Wednesday, November 24, 2010

Town of Pleasant Valley's Tax Rate Increase Mistake is Entrenched

On Monday I reported that the Town of Pleasant Valley's 2011 property tax rate increase of 9.19 percent, as reported in the Poughkeepsie Journal, is wildly inaccurate, and that the correct rate increase is 23.3 percent.  On Tuesday, I reported that the principle blame for this mistake lies with the Town of Pleasant Valley, rather than with the Poughkeepsie Journal (which has been known to make mistakes of exactly this kind).  Today I've determined that the calculation mistake by the Town of Pleasant Valley is not a single isolated error, but has been a systematic part of the Town's fiscal methodology for at least the last three years.  Pleasant Valley's 2011, 2010, and 2009 Town budgets all show this mistake on the first page.  In other words, the government of the Town of Pleasant Valley has no idea how much it is increasing its tax rate each year.

A Bad Example — Dutchess County Government

To put this mistake into perspective, consider how a more sophisticated government, such as that of Dutchess County, handles tax rates and tax rate increases.  County Executive William Steinhaus' 2011 Budget Message does not even mention tax rates, let alone tax rate increases.  You can be sure of three things:
  1. Steinhaus knows full well exactly what the proposed tax rate and tax rate increase are.  The county has an entire department that is expert at such matters.
  2. The County tax rate will increase in 2011.  That's because the County's taxable market value has decreased, Steinhaus is proposing to freeze the property tax levy at the 2010 level, and the County Legislature is very likely to increase the tax levy.  Even a frozen tax levy guarantees increasing the tax rate if the market value has decreased.
  3. The omission of tax rate information in Steinhaus' budget message is no accident.  The omission is a deliberate attempt to make the situation sound not as bad as it really is, by focusing on the tax levy, and not the tax rate.  Steinhaus is skilled; he did exactly the same thing last year
In summary, Steinhaus avoided making any false statements, and he avoided telling the Really Bad News (a significant tax rate increase), all the while knowing full well what's really going on with County finances.  I'm definitely not recommending Steinhaus' approach for the Town of Pleasant Valley — or for any municipality.  By withholding the most important tax parameters — the tax rate and the change in the tax rate — Steinhaus makes it essentially impossible for his constituents and other stakeholders to sort out what's really happening to property taxes.  This is the opposite of open government, and should be roundly condemned.

A Worse Example — Town of Pleasant Valley

However, Steinhaus' approach is better in two ways than what the Town of Pleasant Valley has been doing:
  1. Steinhaus knows what's really going on regarding changes to the tax rate.  The government of the Town of Pleasant Valley does not.  The Town thinks it's only increasing the tax rate by 9 percent, when it's really increasing the tax rate by 23 percent.  So, unlike the executive branch of Dutchess County Government, the Town of Pleasant Valley is flying blind.
  2. Dutchess County taxpayers and other stakeholders don't know how much Steinhaus is proposing to increase their tax rate.  As bad as this is (and it's Bad!), it's still better than for the taxpayers and other stakeholders of the Town of Pleasant Valley, who think they know, but what they know is wrong!  In my view, not knowing is better than “knowing” something that's wrong.
It is disturbing, to say the least, that the Town of Pleasant Valley and its stakeholders think they know what's happening, when the reality is quite different.  It's probably too late to do much about this for 2011.  However, for the 2012 proposed budget, the Town of Pleasant Valley should publish the correct tax rate increase.

Tuesday, November 23, 2010

Town of Pleasant Valley Misunderstands Property Tax Rate Increases

It's the Town of Pleasant Valley, and not the Poughkeepsie Journal, that is primarily responsible for calculating the wildly incorrect tax rate increase of 9.19 percent reported in the Journal on November 20.  My post yesterday to this blog, Town of Pleasant Valley Increases Tax Rate 23.3 Percent, explains why the published tax rate increase is incorrect, and how to calculate it correctly.

Pleasant Valley Town Supervisor (and Budget Officer) John McNair asserted today that, “The rate increase is as stated in the Poughkeepsie Journal.”  In other words, McNair considers the 9.19 percent tax rate increase reported in the Poughkeepsie Journal to be correct.

