Sunday, October 14, 2012

Hyde Park School District Promulgates Misleading Tax Information

When it comes to understanding how property taxes work, it is amazing how many government officials who should know better get it wrong. The problem is always the same: The errant officials erroneously believe that assessed values have intrinsic meaning, when in reality assessed values mean nothing with respect to property tax until converted to market values using the appropriate equalization rates. At least three local municipalities have made this mistake, as documented herehere, and here. Now the Hyde Park School District can be added to this list of notoriety.

On August 23, 2012, Hyde Park School District Assistant Superintendent for Business Wayne Kurlander presented Tax Levy Calculations, Rates to the Board of Education. Unfortunately, this presentation gives a misleading picture of changes in the school district's property values and tax rate. Even more unfortunately, the Poughkeepsie Journal has uncritically reported the claims in Kurlander's presentation, leading to a sense of unfairness where no unfairness actually exists.

Tax Rate Change Calculation Mistake

Kurlander's “Tax Rate Changes” table on page 5 of his presentation calculates a year-to-year difference of $0.78 (column 4) between Hyde Park's tax rates per thousand dollars of assessed value. This calculation makes no sense, because Hyde Park's equalization rates are different (54% versus 56%) for the two years being compared. It would be like subtracting 50 miles per hour from 100 kilometers per hour, and getting 50 “something” per hour. A meaningful calculation requires that the two tax rates first be converted to comparable units before subtraction. An obvious way to do this is to multiply each tax rate by its corresponding equalization rate, thus yielding true value tax rates.

Since the $0.78 difference makes no sense, neither does the 2.21% rate change (column 5). When the correct calculation is performed, Hyde Park's true value tax rate change is of course 6.00% — the same as for all the other towns!

The Poughkeepsie Journal took Kurlander's flawed calculation to formulate a misleading headline, Some in Hyde Park face 6% tax hike (August 30, page 1 of Mid-Hudson section). In reality, it's not “some”, it's “all”. The story's subtitle is also misleading: Assessed value drop forces school board to hike 4 towns' rates. In reality, it's not “4 towns'” but “all 5 towns'” in the Hyde Park School District. The story's lead sentence is unambiguous: “School tax rates for most town homeowners will increase by 2.2 percent this school year.” This statement is flat out false. A correct statement would read, “School tax rates for all homeowners will increase by 6 percent this school year.” Of course, none of the corrected statements sound as sensational as the incorrect and misleading ones. But in the newspaper's defense, Journal reporter John Davis did nothing more than uncritically elaborate Kurlander's presentation.

Superintendent's Statement is Incorrect

Kurlander is not the only Hyde Park School District official who misunderstands how tax rates work. Hyde Park School Superintendent Greer Fischer is quoted in the Poughkeepsie Journal story as saying, “That it's been 16 years since the Town of Hyde Park has gone through an assessment does make for a disparity in the rate changes.”

No, it does not. There is no disparity in the rate changes this year, and there hasn't been a disparity in the rate changes in the last ten years. Each year, all five towns in the Hyde Park School District have paid the same true value tax rate. In other words, every property owner in the District pays the same proportion of his property’s taxable market value, regardless of Town. This simple fact is a basic principle of New York State Real Property Tax Law. Another way to state this basic principle is as follows: Two properties in different Towns with the same taxable market value will pay the same Hyde Park school tax. This statement is true this year, it was true last year, and it's been true for each of the last 10 years. Since the tax rates are the same in all the Towns, so are the tax rate changes. That's why my recent post Hyde Park School District Tax Rate Is Highest in Millennium lists only one tax rate and only one tax rate change for each year.

Assessed Value Change Calculation Mistake

Kurlander's “Comparison of Taxable Assessed Values” table on page 12 of his presentation makes a similar conceptual error: The Hyde Park entry (second row) compares assessed values from two different years with different equalization rates. The listed percent change of -0.48% for Hyde Park makes no sense, for the same reason that comparing pounds to kilograms makes no sense. A meaningful calculation requires that the assessed values first be converted to comparable units. An obvious way to do this is to divide each assessed value by its corresponding equalization rate, thus yielding taxable market value. When the correct calculation is performed, Hyde Park's percent change is -4.04%, not -0.48%.

Meaningful Tax Information is Essential

My purpose in all property tax investigations is not to embarrass government officials, but to assure that property owners, residents, government officials, and other stakeholders have meaningful, accurate information about taxes. So I was glad when Kurlander granted me the opportunity to meet with him and Hyde Park School District Treasurer Linda Steinberg on September 7. Although we had a lengthy and cordial interchange, I was not able to convince Kurlander that he had made any mistake. At Kurlander's request, I promptly emailed them all my backup calculations. Unfortunately, I've heard nothing from him since then, despite numerous contact attempts. I will update this post to reflect any meaningful Hyde Park School District feedback.

