Sunday, January 29, 2012

Town of Pleasant Valley Publishes Incorrect Tax Rate Change — Again

For the third year in a row, the Town of Pleasant Valley has calculated its tax rate change incorrectly. The Town's 2012 budget makes the absurd claim that the 2012 tax rate is 42.3 percent lower than the 2011 tax rate. If only it were so, I'm sure many taxpayers would be very happy! But of course this figure is not remotely correct.  Pleasant Valley's 2012 tax rate is just 2.2 percent lower than its 2011 tax rate, not 42.3 percent lower.

The mistake was made by Pleasant Valley Town Supervisor John McNair — who was also the Town Budget Officer for the 2012 budget. McNair's mistake was to compare tax rates based on assessed value, rather than first converting these rates to true value tax rates before comparing. McNair's method is like saying a car slowed from 100 kilometers per hour to 60 miles per hour, so the speed decrease is 40 percent. No, 100 kilometers per hour is “really” 62 miles per hour, so the speed decrease is only 3.2 percent.

McNair failed to take into account the equalization rate changes that have occurred every year since 2010 in Pleasant Valley. He should have divided each tax rate in the budget by the corresponding equalization rate to obtain the true value tax rates before comparing. McNair has been making this same mistake for at least the last three years, with the following results:

Pleasant Valley Tax Rate Increase
Year of Tax BillBudget Entry (incorrect)Correct Value

Note that the Pleasant Valley budget grossly understates the tax rate increase every year.

What were town officials thinking?

Too bad McNair wasn't aware of my analysis, right? Just kidding! Not only has McNair been aware of my analysis for almost two years, but at least three other town officials have been long aware of this issue. Upon my polite and constructive inquiries with all these officials, two of them not only rejected my analysis, but also responded with open hostility. I thought maybe I'd accidentally contacted the Town of Unpleasant Valley. The third official understood my analysis right away and agreed completely with it. This third person is no longer a town official.

What can we expect in the future?

The two hostile people remain as town officials today, but McNair has been replaced as Town Supervisor and budget officer by Carl Tomik. Hopefully, Tomik will encourage his colleagues to represent the town in a more professional manner. Regarding the publication of incorrect tax rate changes, I can confidently predict that this will not happen in future years. Not because town officials have seen the light, but because the revaluation that occurred in 2011 means that Pleasant Valley's equalization rate will stay constant at 100 percent in future years. Therefore, even calculating future tax rate changes the way McNair did will give the right answer in future years.

My predictions have come true

The main new information here is that despite my many attempts to engage McNair and other Pleasant Valley officials in reasoned dialog, McNair still continued to employ his flawed methodology for one last year, resulting in the ridiculous claim that the tax rate fell 42.3 percent in 2012. I'd predicted this outcome last March in Town of Pleasant Valley Revaluation Will Challenge Supervisor's Miscalculation, long before the 2012 budget or even the Town's assessed valuation was precisely known. My post predicted that McNair's flawed methodology would result in a claimed tax rate decrease of 44.3 percent, pretty close to McNair's 42.3 percent. My post predicted a correct tax rate decrease of 5.6 percent, reasonably close to the actual 2.2 percent, considering the unknowns at that time.

Detailed Report on Pleasant Valley's Tax History

My post last March included a link to my report on Pleasant Valley's tax rate history for the last 12 years, including projected 2012 data. I've now updated this report to include the final 2012 data. You can find my updated report at Town of Pleasant Valley Property Tax Rate History.

The current post contains data from a budget viewpoint, since that would be the viewpoint of Pleasant Valley's budget officer. However, my full report contains data from a taxpayer viewpoint, because that data represents what taxpayers have actually paid (or will pay next month). The two sets of numbers are slightly different from each other, as explained in my post Tax Rate Viewpoints — Taxpayer Versus Budget. Either set of numbers can be considered valid, depending upon your point of view.

