FAQ - Tax Impact

What is the estimated tax impact of the new building?

The new facility is estimated to cost $11,766,468 dollars, rounded to $11,800,000. Included in this cost is the cost to complete the engineering and construction documents – also referred to as shovel ready or 30% complete – which is estimated to cost $814,370, rounded to $850,000. If the project is financed with debt (by borrowing), these costs will be spread out over the life of the loan. The annual cost to the taxpayer over this period will depend on the loan interest rate, the term of the loan (how many years financed) and the assessed (not appraised) value of the real estate owned by the taxpayer. If the loan amount is reduced using stabilization funds, the annual cost to the taxpayer will be reduced. 

Interest rates are at an historic low; however, we are speculating they will rise by the time we seek financing and for planning purposes have estimated them to be between 2% and 4%, or 3% for this illustration. To minimize the annual burden on the taxpayer, we have selected a long time period to pay off the loan, or 30 years. Finally, there are two types of loans we can choose to use, level payment for the life of the loan which is typically used for residential loans or level principle which is common for municipal loans.  A level principle loan starts with a higher annual payment and ends with a lower annual payment and has a slightly lower overall cost. For this illustration we will use the more familiar level payment loan. We will also use FY2021 real estate valuations and the FY2021 tax rate. The average FY2021 assessed value of a single-family house in Princeton is $395,243, rounded to $400,000. 

Cost to the Taxpayer:

The $850,000 we are asking for at Annual Town Meeting this year will be funded through transfers from stabilization accounts and free cash. We are not planning on borrowing for this.

$11,800,000 financed at 3% for 30 years costs the town $602,027 annually;
$602,027 equates to an additional $1.05 on the tax rate;
For a house valued at $400,000, the additional annual tax for 30 years is $420.
 
 Annual Tax ImpactDaily Tax Impact
$400k assessed value$420$1.15
$500k$525$1.44
$600k$630$1.73
$700k$735$2.01
$800k$840$2.30

The full tax impact of the new building will not reach your tax bills until the project is completed and then it will remain steady at approximately the amount above. While the project is under construction, the Town is only obligated to pay interest on its borrowing and this is much lower than principal and interest.