UPDATE 11/5/2012 - District May Change Tax Message

I'm pleased to report that a prominent member of the Hyde Park School District Board of Education has come to understand that the District's current way of explaining school tax is problematic, and that a more consistent, coherent, and technically accurate approach is needed. I'm hopeful that I won't need to write a post such as this on the Hyde Park School District next year.

Saturday, October 13, 2012

Hyde Park School District Tax Rate Is Highest in Millennium

Five years after the 2008 global economic meltdown, the effects are still being felt here in Dutchess County. Property values are continuing to drop. For the latest assessment rolls (July 1, 2012), Dutchess County's taxable market value dropped 3.9 percent over last year. That's a greater drop than the previous year's, and only a fraction of a percent less than the average yearly drop of the last four years. So the trend of falling property values continues unabated.

My recent post Dutchess County Gov't 2013 Tax Rate Likely To Be Highest in Millennium shows this trend and how, all other things being equal, it leads to rising tax rates. Of course, all other things aren't equal — all other things are worse also. The meltdown means that government services will actually cost more, while delivering less. Dutchess County Government's 2013 true value tax rate will almost certainly be the highest in this millennium (so far). High tax rates are burdensome for property taxpayers because the tax rate is essentially the proportion of a taxpayer's wealth, as measured by the taxable market value of his/her property, that is paid in tax.

Hyde Park School District's Market Value

So much for the big picture in Dutchess County. For smaller local government taxing authorities (towns, villages, cities, school districts, and special districts), we are seeing the same effects of continually decreasing property values, record-breaking tax levies, and worst of all, record-breaking tax rates. This post examines these effects for the Hyde Park School District. For the latest assessment rolls, the Hyde Park School District's taxable market value has dropped only 3.1 percent since last year, compared with 3.9 percent for Dutchess County as a whole.

District's Tax Levy

The Hyde Park School District's tax levy has increased every year of this millennium, even in the face of a recently decreasing tax base. The District's 2012 tax levy of $54.2 million is the highest in this millennium, and almost certainly the highest in the history of the District. Not only that, but the following chart shows that the District's 2012 tax levy increase of 2.7 percent is the second highest since the meltdown began.

Data for 2012 is from a presentation Tax Levy Calculations, Rates by Hyde Park School District Assistant Superintendent for Business Wayne Kurlander to the Board of Education on August 23, 2012. Data for earlier years is from the yearly tax rate pamphlets published by the Dutchess County Real Property Tax Service Agency.

District's Tax Rate

Here's the really bad news: The Hyde Park School District's 2012 true value tax rate of $20.42 per thousand dollars of market value is the highest in this millennium — exceeding $20 for the first time — as shown in the following chart:

This means that Hyde Park School District taxpayers are paying a greater proportion of their wealth, as measured by the taxable market value of their property, than at any previous time in this millennium. The second highest tax rate occurred in 2000, when property values were only about half of what they are now.

The following chart shows that the 2012 Hyde Park School District's tax rate increase of 6.0 percent is the second highest in this millennium. (The highest, in 2010, was mainly caused by a whopping 13.1 decrease in the District's taxable market value.)

If you find these charts useful, you can find more of them and the accompanying numerical data in my report Hyde Park School District Tax Data.

Hyde Park School District's Tax Presentation is Misleading

The Hyde Park School District has not explained its current tax parameters in historical perspective, at least not according to the Tax Levy Calculations, Rates presentation by Kurlander mentioned above. Stakeholders have no way of knowing from Kurlander's presentation that property owners are being taxed at a higher rate than ever in this millennium.

It is understandable that the District may not want to emphasize such dire facts. Unfortunately, Kurlander's presentation does not simply leave out important information. It actively promotes a misleading picture which confounds the ability of taxpayers, the board of education itself, and other stakeholders to properly understand the changes in the school district's property values and tax rate from last year to this year. This misleading picture was uncritically reported by the Poughkeepsie Journal, in a successful attempt to create a sense of unfairness where no unfairness actually exists.

I will have more to say about Kurlander's presentation in a forthcoming post.

Thursday, October 4, 2012

Dutchess County Gov't 2013 Tax Rate Likely To Be Highest in Millennium

Newly elected County Executive Marcus Molinaro is many weeks away from announcing a proposed 2013 budget. After that, the county legislature must deliberate on adjustments before approving a final budget in December. Nevertheless, I can already predict with some confidence that the final 2013 county budget will result in the highest tax rate in this millennium, and the highest tax levy in the history of Dutchess County. In other words, properties will be taxed more steeply by Dutchess County Government than ever before in this millennium. These predictions are based on two tax trends:
  1. Dutchess County's taxable market value continues to fall — for the fifth year in a row.
  2. Dutchess County Government's tax levy has never significantly fallen, year-to-year.
Taxable Market Value

Dutchess County's taxable market value and tax levy for each year from 2001 through 2012 are derived from the tax rate pamphlets published by the Dutchess County Real Property Tax Service Agency (RPTSA).

