602 + $460,525 = $1,393,127
5. Add the amounts from steps 1 and 5 to calculate the total capped amount for FY2023 to be raised by tax levy for the Local School and City portions of the budget.
City portion: $34,810,613 + $1,102,967 = $35,913,580
School portion: $44,409,622 + $1,393,127 = $45,802,749
The proposed budget's Local School portion of the property tax levy is $4,231,040 more than the corresponding amount reflected in the tax cap formula. This overage is partially offset by the estimated city property tax levy being $143,124 less than the amount reflected in the City portion of the tax cap formula.
As a result, the proposed budget as assembled exceeds the tax cap requirements of our City Charter by an estimated $4,087,916. Therefore, adopting the budget as currently presented will require a two-thirds affirmative vote by the City Council instead of a simple majority.
