TOWN OF DOUGLAS

A Review Of The Commonwealth of Massachusetts State Owned Land

Reimbursement Program

Prepared By: Financial Advisory Associates, Inc. 258 Main Street Buzzards Bay, MA 02532

August 9, 2016 INTRODUCTION:

The executive branch of the Town of Douglas became considerably concerned during Fiscal Year 2015 when the Commonwealth of Massachusetts (COM) moved to purchase about 346 acres of taxable real property. The COM’s plan was to expand the footprint of the Douglas State Forest.

The pending state purchase raised two red flags with the Town’s leaders. One concern was the property the COM targeted was zoned and classified by the town for “Industrial” use. The town’s leaders’ concerns were further founded in the fact that the COM had previously acquired almost 5,500 acres of taxable town property to create the then existing state forest.

The COM now owns more than 6,090 acres of land in the Town of Douglas. According to the 2009 data used in the 2010 US Census, the town is approximately 37.89 square miles in size. The new purchase of 346 acres in 2015 by the COM increased the COM’s holdings in Douglas by another 6%. As of the state’s last Douglas real estate conveyances in late June of 2015, more than 25% of the real property located within the Town Of Douglas is now owned by the COM.

Given the genuine concerns of the local officials and the magnitude the COM’s holdings in Douglas has on the town’s income, local leaders sought some professional assistance as they endeavored to better understand their roles and responsibilities within the state owned land (SOL) reimbursement process.

SCOPE OF PROJECT:

This report is the output that resulted from a contract the Town of Douglas sought and executed. The scope of the services provided included:

 Review of the state’s listing of owned property located in Douglas  Reconcile the state’s list with the Town Assessor’s records  Review the state’s current valuation methodology  Validate the state’s current valuations for its property in Douglas  Prepare a presentation regarding our findings  Provide a public review of the findings

LISTING OF STATE REIMBURSEABLE LAND IN DOUGLAS:

Our review began with the COM’s listing of its Douglas properties eligible for reimbursement under MGL Chapter 58. The listing was last valued by the COM in 2013. The valuations are completed every four (4) years. The next valuation will take place in 2017.

The property purchased by the COM in June of 2015 is not currently listed on the COM’s 2013 land schedule. As required under the laws of the Commonwealth, the state will provide a

2 | P a g e reimbursement payment to the Town of Douglas for the 2015 purchase as part of their emerging FY 2017 budget.

The COM lists and values parcels by city or town and by use or agency. Douglas has two such listings on the COM’s current SOL master list. One of the two COM properties in Douglas is under the control of the Department of Conservation and Recreation (DCR). This property is commonly referred to as the Douglas State Forest. The second property listed on the COM’s schedule is under the control of the Department of Fish & Game (DFG). This property serves as a wildlife management area (WMA). The property is commonly called Douglas Mine Brook (WMA). Both of these COM holdings include land in towns that abut Douglas.

The COM currently lists the Douglas State Forest as a property with 5,378.48 acres in Douglas. They list twelve (12) separate parcels that make up the overall property. They list the property’s land value at $18,374,800. That valuation converts to a per acre value of $3,416.

The COM lists the Douglas Mine Brook (WMA) as a property with 113.13 acres. They list two (2) parcels that make up the Douglas portion of the total property. They value the land for this property at $711,900. That valuation converts to $6,293 per acre.

The total state owned land listed in 2013 prior to the recent purchase shows all land in Douglas eligible for the reimbursement program as 5,491.61 acres at a total value of $19,086,700. The total state owned reimbursable land on the 2013 listing is valued at $3,476 per acre.

For further detailed information pertaining to the COM’s current State Owned Land listing data please see Appendix Schedule #1.

RECONCILIATION OF TOWN OF DOUGLAS ASSESSMENT OF STATE LAND:

The Town of Douglas Assessing Department currently lists 127 parcels as part of the Douglas State Forest. The Douglas assessing records tie to the COM records with only minimal rounding variances. Since the COM established the values back in 2013, the town’s FY 2016 values are now actually lower than the value the COM uses for reimbursement payments.

The Town has the Douglas State Forest parcels valued in FY 2016 at about $3,113 per acre. The value is about 9% lower than the COM’s current valuation.