For the 2013 tax bill, only an initial estimate of Dutchess County's taxable market value is available (shown in yellow), based on the July 1, 2012, assessment rolls. This value is shown as $30.7 billion on page 23 of a fiscal presentation by the Dutchess County Budget Office. The downward trend in property values since the beginning of the economic meltdown in 2008 is evident in the following chart:

The 2013 taxable market value is shown in yellow to indicate that it is only a preliminary value. The final value, which will not be available until late January 2013, is most likely to be somewhat lower than this value for a variety of reasons explained in detail here.

Note that taxable market value is a net value, including both the value of new construction and improvements, and the current value of existing construction. Dutchess County's taxable market value surged in the first part of the last decade. In 2008 it was 2.5 times larger than in 2001. But from 2008 to 2013 it fell 20 percent. Once again, this 20 percent includes the effects of both the value of new construction and the current value of existing construction. Since there has been some new construction, the value of existing construction must have dropped more than 20 percent since 2008. 

Year to year increases in the taxable market value are shown  below:

When I performed this analysis last year, it appeared as if the property value free-fall was nearly over, since the 2012 taxable market value decrease was the smallest since the meltdown. But the 2013 estimate clearly contradicts that conclusion. Although the 2013 decrease is only an initial estimate, the final decrease will most likely be somewhat greater. Note that all these market values lag tax bills by a year and a half. For example, for tax bills to be paid in February 2013, the corresponding market values are as of July 1, 2011.

Tax Levy

To reason about the 2013 tax levy, let's consider Dutchess County's tax levy history:

The above charts show that Dutchess County's tax levy has increased by a significant amount almost every year. Only in 2002 and 2011 has the tax levy been essentially unchanged from the previous year. Accordingly, I've made the most conservative assumption, that Dutchess County's 2013 tax levy increase will be zero. Based on history, it's unlikely that Dutchess County's 2013 tax levy will be lower than the 2012 levy. The yellow bar indicates that this data point is speculative.

Tax Rate

The 2013 true value tax rate, which is calculated by dividing the assumed 2013 tax levy by the 2013 taxable market value, is $3.38 per thousand dollars of market value

The above chart shows that this projected 2013 tax rate for Dutchess County (in yellow) is higher than in any previous year. This projection is almost certainly a low estimate. That's because the final 2013 taxable market value and the 2013 tax levy are both likely to move in a direction to increase this tax rate even further. The tax rate increase chart gives a third reason to conclude that the $3.38 estimate is conservative:

If Dutchess County's 2013 tax rate turns out to be “only” $3.38 — the highest in this millennium — it will still represent the lowest tax rate increase since the meltdown.

Will My Predictions Stand the Test of Time?

What would it take for my tax rate prediction of at least $3.38 or my prediction of the largest tax levy in Dutchess County's history to be wrong? Well, perhaps Molinaro will propose an especially frugal budget with a lower tax levy than last year's. But this won't be easy to do. Former County Executive William Steinhaus was known for shrinking county government and implementing other austerity measures in the years since the meltdown. It's unlikely there's a lot of fat to cut. Meanwhile, the costs of everything are continuing to increase. The effects of the 2008 economic meltdown are still being felt all over, despite allegations of a “recovery”.

How Will We Know Whether My Predictions Are Correct?

The first and most significant indication of whether my predictions are correct will occur next month, when Molinero announces his proposed budget. The second and probably less significant indication will be when the County Legislature approves the budget, possibly with modifications, in December. But the final word will not be out until January, when the 2013 tax rate pamphlet is released by the RPTSA, possibly with slight adjustments as described here. It is these tax rates that are used to generate property tax bills. Ultimately, it is the property tax bills that define how steeply taxpayers are being taxed.

I Hope I'm Wrong

It would be great if my predictions turn out to be wrong. Property taxpayers have been suffering more every year since the meltdown, and of course not just from Dutchess County Government taxes. Only time will tell whether my prediction of Dutchess County's 2013 tax rate of $3.38 turns out to be low-ball.

UPDATE 10/6/2012 — Budget May Exceed 2% Tax Cap

Just a day after publication of this post, it already looks like my caution that my predictions might be wrong may be unwarranted. A front page story in yesterday's Poughkeepsie Journal describes Molinaro's intent to replenish  the County's rainy-day fund. The story quotes Dutchess County Legislative Chairman Robert Rolison as saying that Molinaro's plan would probably require exceeding the State's 2 percent tax cap. Nevertheless, Rolison signaled his intent to support such an increase. As I see it, the stage is already being set to increase the County's 2013 tax levy by at least 2 percent over 2012. Even at just 2 percent, the 2013 tax rate would be $3.45, a 6.1 percent increase over 2012. Such a result would easily confirm my predictions.