Wednesday, January 25, 2012

Dutchess County 2012 Tax Rate Is Highest In Decade

Just over a year ago, I posted Dutchess County 2011 Tax Rate Is Highest In Decade. For 2012, the property tax rate for Dutchess County government has increased an additional 6.2 percent, making it once again the highest tax rate in the last ten years. The rising tax rate means that property taxpayers are paying a larger and larger proportion of their wealth — measured by the market value of their property — in taxes. As I've written many times in this blog, the tax rate is the most meaningful way to compare taxes between different years, and between different jurisdictions.

Since the economic meltdown began in 2008, public officials, particularly County Executive William Steinhaus, have focused on the tax levy and changes in the tax levy, while downplaying the tax rate. That's because they know that in a declining real estate market, changes in the tax levy don't sound as bad as changes in the tax rate. But in my view, it's really the tax rate that describes how burdensome your taxes are — not the tax levy.

Let's look at the data:

Alert readers will notice very small differences between the above table and that in last year's post. That's because the above table comprises data from the taxpayer's viewpoint, while that in last year's post comprises data from  the budget viewpoint. The differences between these viewpoints are explained in Tax Rate Viewpoints — Taxpayer Versus Budget. All the data in the above table was derived from the tax rate pamphlets published by the Dutchess County Real Property Tax Service Agency. This data matches that on property tax bills.

We can look at this data more easily in graphical form. Dutchess County's taxable market value has continued to drop for the fourth straight year, since the meltdown began:

The above chart shows that Dutchess County's real estate market has been getting worse for each of the last four years. However, a three-year trend of ever-faster declines has reversed itself in 2012, as we can see clearly in the chart of changes in the market value:

This chart shows that Dutchess County's market value isn't falling as fast as it has been:  The 2012 decline is smaller than in any of the three previous years. If this new trend continues, 2013 may not be worse than 2012. In the years since the meltdown began, this is what passes for good news.

As real estate values decline, government officials focus on the tax levy, rather than on the tax rate. That way, the news won't sound as bad as it really is. Steinhaus has been a master at this.

Changes in the tax levy are more clearly seen below:

This year is the first for which New York State's famous two percent tax cap kicks in. This law has been widely touted as helping to reign in escalating property taxes. The law limits local government tax levy increases to 2 percent, with some exceptions. So naturally, Dutchess County's 2012 tax levy increase is only ... um ... 3.2 percent. Surprised? Well, I guess you didn't read the fine print — the part of the law about “some exceptions”. It turns out, according to Steinhaus' 2012 budget message, that the state's property tax cap formula includes exceptions which allow Dutchess County's tax levy to increase up to 3.3 percent. If you think the tax cap law is ineffectual, note that even at 3.2 percent, Dutchess County's 2012 tax levy increase is smaller than in all but three of the last 11 years.

The fact that Dutchess County's tax base has decreased, but its tax levy has not, means that Dutchess County's tax rate is bound to increase. Here it is:

For 2012, Dutchess County's tax rate is $3.25 per thousand dollars of market value, a 6.2 percent increase over last year's $3.06. This tax rate information is useful to property owners who want to understand how high their property taxes are compared with their personal wealth, as measured by the market value of their home. That’s exactly what this true value tax rate measures.

For what it's worth, Dutchess County's 2012 tax rate is not yet at an all-time high. In 2001, the first year for which coherent data is available, the County's tax rate was $3.36.

Changes in the tax rate again show increases every year since the 2008 meltdown:

As we begin 2012, we can compare our situation today with that in 2008, when the economic meltdown hit. Property values in Dutchess County (as measured by taxable market value) have now dropped 17.0 percent since 2008, despite any new construction. At the same time that property owners' wealth has been decreasing, Dutchess County government is billing 17.8 percent more dollars in tax levy than in 2008. These two detrimental effects combine to yield a whopping 42.0 percent increase in the true value tax rate since 2008. So 42 percent more of taxpayers' current wealth goes to Dutchess County than in 2008.

This Bad News is by no means unique to Dutchess County government. On the contrary, the story is qualitatively similar for all property taxes in Dutchess County — for towns, cities, villages, school districts, fire districts, etc.