Finding #1

The state forest valuation by the COM is currently slightly valuing the property higher than the town’s records indicate it should. The COM appears to have a data error. We have advised the Town that the state presently has 22 acres of land that Douglas classifies as “Wet or Waste” classified as “Rear” land. This data error results in a minor state valuation increase that favors the Town’s reimbursement calculation. We recommend the Town verify the variance and if necessary, make the correction with the COM.

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Finding #2

Each of the COM’s listed parcels contains a Local Property ID. We note that the local references in the COM’s listing are deficient. The average reader would be hard pressed to find and identify all of the local listings. For example, the Douglas State Forest’s first parcel listed by the COM provides one Town Parcel ID. In fact, that single COM parcel is comprised of 110 locally listed parcels. We have found other examples of similar parcels on the COM’s master listing. In these listings of similar large parcels in other communities the Local Parcel ID states “Many Maps And Lots”.

We have identified five (5) COM parcels in the Douglas State Forest listing with deficient Local Parcel ID’s. We have provided the Town with the corrections for each of the parcel ID errors currently found on the COM’s master schedule. We recommend the Town make the corrections with the COM.

Finding #3

The Douglas Mine Brook WMA property is listed on the Town’s assessing roles as three parcels. The Town’s gross FY 2016 land values for this COM property are $6,099 per acre. The town’s current values are about 3% below the COM’s values for annual reimbursement calculations.

The COM’s parcel size and classification data for this COM property is exactly the same as the town uses.

We have identified one (1) COM parcel in the Douglas Mine Brook (WMA) listing with deficient Local Parcel ID’s. We have provided the Town with the corrections for the parcel ID error on the COM’s master schedule. We recommend the Town make the correction with the COM.

For further detailed information pertaining to the COM’s current listing data variances please see Appendix Schedule #2.

The additional State Forest property purchases made in Douglas by the COM in 2015 will become part of the COM’s Fiscal Year 2017 reimbursement payment to the Town. The new values have been set by the COM and these values are actually lower than the values set by the Board of Assessors during the fiscal year 2016.

We have prepared a schedule that includes the newly expanded State Forest property for the purpose of comparing and contrasting the revised parcel sizes and values between the COM and the Town.

We have reviewed the variances and show the two new Town and COM SOL size and value data sets for clarity in this report.

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Finding #4

As a result of our work with the Town’s Assessing Department, we have advised them that the newly purchased COM owned land is valued below the Town’s values. This property should be carefully reviewed by the Town with the COM officials during the next valuation process.

For further detailed information pertaining to the COM’s newly emerging State Forest listing data variances with the Town’s listings please see Appendix Schedule #3.

TOWN – STATE VALUATION FILE DIFFERENCES

As required we have carefully reviewed the COM data sets and the Town data sets pertaining to the COM’s Reimbursement Program. Above we have identified four (4) findings of file differences.

We have focused above on the accuracy of the data in both sets. We have also focused upon inclusion variances from one data set to the other. The state and town data sets very closely resemble each other.

Finding #5

As a result of our work with the Town’s Assessing Department, we have identified three parcels of COM owned land that are not currently included in the COM’s SOL listing as either a State Forest property or a Mine Brook WMA property. These properties should be carefully reviewed by the Town with the COM officials for inclusion in the SOL Reimbursement Program.

Two of these questionable parcels were bought by the COM in 1960. They are both listed by the Town as Department of Environmental Management (DEM) properties. They seem to be part of the COM’s Douglas State Forest.

The COM will not include parcels for reimbursement if they were exempt from property taxes at the time of the COM’s acquisition. The town’s records do not readily indicate the owner at the time of the sale to the COM was exempt from property taxes.

The third parcel is listed as a DCR parcel purchased in 2010. It also seems to be a COM Douglas State Forest parcel.

The combined size of these three parcels is over 112 acres and the combined valuation by the Town is $251,300.

There are also four (4) State Forest parcels that are exempt from the COM’s Reimbursement Program. We found that these exemptions are correct. Three of the parcels were conveyed from the Town to the COM. They were exempt from taxation at the time they were acquired by the

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COM. The same is true for the fourth parcel. This piece of land was acquired in 1997 by the COM from an exempt land trust. Thus, we find these four properties are properly exempted by the COM.

For further detailed information pertaining to the COM’s exempt properties data variances with the Town’s listings please see Appendix Schedule #4

MASSACHUSETTS STATE OWNED LAND REIMBURSEMENT PROGRAMS:

General Information:

All COM owned lands are being used for “public purposes” and are thus exempt from local taxation. The COM however, does provide the cities and towns of the Commonwealth with some compensation to offset the loss of property tax revenue due to the COM’s ownership.