Given that the 9.19 figure is wrong, and considering that this incorrect figure reflects more favorably on the Town of Pleasant Valley than the correct figure of 23.3 percent, some might conclude that McNair is intentionally fabricating budget figures; in other words, lying.  I doubt this is the case, for two reasons:
  1. Although government officials deliberately make misleading statements every day of the week, they generally prefer to avoid lying.  Instead, they make assertions that are true (but irrelevant), or that are difficult to dispute.  The 9.19 figure is neither.  It's false, and it's easy to show that it's false.  Why would a government official lie about something that is so easy to refute?
  2. Other institutions that should know better have been calculating tax rate increases incorrectly.  I've already found two:  The Town of Hyde Park has been making this mistake for at least three yearsThe Poughkeepsie Journal has been making this mistake for at least 10 months.  In both cases, I've found evidence that these have been honest mistakes — not deliberate deception.
The tax rate increase mistakes committed by the Town of Hyde Park and the Poughkeepsie Journal are entrenched.  So far, both institutions have vehemently denied that their published tax rate increase percentages are incorrect.  How entrenched is the Town of Pleasant Valley's tax rate increase mistake?  I don't know, but I'm hoping to find out.  Stay tuned.

Monday, November 22, 2010

Town of Pleasant Valley Increases Tax Rate 23.3 Percent

The headline on the front page of the November 20 Poughkeepsie Journal (print edition) reads, “Pleasant Valley OKs 2011 budget; tax rate rises 9.19%”.  So why does the title of this post say the increase is 23.3 percent?

If you're a regular reader of this blog, you already know the answer.  It's the same refrain I've written about numerous times in this blog, such as here, here, here, and here.  The 9.19% figure was arrived at by directly comparing the 2011 tax rate with the 2010 tax rate, with both rates measured in dollars per thousand dollars of assessed value.  Such a comparison makes no sense, because the two tax rates correspond to different equalization rates.  It would be like comparing today's Dow Jones industrial average, measured in dollars, with yesterday's, measured in Euros.

Correct Computation Requires Conversion

To compare tax rates in dollars per thousand dollars of assessed value, one must first convert them to dollars per thousand dollars of market value by multiplying them by their corresponding equalization rates.  Thus, Pleasant Valley's 2010 tax rate is $3.79 per thousand dollars of assessed value.  Multiplying this by the 2010 equalization rate of 52 percent yields a tax rate of $1.97 per thousand dollars of market value.  Similarly, the 2011 tax rate of $4.12 per thousand dollars of assessed value multiplied by the 2011 equalization rate of 59 percent yields a tax rate of $2.43 per thousand dollars of market value.  Now the converted tax rates, $1.97 and $2.43, can be directly compared, yielding a 23.3 percent increase.  (If you try this at home, be sure your input data and all calculations are good to at least 6 significant figures.  Otherwise, noticeable round-off errors can accumulate.)

Who's To Blame for Mistake?

This is by no means the first time that the Poughkeepsie Journal has published wildly inaccurate tax rate increases for jurisdictions with varying equalization rates.  In the past, I have had direct confirmation that  Poughkeepsie Journal reporters have performed the mistaken calculations.  However, in the Town of Hyde Park, it is clear that the municipality itself is primarily responsible for the mistaken calculations.  For Pleasant Valley, I have not yet been able to determine whether it is the Town or the Poughkeepsie Journal that is responsible for the mistake.  I'll post again when I find out.

Friday, November 19, 2010

Town of Hyde Park to Increase Property Tax Rate 16.9 Percent

At a special meeting to begin within the hour, the Hyde Park Town Board is expected to approve its 2011 budget, and to announce that this budget will result in roughly the same tax rate (0.4 percent decrease) compared with last year.  If you are asking why the title of this post refers to a 16.9 percent tax rate increase, then you haven't been reading this blog recently.  My post of November 11 explains that the Town of Hyde Park has not understood how to properly calculate property tax rate increases.  The Town has incorrectly assumed that it can simply compare the tax rates in dollars per thousand dollars of assessed value from year to year.  However, this procedure is invalid for jurisdictions like Hyde Park with equalization rates that change every year.  By not properly computing the tax rate increase percent, the government of the Town of Hyde Park, and the citizens who are evaluating its budget, are flying blind.  Since posting on November 11, I've learned that the same flawed 2011 budget process was also present in the 2010 and 2009 budget processes.  I have not determined whether this fundamental flaw was present in Hyde Park budgets prior to the 2009 tax year.

