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.


  1. The accepted budget is now online and shows the tax rate as $4.83562 per $1000 of assessed value vs the current rate of $4.77905 per $1000 of assessed value. The town hasn't done a reassessment in years so the assessed values are constant. Therefore the tax increase is as billed at 1.2%.

  2. @Herbert Sweet: You seem to have missed the main point of my post. Yes, the assessed values are constant, but the equalization rates are not. Thus, market values have fallen 17 percent. So you're paying roughly the same number of dollars on a property that's worth 17 percent less! This is 17 percent worse than paying the same dollars on a property whose market value hasn't fallen.

    I've tried to explain all this in my post. If there's something in my post that is not clear, please tell me what it is, so I can clarify.

  3. OK, I see your point now. The problem is that, while market values will fluctuate, the costs of running the town government don't change with those fluctuation.

    If you had a 100% valuation and did a reval every year then you would see you big changes , both up and down, to adjust the taxes to what is needed.

  4. @Herbert Sweet: Thank you. I'm really glad you get it.

  5. The issue that is important to us is whether or not the taxes go up and by how much.

    BTW, aside from the question of calculation is the issue of whether the budget has been accurately calculated. Based on public commentary, there is reason to suspect that revenues have been overstated and expenses understated or not stated at all.

    I expect that, sometime during the upcoming year, we will be hearing that the fund balance has to be tapped again due to "unforeseen" expenses.

  6. All of Mr. Rubin's charts and discussions are rather confusing and redundant. His point is that even if your tax bill stays the same from one year to the next, tax amount as a percentage of market value has increased since your property value has decreased. His gripe has nothing to do with budget methodology but instead is focused on the decline in market value of the property.

    One's mortgage payment doesn't fall when the home price falls. One's heating bill doesn't fall when the home price falls. One's car payment doesn't fall when the home price falls. One's food price doesn't fall when the home price falls. Why exactly should property taxes be any different?

    Using Mr. Rubin's rationale, property tax bills should have doubled from 2001 to 2009 simply because home prices doubled in that time period.

    Municipalities have no control over the market value of property. They do have control over expenditures and assessments.

  7. Anonymous one stated it correct.

    My opinion - either where the "I love New York" taxes/life or leave.


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