The program begins with the valuation of said COM properties and results in an annual payment or reimbursement to the municipalities wherein the COM owned real property is located. COM owned property is re-valued every four (4) years. The COM sets the property values they use for reimbursement purposes.

The COM only values and provides reimbursement for the land they own. All buildings and improvements located on state owned lands are not included in the valuation process. The reimbursement is based upon land values only.

There are three primary criteria for participation in the COM’s reimbursement program. They are:  The taxable status at the time of state acquisition,  The use of the land, and  The particular state agency “owning or holding” the land

The General Laws pertaining to reimbursement from the Commonwealth differ primarily on the land use factor above. Most state owned land reimbursements are subject to Massachusetts General Laws Chapter 58, § 13-17. This is true for the property located in the Town of Douglas.

Only state owned land held for “water supply or related purposes” are reimbursed under the provisions of Massachusetts General Laws Chapter 59, § 5G. Douglas does not qualify for reimbursement under this provision of the statutes.

The reimbursements for state owned land made by the COM under Chapter 58 of the general laws are formula driven. The individual communities in the program share the funding and the annual distribution amounts are subject to legislative appropriation fluctuations. The FY 2009 COM appropriation for the COM’s Reimbursement Program of $30,300,000 was the peak funding period. The FY 2016 funding level of $26,770,000 is currently about 12% below the programs peak funding year. The current level of funding has been held constant for the past three fiscal years.

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Of note is the fact that the annual reimbursements to communities for COM owned land distributed under GL Chapter 59 of the general laws have a significant benefit that is not available to communities reimbursed under GL Chapter 58.

The GL Chapter 59 language requires the COM to make payments in the subsequent year of “not less than the prior year payments”. Thus, GL Chapter 59 annual distributions must be equal to or greater than the prior year’s distribution. This language is not found in GL Chapter 58.

For further detailed information pertaining to the COM’s State Owned Land (SOL) Statutes please see Appendix Schedule #5.

Methodology:

We find that the procedures for valuation of state owned land follows generally accepted practices for the appraisal of vacant land.

The COM uses three categories of land to value each site they own in total. The classification categories are Prime Lots, Rear/Excess Land and Undevelopable/Wet Land.

We also find that local zoning ordinances drive the COM’s valuation process. We note the COM’s use of two “Rear/Excess Land” values in Douglas. One value is established for parcels in Douglas that were zoned Industrial at the time of purchase and a second value for “Rear Property” zoned Residential at the time of the acquisition. The SOL program will not change values on properties when local zoning has been voted to impact value after the COM’s acquisition.

We further find that the COM’s Reimbursement Program classifications are based upon U.S. Geodetic Maps, local conservation commission maps, U.S. and state agency maps, holding agency maps and visual observations.

We find that the COM certifies each community on a triennial basis. Thus, the COM must equalize or standardize the state-wide values in order to assure that the Reimbursement Program values are at the same level at one point in time.

Finally we find that the COM applies adjustments for size and absorption rates using standard tables. The COM specifically applies large acreage discounts to sites larger than 100 acres. They also apply excess primary lot adjustments to sites with road frontage allowing for more than 26 or more prime lots.

For further detailed information pertaining to the COM’s State Owned Land (SOL) valuation requirements please see Appendix Schedule #6.

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VALIDATE THE STATE’S CURRENT VALUATIONS FOR ITS PROPERTY IN DOUGLAS

As required, we have carefully reviewed both the COM’s valuations and the Town’s valuations of more than 6,000 acres of SOL in Douglas.

We note that the Town’s full and fair cash values for real property change each year based upon local sales and other local market conditions. The COM’s valuations are standardized across the entire state and only change once every four years.

We find that the current COM SOL values as of 2013 are higher than the Town’s FY 16 values. The variance between the COM’s 2013 SOL values and the Town FY 2016 valuations is about 9.4%. The COM will re-establish their SOL Reimbursement Program values again in 2017. The Town should pay very close attention to this pending process.

We also carefully reviewed several similar SOL valuations in various locations across Massachusetts. We focused upon larger parcels given the table based Computerized Mass Appraisal System (CAMA) valuations employed by the COM for properties similar in size to the Douglas State Forest.