Staffing Changes

I've also since learned that the Hyde Park Town Board has enacted some significant staffing changes during the last half year:  Twenty-three year veteran bookkeeper Joanne Lown was fired in June 2010 in what some claimed was an unceremonious procedure.  The Board simultaneously abolished her position, replacing it with a new comptroller position.  Ann Boehm was then hired as a temporary, part-time comptroller until her full-time replacement by Darlene Deary on September 15.

Why is Hyde Park's 2011 Tax Rate Increase so High?

Hyde Park's equalization rate for 2011 property taxes is 54 percent, up 17.4 percent from 46 percent for the 2010 taxes.  This major increase in equalization rate swamps the small (0.8 percent) increase in assessed value, causing Hyde Park's taxable market value to decrease 14.1 percent.  The large drop in market value means that even if the 2011 tax levy were unchanged from 2010, Hyde Park would see a double-digit increase in tax rate.  However, the tax levy for 2011 is expected to increase a small amount (0.4 percent) to $4,490,122.  Doing the math results in a 16.9 percent tax rate increase.

Response of Town Officials

My repeated attempts to contact Town of Hyde Park officials were not fruitful until Monday, November 15.  By that time, officials apparently figured it was too late to do anything about the tax rate calculation error for this budget cycle.  News stories this week about Hyde Park in the Poughkeepsie Journal continue to report wildly inaccurate tax rate increase information, as they have done since last month.  In my view, Hyde Park Town Supervisor Tom Martino owes it to the public to accurately and faithfully report the correct tax rate increase percent for the 2011 budget — not the wildly inaccurate tax rate increases being claimed.  Taxpayers will eventually be able to determine the true tax rate increase when they get their tax bills.

Remedy

In order to correct this unfortunate problem in future years, no action is needed by the Town Board.  The problem can be corrected administratively by whoever is responsible for preparing the budget details, presumably Deary.  Once she makes this correction, citizens — and the government itself — will be able to see what the true financial situation is.

100 Percent Equalization

In addition, however, the Town Board might be wise to consider modernizing the assessment process by moving to 100 percent equalization, as all but 8 jurisdictions in Dutchess County have already done. Once this is accomplished, the misunderstandings of recent years will not be possible.  And the move to 100 percent equalization has considerable additional benefits as well, without incurring any cost or penalty.

Monday, November 15, 2010

Poughkeepsie Journal Still Reports Inaccurate Tax Rate Increases

This is the second of two posts commenting on the Poughkeepsie Journal's recent coverage of property tax issues.  The first post complimented the Journal for including tax rate increase information in headlines, lead sentences, and sidebars.  This one criticizes the Journal for consistently publishing wildly inaccurate tax rate increase information for jurisdictions with changing equalization rates.

Last year (August 2009 to early spring 2010), Poughkeepsie Journal property tax stories occasionally included tax rate increase data.  These stories contained inaccurate tax rate increases for some jurisdictions because of an analytical mistake.  This year (beginning August 2010), essentially every property tax story includes tax rate increase data.  Furthermore, this data is much more prominently displayed than it was last year.  It's great that readers are now much better informed about tax rate increases.  Unfortunately, last year's analytical mistake still has not been corrected, despite the new focus on tax rate increases.  This means that inaccurate tax rate increases are published more often — and more prominently — than last year.  And when I say inaccurate, I mean wildly inaccurate.  The published tax rate increases are much lower than the actual tax rate increases, leading readers to think that the tax situation is much better than it really is.  It's a shame that the Journal's greatly improved coverage of tax rates and tax rate increases is marred by inattention to the issue of accuracy.

The analytical mistake is to not account for changes in equalization rates.  My post last year described the mistake in detail, and how to fix it.  This mistake is manifest only for jurisdictions whose equalization rate changes in 2010.  I found five stories this season (since August 2010) with wildly inaccurate tax rate increase percentages.

