Sunday, September 4, 2011

Fairview Fire District Treasurer Bungles Tax Calculations — Again

As part of my continuing coverage of the crisis in the Fairview Fire District, this post is the first in a series stemming from my attempt to analysis the Budget Projections Spreadsheet presented at Fairview's May 26 meeting.

As I reported in May, Fairview Fire District Commissioner Bob Gephard revealed the dire state of the District's long-term finances at a public workshop meeting on May 26.  Gephard's presentation centered around a spreadsheet of budget projections prepared by Fairview Fire District Treasurer James C. Passikoff and posted on the District's website here.  Although the general thrust of Gephard's presentation — that Fairview has a long-term financial crisis — is undoubtedly correct, the spreadsheet is flawed by some tax data that is incorrect, and some tax data that is meaningless garbage.  These flaws make it more difficult for the general public and even the Board of Fire Commissioners to understand what may happen to Fairview fire taxes in the next few years.  Some stakeholders may have decreased confidence in Fairview officials who develop and present such flawed data.

Garbage Data 

Almost halfway down page 2 of the Budget Projections Spreadsheet is a row labeled “Total Assessed Valuation”.  For each column, the entries in this row can be seen to be the sum of the assessed valuations of the Poughkeepsie and Hyde Park portions of the Fairview Fire District.  These sums are garbage.  There's no polite way to say it. 

For example, consider the 2011 column.  In round numbers, the assessed valuations are $375 million for Poughkeepsie and $75 million for Hyde Park.  Passikoff simply adds these numbers to get the bogus value of $450 million.  The problem is that although Hyde Park's assessed valuation of $75 million is conventionally written in units of dollars, it isn't really dollars as we normally think of dollars, and therefore cannot meaningfully be added to Poughkeepsie's $375 million.  That's because Hyde Park's equalization rate is not 100 percent.  One needs to divide Hyde Park's assessed valuation by its corresponding 2011 equalization rate of 54 percent, thus converting it to market value, before one can add it to Poughkeepsie's, whose equalization rate is 100 percent.  Assessed values corresponding to different equalization rates must be converted to market value (or some other convenient unit) before they can be added.

Passikoff's calculation is like saying, “I delivered 375 pounds of bricks to Poughkeepsie and 75 kilograms of bricks to Hyde Park, for a total of 450 weight of bricks.”  No.  The total is 540 pounds of bricks or 245 kilograms of bricks.  It's not 450 anything of bricks.  Passikoff actually performed the correct calculation in the “Total Full Valuation” row directly below, arriving at $514 million for 2011.  But including correct results doesn't change the fact that the spreadsheet contains garbage.

As it turns out, Passikoff's mistake — not understanding the true significance of assessed value and equalization rate — is unfortunately all too common in Dutchess County among people who should know better.  The most frequent offender is the Poughkeepsie Journal, which made exactly the same mistake last year, as I describe here.

Incorrect Data

The last few rows of the Budget Projection Spreadsheet, labeled “Rate per Thousand of Assessed Valuation” and “Percentage change from last year” for Poughkeepsie and Hyde Park are troubling because they contain data that is not especially relevant for the purposes of budget projection.  I will have more to say about this in a subsequent post.  But for now, the point is that the data in the last row, showing the percent change in Hyde Park's tax rate for each year from 2010 through 2014, appear to have been calculated incorrectly.  In any case, the result is that most of these values are incorrect.

Tax rates expressed in dollars per thousand dollars of assessed value, like those in Passikoff's spreadsheet, cannot be compared with each other (such as by calculating percent changes) unless they correspond to the same equalization rates.  Before comparing such tax rates, they must first be converted to the same equalization rate.  Typically, one would do this by choosing 100 percent equalization rate (so-called true value tax rate).  However, for 2012, Hyde Park's equalization rate happens to be the same as 2011's.  Therefore, the tax rate change for Hyde Park for 2012 (three revisions) is correct by accident.  For all the other years, it's incorrect.

Passikoff's calculation is like saying, “I accelerated from 50 miles per hour to 100 kilometers per hour, so my speed increased by 100 percent.”  No, my speed only increased by 24 percent, because 100 kilometers per hour is “really” 62 miles per hour.  (Or if you prefer, 50 miles per hour is really 80 kilometers per hour.)

Perceptive readers will recognize that the percent change mistake is simply another form of the total assessed valuation mistake.  It's all about not understanding the true significance of assessed value and equalization rate.  This form of the mistake is even more common than the first form among people who should know better.  I've already posted about how officials in the Towns of Hyde Park and Pleasant Valley have been making this form of the mistake for years.  The Poughkeepsie Journal is another chronic offender on this mistake.

If Fairview's Hyde Park percent changes are calculated correctly, they will be the same as the corresponding Poughkeepsie percent changes.  It is therefore pointless to display a separate row for Hyde Park in the Budget Projection Spreadsheet.  More on this in a subsequent post. 

Mistakes Are Part of a Pattern

This is not the first time Passikoff has made mistakes involving tax calculations with assessed values and equalization rates in the Fairview Fire District.  His mistakes in apportioning the fire tax levy between Hyde Park and Poughkeepsie between 2001 and 2008 cost Hyde Park taxpayers more than $200,000 in unfair tax over-billings, as is extensively documented here and especially here.

Feedback from Fairview Officials

The above analysis of the Budget Projections Spreadsheet may be news to many readers of this blog, but it is not news to Fairview's Treasurer James Passikoff or Fairview Commissioners Bob Gephard and Joe Petito.  I emailed the main points of the above analysis to all of them on May 24 — two days before their public meeting.  Both commissioners indicated to me that Passikoff is solely responsible for the spreadsheet.  Unfortunately, I never heard from Passikoff on this matter.  Gephard made a concerted effort to provide me with some material feedback, but ultimately he was not able to answer all my questions.

Many Questions Remain

As I see it, the above analysis of the budget projections spreadsheet only begs more questions:
  1. Why do I hedge that the data in the last row “appear to have been calculated incorrectly” rather than just saying straight out that they have been?  (It turns out that there's a whole sad story behind this.)
  2. Why couldn't I get a satisfactory response from Commissioner Gephard about the spreadsheet he presented?  Or from Treasurer Passikoff who developed it?
  3. How can the budget projections spreadsheet be improved to present a more useful picture of Fairview's long term financial situation?
I plan additional posts to address these questions.

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