Within the 2013 COM’s SOL data sets we can find several comparably sized COM properties and their values. We offer the following table for your consideration.

State Property Community Size Valuation Lots Value Per Acre Florida State Forest Florida 4,708.98 $2,222,000 80 $472 Hancock State Forest Pittsfield 4,440.68 $2,192,900 11 $494 Dubuque State Forest Hawley 5,192.00 $3,368,100 21 $649 Savoy Mt Mohawk Trail Savoy 10,902.00 $7,569,900 277 $694 Warwick/Erving State Forest Warwick 10,119.00 $8,418,300 146 $832 October Mt State Forest Washington 11,522.18 $10,407,300 43 $903 Sandisfield State Forest Sandisfield 4,579.54 $5,622,800 121 $1,228 Wendell State Forest Wendell 7,491.15 $10,617,500 217 $1,417 Mt Greylock Reservation North Adams 3,610.30 $5,670,100 68 $1,571 Beartown State Forest Great Barrington 4,932.57 $11,492,900 12 $2,330 Douglas State Forest Douglas 5,378.48 $18,374,800 42 $3,416 Mt Washington State Forest Mt Washington 6,402.73 $24,420,300 94 $3,814 Myles Standish State Forest Plymouth 10,330.21 $44,212,000 134 $4,280 Freetown State Forest Freetown 3,784.93 $18,192,900 163 $4,807 Camp Edwards Sandwich 8,275.00 $39,817,700 89 $4,812 Beartown State Forest Monterey 4,583.50 $23,022,200 79 $5,023 Camp Edwards Bourne 10,738.00 $55,079,500 0 $5,129

As you can see, the COM’s SOL property valuations tend to decrease towards the northwest of the state. The eastern most communities of Sandwich, Bourne, Plymouth and Freetown show acreage values ranging from $4,280 to $5,129. The northwestern group acreage values range from a low of $472 to a high of $1,571 per acre.

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These are the 17 largest SOL properties. The median per acre value is $1,571. The Douglas portion of the Douglas State Forest has a value that is more than double the median of the group.

We note that the south and southwestern communities also seem to have higher values. Both Douglas and Mount Washington are southern border towns. They along with the southwestern communities of Monterey and Great Barrington tend to trend towards higher values than do the communities more to the northwestern portion of the state. Sandisfield and Washington are the towns that seem to have the lowest SOL values in southwestern Massachusetts.

We also compared the smaller Douglas SOL Mine Brook property values with smaller COM property values in the Blackstone Valley. Again, there did not seem to be extreme variations in these valuations. We offer the following table for your consideration.

State Property Community Size Valuation Lots Value Per Acre Lackey Pond WMA Sutton 25.94 $33,700 0 $1,299 Mine Brook WMA Webster 239.65 $576,800 1 $2,407 Douglas State Forest Oxford 28.71 $71,800 0 $2,501 Douglas State Forest Webster 204.06 $527,500 1 $2,585 Merrill Pond WMA Sutton 318.65 $1,472,100 0 $4,620 Sutton State Fish Hatchery Sutton 2,47.91 $1,450,200 7 $5,850 Purgatory Chasm Reservation Sutton 595.16 $3,652,200 20 $6,137 Mine Brook WMA Douglas 113.13 $711,900 0 $6,293 Sutton State Forest Sutton 857.2 $5,655,200 18 $6,597 Manchuang Pond Acc Sutton 15.84 $131,000 1 $8,270 Upton State Forest Upton 2,035.45 $17,475,000 71 $8,585 Upton State Forest Northbridge 204.07 $2,194,700 10 $10,755 E Kent Swift WMA Northbridge 145.16 $2,521,000 20 $17,367

This table highlights the value added to the SOL valuations by the Prime parcels for each SOL property. The median is $6,137. As you can see, the larger number of lots tends to drive the per acre value upwards.

It appears that the SOL Mine Brook property located in Douglas tends to be valued closely to the median of the SOL values in the Blackstone Valley area. We also note that the smaller Douglas State Forest properties located in Oxford and Webster are similarly valued. Yet, we also note that these properties have about a 33% lower SOL per acre value than the much larger State Forest parcel located in Douglas.

Further we note that the same is true for the larger Mine Brook parcel located in Webster. The smaller Douglas Mine Brook parcel is valued more than 260% higher than the Webster land.