Hyde Park School District

On August 27, 2010, a short, unsigned story entitled, "New school-tax rate adopted for Hyde Park" appeared on page B-1 of the print edition.  The lead sentence claimed that the Hyde Park school tax rate will increase “less than 1 percent”.  The brief article concludes by listing the tax rates — in dollars per thousand dollars of assessed value — for the 5 towns within the Hyde Park School District, together with purported tax rate increases in each town.  The listed tax rate increases ranged from 0.55 percent in Hyde Park to about 3 percent in the Towns of Clinton, Poughkeepsie, and Rhinebeck.  These listed tax rate increases are wildly inaccurate.  The tax rate increases in the article were apparently calculated by subtracting the 2009 tax rate from the 2010 tax rate, with both rates measured in dollars per thousand dollars of assessed value, and then saying that the result is somehow a percent, rather than a tax rate.

The correct tax rate increase is 19.31 percent for the portion of all 5 towns in the Hyde Park School District.  Not incidentally, New York State real property tax law requires the tax rates in all the municipal segments of a special district (like the Hyde Park School District) to be equal, when expressed in dollars per thousand dollars of market value.  This fact implies that the school tax rate increase will the same for all properties in the school district regardless of which Town they're in.

Arlington School District

On August 31, 2010, a front-page story was entitled, “Average Arlington tax bill to go up 7%”.  A sidebar listed 9 towns with portions in the Arlington School District, and their corresponding tax rates in dollars per thousand dollars of assessed value and tax rate increases.  Six of those 9 towns are at 100 percent equalization rate; for them, the published tax rate increases around 16 percent are correct.  For the 3 remaining towns, the published tax rate increases are as follows:  Hyde Park:  -1.5 percent; Pawling: 10 percent; Pleasant Valley:  2.1 percent.  These numbers are wildly incorrect.  The correct tax rate increase for these three towns is about 16 percent, the same as for the other 6 towns, as required by New York State law.  The math works out, once you convert from assessed value to market value.

Staatsburg Library District

A story entitled, “Staatsburg seeks library-tax hike”, appeared on September 9, 2010.  The lead sentence is, “Residents of the Staatsburg Library District are being asked today to approve a 13.7 percent tax-rate increase.”  Once again, this number is wildly incorrect.  The correct tax rate increase is 33.5 percent It's the same issue as in the above school districts:  Staatsburg, in the Town of Hyde Park, has seen its equalization rate increase 17.4 percent.  The story failed to take this fact into account.

Town of Hyde Park

Two stories about the Town of Hyde Park's budget appeared on October 13 and November 11, 2010.  These stories stated that the Town proposes to raise the tax rate by 17 percent and 14.5 percent, respectively.  My most recent post discusses this case in considerable detail, concluding that the Town of Hyde Park government does not understand how property tax increases work.  Their most recent claim of a 14.5 percent tax rate increase is really a whopping 32 percent tax rate increase.  So once again, the published tax rate increase is wildly incorrect.  Although the Poughkeepsie Journal got it wrong again, they surely had plenty of “help” in this case from the Town of Hyde Park.

Getting it Right

The  Journal's masthead proudly proclaims, “The Poughkeepsie Journal corrects errors of fact.”  Yet the Journal has continued to publish wildly inaccurate tax rate increases for jurisdictions with changing equalization rates, despite my blog post on the subject last year.  Admittedly, some of the blame belongs to the government of the Town of Hyde Park, which has provided copious inaccurate public information.  But the Journal has not yet made a serious attempt to avoid publishing tax rate increases that are just plain wrong.

Thursday, November 11, 2010

Town of Hyde Park Misunderstands Property Tax Rate Increases

The Town of Hyde Park's budget process is seriously flawed because the Town misunderstands how much it's squeezing its property taxpayers — its primary source of income. The Town claimed to be proposing a 17 percent tax rate increase (according to an October 13 Poughkeepsie Journal story), now reduced to a 14.5 percent tax rate increase (according to a story in today's Poughkeepsie Journal).  But both these numbers are wrong.  The Town of Hyde Park is proposing at least a 32 percent tax rate increase, according to my calculation based on publicly available information.  The Town's mistake comes from a fundamental misunderstanding of the meaning of property tax rate increases.  For the benefit of the Town, I'll try to explain in simple terms:

