Full Value versus Fractional Value Assessing — A Comparison

Property tax in New York State is fundamentally based on current market value. But this simple fact is obscured by New York’s convoluted municipal assessment system, in which some towns, cities, and villages are assessed at full market value, while others are assessed at a fraction of market value. Whether properties are assessed at full or fractional value has no effect on tax bills, though many taxpayers and even some government officials seem to think otherwise. This post attempts to demystify fractional value assessing from the viewpoint of the assessor’s job.

An assessing unit is a municipality which has the power under New York State law to estimate the value for taxing purposes of each parcel of real estate in its jurisdiction. The assessing units in Dutchess County are the 20 towns, the 2 cities, and some of the 8 villages. Each assessing unit has a government official called an assessor, whose job is to estimate the current market value of every property in her assessing unit, and to publish these determinations in a list of properties called the assessment roll. The reason for the focus on market value is that property tax is fundamentally based on market value. For each property in the yearly assessment roll, the assessor includes the assessment of that property for that year. The assessment is not necessarily the market value itself, but it is always a measure of the market value. The essential difference between assessments at full value and assessments at fractional value is the way the assessor expresses the assessments in the assessment roll.

Market Value Depends on Condition of the Property

The market value of a property is simply the amount a willing buyer would pay a willing seller for the property. It is obvious that the market value of a property depends on the unique characteristics of the property, including the condition of the property. If the condition of a property changes significantly from one year to the next, such as by major improvement or damage, it is obvious that the market value of the property will change to reflect this. Your decaying house built in 1910 might sell for only $100,000, but if you tear it down and build a McMansion, your property might sell for $1 million. If the McMansion burns down, your property might sell for only the value of the land, say $20,000.

The condition of most properties generally does not significantly change over relatively short periods of time. Most properties are not significantly improved nor suffer significant damage from one year to the next. So you might think that the market value of most properties does not change from one year to the next. Wrong! Market value of real estate also depends on forces unrelated to the condition of the property.

Economic Forces Cause Market Values to Trend Up or Down

The market values of properties often change over time for reasons unrelated to the condition of the properties. Large scale economic forces independent of the condition of individual properties affect real estate values. These forces generally affect all properties in a neighborhood or region in the same way.

Assessors employ “trend analysis” or trending to account for these forces. This means that for every property in a neighborhood, or even in her entire assessing unit, the assessor adjusts last year’s market value by a fixed percentage to account for these forces. For example, if real estate values decline 3.57 percent (as happened in the Town of Hyde Park this year), she would lower the market value of each property by 3.57 percent to indicate this.

What about Equalization Rate, Full Value, and Fractional Value?

Notice that we’ve come all this way in the discussion without mentioning the dreaded term “equalization rate”. We also haven’t yet mentioned the terms “full value” or “fractional value” that are the subject of this post. That’s because, as I cannot emphasize too strongly, none of these concepts plays a role in property tax. Property tax is fundamentally based on market value, and the essence of the assessor’s role is to estimate market value.

The only difference between assessing units which are assessed at full value and assessing units which are assessed at fractional value is the way in which the assessor expresses the market values of properties.

Assessing at Full Value

The term full value is just an assessor’s term for “market value”. In an assessing unit assessed at full value, the assessor expresses the market value of every property directly, by actually showing the market value for every property on the assessment roll. But for historical reasons, and perhaps to confuse the unwashed, she doesn’t actually call it “market value”; she calls it assessed value. So in an assessing unit assessed at full value, assessed value is market value.

Assessing at Fractional Value Was Illegal For Centuries

The land we now call New York State has had property tax for three and a half centuries (with some respites), beginning here more than a century before the birth of the nation. For at least the last two centuries, the real property tax laws provided that tax amounts be proportional to the current market value of properties. This concept provides a basic element of fairness: Two properties with the same market value should pay the same tax to a given taxing unit such as a school district, even if they are in different assessing units. So property taxes in New York have always been fair, right?

Well, no, not at all. What the law said was one thing, but what actually occurred was quite another. For two centuries, properties were routinely assessed well below market value, in successful attempts to gain tax advantages for constituents. Sometimes assessments were made at a uniform fraction of market value within an assessing unit, but apportionment of taxes among assessing units was haphazard at best. The result was widely differing taxes among similarly situated taxpayers. For most of our history, these illegal practices were ignored by both the legislative and judicial branches of government, which turned a blind eye to these flagrant violations of the law by the executive branch.