Tuesday, October 2, 2012

Big Three Fire Districts Continue Divergent Tax Strategies

This post updates one I posted a year ago, adding data for the 2013 proposed budgets.

Each of the Big Three Fire Districts of Dutchess County — Arlington, LaGrange, and Fairview — seems to have employed its own tax strategy for meeting the continuing fiscal challenges of the 2008 economic meltdown.  LaGrange's strategy seems a relatively moderate reflection of the economic meltdown, Arlington appears to be on a spending spree, while Fairview appears to be starving the District of resources.  This viewpoint about Fairview is consistent with the fact that Fairview has not been contributing adequately to its reserve funds in recent years, as described here and here.

The following chart gives one way to see the dramatic differences among the three strategies:

Each bar in the above chart shows the cumulative increase in tax levy, compared with the 2008 tax levy.  That is, each bar shows how much more money has been collected between 2008 and that year than would have been collected if every tax levy to that point were equal to the 2008 tax levy.  For example, a 2009 bar shows the difference between the 2009 tax levy and the corresponding 2008 tax levy, expressed as a percent of the 2008 tax levy; a 2010 bar shows the difference between the 2009 tax levy and the corresponding 2008 tax levy plus the difference between the 2010 tax levy and the 2008 tax levy, expressed as a percent of the 2008 tax levy. In other words, this chart illustrates the effect over time of deviating from a strategy of holding the tax levy flat at the 2008 level.  Because all changes are normalized relative to each District's 2008 tax levy, this chart makes it possible to directly compare each of the Big Three fire districts with each other.

Strategies of the Big Three — Tax Levy Viewpoint

The LaGrange Fire District has taken the moderate strategy of maintaining its tax levy relatively close to its 2008 level.  Thus, its bars are barely visible until 2012.  The amount of additional tax money LaGrange will have collected through 2013 is just 6.7 percent of LaGrange's 2008 tax levy, or $331,000.  That's the meaning of LaGrange's 2013 bar of 6.7 percent.

The Arlington Fire District has taken the strategy of significantly increasing the tax levy almost every year, so that the cumulative increase in Arlington's fire tax levy from 2008 until 2013 (proposed budget) is 82 percent.  Thus, the amount of additional tax money Arlington will have collected through 2013 is 82 percent of Arlington's 2008 tax levy, or about $10.6 million.

Now we come to poor Fairview. And I mean poor. The Fairview Fire District has taken the opposite strategy from Arlington by decreasing its tax levy every year until 2012.  The cumulative decrease in Fairview's fire tax levy from 2008 until 2013 (proposed budget) is 18.6 percent.  This means that the amount of tax money Fairview has failed to collect through 2013 is 18.6 percent of Fairview's 2008 tax levy, or about $563,000. Fairview's 2013 proposed tax levy is the first time Fairview has exceeded its 2008 tax levy. That's why Fairview's 2013 bar is shorter than its 2012 bar.

Strategies of the Big Three — Tax Rate Viewpoint

Taxable market values in the big three fire districts have fallen every year since 2008.  For the period 2008 to 2013, they fell a total of about 27 percent in LaGrange and Arlington, but only 16 percent in Fairview.  Fairview's shallower decline means that Fairview's tax rate has taken less of a hit than LaGrange and Arlington have incurred.  Nevertheless, the differing strategies of the Big Three are starkly evident in this chart of cumulative tax rate increase since 2008:

The above chart is easier to explain than the previous one.  Each bar is simply the percent increase in the true value tax rate for the year, compared with the corresponding 2008 tax rate (rather than compared with the previous year's tax rate).  Because all tax rates are normalized relative to each District's 2008 tax rate, this chart makes it possible to directly compare the strategies of each of the Big Three fire districts.

The true value tax rate is a good measure of how steeply taxpayers' wealth — measured by the market value of their properties — is taxed.  Therefore, the above chart shows, for each fire district, how much more steeply taxpayers are being taxed compared with the meltdown year of 2008.  Looking at the proposed 2013 budgets, Arlington will tax 66 percent more steeply; LaGrange will tax 42 percent more steeply; poor Fairview will only tax 28 percent more steeply.

The Proposed 2013 Budgets Continue These Divergent Strategies

The proposed 2013 budgets for Arlington and LaGrange are not isolated decisions, but are continuations of strategies that have been followed by these district since the economic meltdown of 2008. Fairview, however, appears to be changing its strategy in the last year or so, with two double-digit tax rate increases in a row. Even so, the above charts show that Fairview still hasn't caught up with LaGrange regarding its response to the economic meltdown.