Property Tax Rate

In New York State, real property is taxed in proportion to the market value of the property.  (In the geeky world of property taxes, market value is usually referred to by various other names, such as “full value” or “true value assessment”.)  The property tax rate, measured in dollars per thousand dollars of market value, is the proportionality constant.  In other words, the amount of tax paid on a given property is equal to the market value of that property multiplied by the tax rate in dollars per thousand dollars of market value.  For example, if a particular jurisdiction has a tax rate of $10 per thousand dollars of market value, then the tax on each property will be exactly one percent of the market value of that property (100% x $10/$1,000).  Thus the tax rate in dollars per thousand dollars of market value measures how steeply a property is taxed.

Property Tax Rate Increase

Since tax rate in dollars per thousand dollars of market value measures how steeply a property is taxed, increases in this tax rate measure how much more steeply a property is being taxed.  For example, if a jurisdiction has a tax rate of $2.00 per thousand dollars of market value in 2010, and then it proposes a $2.50 tax rate in 2011, the proposed tax rate increase is simply 100% x ($2.50 - $2.00)/$2.00, or 25 percent.  So in 2011, properties would be taxed at a 25 percent higher rate than in 2010.  That's all there is to it. 

Assessed Value and Equalization Rate

The above narrative has not mentioned the concepts of assessed value and equalization rate.  That's because assessed value and equalization rate play no fundamental role in how steeply properties are taxed. How steeply properties are taxed is measured in terms of market value.  Assessed value and equalization rate are historical artifacts of the legacy process for collecting taxes.

What this means is that quantities involving assessed values generally cannot be compared with each other.  The only exception is if the quantities correspond to the same equalization rate.  Of the 20 towns in Dutchess County, 12 have had a constant equalization rate (of 100 percent) for the last few years.  Unfortunately, Hyde Park isn't one of them.

Hyde Park's Meaningless Assessment Charts

In order to compare Hyde Park data involving assessed value, this data must first be converted to market value.  If this is not done, the results will be meaningless.  For example, the “History of Taxable Assessment” chart on page 10 of Hyde Park's 2011 preliminary budget is garbage.  I don't know how else to say it.  The chart shows a steady increase in the meaningless quantity “Taxable Assessment” from around $850 million in 2001 to $940 million in 2010, an increase of roughly 10 percent.  Neither the shape of this curve, nor the 10 percent increase, correspond to anything meaningful in the real world (or in any mathematical world).  To create a meaningful chart, the assessed values must be converted to market values by dividing each one by its corresponding equalization rate.  Like this:



Note that the market value more than doubles from 2001 to 2009, and then declines.  This behavior is in general agreement with the market value of most other jurisdictions in Dutchess County.  The “12 Year Period Town Assessment” chart on page 9 of Hyde Park's preliminary budget suffers from the same problem — and has the same kind of solution.

Hyde Park's Meaningless Tax Rate Chart

The “History of Tax Rate per 1,000 of Assessed Valuation” chart on page 11 of Hyde Park's 2011 preliminary budget is also garbage.  To create a meaningful chart, the tax rates measured in dollars per thousand dollars of assessed value must first be converted to dollars per thousand dollars of market value, by multiplying each by its corresponding equalization rate.  Here's the result:



Notice that the Town's “Assessed Valuation” chart looks nothing like the corrected chart.  The corrected chart shows the tax rate dropping steadily through the decade until 2008, when the tax rate starts to increase by ever-larger percentages.  The rightmost bar is the proposed 2011 tax rate, based on an assumed tax levy of $5,080,000, as reported in today's Poughkeepsie Journal.  The proposed 2011 tax rate of $2.92 is $0.71 greater, or 32 percent greater, than the 2010 tax rate of $2.21 per thousand dollars of market value.

Call to Action

In my view, the Town of Hyde Park needs to replace its faulty comparisons of assessment-related data with corrected information based on properly converted quantities.  Until it does so, the government of the Town of Hyde Park, and the citizens who are evaluating its budget, are flying blind.