We find that the current 2013 Douglas SOL values do not seem to be adverse to the community on a comparative basis.

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OTHER FACTORS FOR THE TOWN TO CONSIDER

While not required, we have also done a careful analysis of the tax rate impact upon the SOL Reimbursement Program in the Town of Douglas.

The Town of Douglas set a tax rate of $16.46 and $16.82 respectively in the two prior fiscal years (2015 & 2016). The COM’s SOL Reimbursement Program used a three (3) year state- wide average tax rate of $14.32 for the FY 2015 distributions. Thus, the Town tends to be underpaid as a result of the lower average tax rate used by the COM for the distribution of annual payments to the cities and towns with SOL.

The Town is most adversely impacted by the level of funding provided in the COM’s annual budget by the legislature. During the past two fiscal years the state legislature has underfunded the SOL Reimbursement Program by more than 30%. The underfunding results in a proportional distribution to all of the communities in the program.

Because the funding levels are stressed, the COM’s SOL Reimbursement Program doesn’t meet the level of funding that enables full local payments based upon all of the SOL full and fair cash values using the state-wide three year average tax rate. That is a funding problem at the state’s executive and legislative levels. The town has and should continue to lobby the legislature for full funding of the program.

In addition, we found the COM’s SOL CAMA valuation system diminishes values for exceptionally large parcels (+100 Acres). The system also diminishes valuations for parcels with exceptionally larger road frontage (+26 Lots). This is an accepted practice within the industry for the full and fair cash valuation of large undeveloped real estate parcels on the market. We found it to be fairly applied and locally driven at the time of conveyance. We see the impact of this appraisal system vividly in Douglas. The large State Forest value of $3,416/Acre is 85% lower than the smaller Mine Brook parcel’s value of $6,293/Acre.

Finally, we found the Town of Douglas to be in an elite group of Commonwealth communities. We have determined that the COM owns more than 25% of the real property in Douglas. This is not a common finding. However, in the table below we have identified at least 14 other communities in the Commonwealth wherein the state owns more than 25% of that community’s total real property.

This group comprises about 4% of the more than 350 communities across the state. These communities range geographically from Cape Cod to the Route 495 corridor and on into the Berkshires. The municipalities listed below are the upper tip of the ice berg. There are numerous other localities in the SOL Program who have somewhere between 15% and 25% of their municipalities’ total square miles owned by the COM. It is likely that all of these communities’ local economies are also underperforming their peers due to a lack of developable commercial and residential land.

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Community % Of Community COM Owns Adams 27.89% Bourne 41.02% Clarksburg 36.99% Dalton 25.83% Florida 30.15% Hawley 26.25% Montery 27.03% Mount Washington 45.06% New Ashford 37.20% Sandwich 30.07% Savoy 47.45% Warwick 42.39% Washington 47.63% Wendell 36.58%

We hold to an underlying concept that the ownership of large portions of individual communities by exempt organizations such as the state or land trusts has both favorable and unfavorable results. Most agree that is true. Individual lists vary. The pros don’t always exceed the cons on some lists. They do on other lists.

An important con that we hold to is that under the so-called “Proposition 2 ½” legislation in place here in the Commonwealth of Massachusetts, there is a point of diminishing returns that results from these disproportional public uses of large sections of real property within specific individual communities.

The downside to communities where the state owns more than 25% of that community comes from the diminished capacity to maximize all the available local resources to grow and expand the local economy. While the much larger state itself may not suffer much socio-economic stagnation resulting from large acquisitions in a single community, we hold that the local community does feel the impacts significantly.

We hold that the loss of 25% or more of a local community’s land resources from development and taxation has a considerable adverse impact upon both the long term economic growth and the future prosperity of a municipality. This is especially true when the municipal taxation required to adequately meet and maintain basic local needs such as public safety and education is limited by the state’s municipal taxation laws.

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Finding #6

We strongly recommend that the Town of Douglas seek their local legislative representatives’ assistance with an amendment to the COM’s SOL Reimbursement Program. The legislation should provide for some additional financial compensation for those Massachusetts cities and towns wherein the state owns 25% of more of a municipality’s total real property.

We believe that such an amendment can help these limited number of Massachusetts localities to overcome the economic hardships resulting from the exemption from taxation of a significant portion (over 25%) of the community due to the state government’s conflicting taxation laws and their local land ownership.

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