Tuesday, November 9, 2010

Poughkeepsie Journal Improves Truth-in-Taxing Reporting

The Poughkeepsie Journal has substantially improved its reporting on  property tax issues this season, by including tax rate change information in headlines, lead sentences, and sidebars.  By including and highlighting this “truth-in-taxing” information, the Poughkeepsie Journal has taken a major step forward in informing its readers about what's really happening with their property taxes.  This first of two blog posts describes the truth-in-taxing improvements in recent Poughkeepsie Journal stories.  A forthcoming post will describe how the Poughkeepsie Journal continues to publish wildly inaccurate tax rate increase percentages for certain jurisdictions — just as it did last year. 

In my Truth-in-Taxing series begun last year, I criticized the Poughkeepsie Journal for, among other things, failing to make tax rates and changes in tax rates the central issue in its stories on property taxes.  I've argued in  Truth in Taxing that tax rate information is the key parameter for describing property taxes, especially in this era of falling property values.  I ended one blog post about a year ago with the following words:
Readers of the Poughkeepsie Journal need the tax rate and change in tax rate in order to understand the essence of what's happening. This means they need the change in the tax rate in the headline itself, in the lead sentence, and possibly also in the sidebar information — not buried in the tenth paragraph, or omitted entirely. The change in the tax rate is the story. Most recent Poughkeepsie Journal stories related to property taxes have failed to provide truth in taxing disclosures. I would very much like truth in taxing to become standard policy in the Poughkeepsie Journal's property tax reporting.  [emphasis in original]
What a difference a year makes!  Last year (late August 2009 to early spring 2010), Poughkeepsie Journal property tax stories rarely placed tax rate change in the headline, the lead sentence, or the sidebar, though there were a few exceptions.  All too often, tax rate information wasn't in the story at allThis year (beginning in late August 2010), the situation is reversed:  Nearly every story I've seen on property taxes includes the tax rate change in the headline, the lead sentence, or the sidebar — sometimes in all three.

Town of Fishkill Withholds Tax Rate

Here's the one exception that proves the rule:  The Town of Fishkill, for which reporter Susan Campriello wrote two stories.  The first of these stories, published October 14, 2010, includes an elaborate “excuse” by Town of Fishkill Comptroller Robert Wheeling as to why he hadn't “yet” provided 2011 tax rate information.  The second story, published November 8, simply notes that Wheeling failed to provide this information.  In both stories, Campriello includes in the sidebar last year's tax rate, as well as a note that this year's tax rate is “unavailable”.  In this way, Campriello makes it unmistakably clear to the reader that the tax rate information is important, and that a government official is withholding it.  (By the way, you can be sure that Fishkill's tax rate increase will be large:  Just the tax levy alone has increased by 10 percent.  Combining this with an estimated 6 percent decrease in Fishkill's tax base means that Fishkill's tax rate will probably increase about 16 percent.)

Tax Rate Increase Is Prominent

Apart from the stories on Town of Fishkill, I've seen 12 other stories on property taxes since end of August.  Here's how they've dealt with tax rate information:  Eight of the 12 stories had sidebars; every sidebar included the tax rate and the tax rate increase amount.  Eight of the 12 stories (not quite the same 8) stated the new tax rate in the lead sentence.  Two of the 12 stories stated the tax rate increase amount in the headline, and a third story in the subheading.  The headline of a fourth story ambiguously reads “Hyde Park plan raises taxes 17%”.  That could mean anything.  Only by reading the story does one learn that the “17%” is actually the tax rate increase.  Partial credit for that.  Another partial credit for the headline, “New school-tax rate adopted for Hyde Park”.  At least it focuses attention on the tax rate.

In summary, every one of the 12 stories includes the tax rate change in the headline, the lead sentence, or the sidebar.  The Poughkeepsie Journal has made a major improvement in implementing Truth-in-Taxing in its coverage of property tax issues.  I'm gratified to see what appears to be a new editorial policy to focus on tax rates and changes in tax rates.

Major Calculation Errors Persist

My praise for the Journal's truth-in-taxing efforts is less than wholehearted because this season's stories continue to calculate tax rate changes incorrectly for certain jurisdictions.  This means that the Poughkeepsie Journal is now giving greater prominence than last year to tax rate changes that are inaccurate — wildly inaccurate.  My next blog post will discuss this issue in detail.