Requirements for Fair Fractional Value Assessing

New York’s property tax system was unfair for centuries, but not simply because we had fractional value assessing. It was unfair because we had fractional value assessing without acknowledging that we had fractional value assessing. Since fractional value assessing was not officially sanctioned, we didn’t compensate for it. But we could have. A system with fractional value assessing can be fair if the following two key requirements are met:

1. Within each assessing unit, all properties are assessed at a uniform percent of market value. The assessor must specify the percent of market value that is used.
2. For each taxing unit (such as a school district) comprising portions of multiple assessing units (such as Towns), the tax levy is apportioned among the Towns in proportion to the taxable market values of each Town or portion thereof in the District.

With fractional value assessing, the fraction of market value in an assessing unit is called the equalization rate or the level of assessment, depending on who’s specifying it.

Why Is Fractional Value Assessment Problematic?

Fractional value assessing is needlessly complex. It introduces gratuitous concepts like equalization rate and assessed value. Fractional value assessing makes it inconvenient to compare property values across assessing units, because two properties with the same assessed values in different assessing units can have completely different market values, depending on the equalization rates. Full value assessing is straightforward and intuitive. Property values are expressed the same way that buyers and sellers of property express them.

Assessing at Fractional Value Became Legal

For centuries, New York’s assessing system was characterized by fractional value assessing, which was technically illegal, but widely practiced, and by apportionment that was fair on paper, but poorly administered. This legacy system was reformed in 1981, but not in the way one might expect. The obvious way to fix the problem of inequitable property tax would have been to enforce the long-existing laws requiring all assessments to be at full value. This was the approach recommended by most legal scholars, by state bureaucrats, and even by then-Governor Hugh Cary. But apparently the voice of reason was no match for the entrenched practice of fractional value assessing, overwhelmingly supported by local government officials and taxpayers who really didn't understand (and still don't understand!) how property taxation works. Listening to its constituents rather than to the tax wonks, the New York State Legislature enacted a law — over Cary’s veto — essentially legalizing for the first time the long-existing practice of fractional value assessing. However, this time, the new law provided for controls at the state and local levels to assure equitable property taxes based on the two requirements for fair fractional value assessing listed above.

Fractional Value Assessing Is Still a Bad Idea

The current system, which uses a combination of full and fractional value assessing, is reasonably fair in distributing the tax burden equitably among taxpayers. However, the prediction of legal scholars that fractional value assessing would lead to confusion has surely come to pass. Many of my previous blog posts discuss misunderstandings of fractional value assessing by government officials and the Poughkeepsie Journal. Most of these misunderstandings do not result in unfair taxation, but in misleading descriptions of the taxation. See, for example, Hyde Park School District Promulgates Misleading Tax Information. New York State has been using financial incentives and other measures to encourage local assessing units to convert from fractional to full value assessing. This pressure seems to be working, though slowly. In 2000, all two dozen or so of Dutchess County’s assessing units used fractional value assessing. Now only 5 do: The Towns of Dover, Hyde Park, Pawling, Pine Plains and Stanford are still assessed at fractional value.

Currency Analogy

Fractional value assessing is analogous to the world’s money supply, with innumerable different currencies. An iPad may cost $500 in the U.S., €390 in Europe, or ¥40,195 in Japan. It does no good to know that an iPad costs 28,000, without knowing that the currency is Indian rupees. Similarly, it does no good to know the assessed value of a property, or even of an entire assessing unit, without knowing the equalization rate. If full value assessing is considered analogous to U.S. currency, then equalization rates are analogous to exchange rates from U.S. dollars to other currencies. Just as exchange rates change over time, so do equalization rates. Having all properties assessed at full value is analogous to having a global currency, a sort of super-Euro. With a super-Euro, prices could be compared world-wide without any conversions. Similarly, assessed values of properties could be compared directly, without the need for equalization rates. Assessed values would just be market values, as they were originally meant to be.

I’d like to thank three anonymous reviewers with knowledge of the assessing process for previewing this post.

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 here, here, 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.

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.

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.

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.

Fairview Fire District Draft 2013 Budget Document Is Flawed

The Fairview Fire District has posted on its website a draft 2013 budget that breaks at least three records for high fire taxes, as I discuss here. The budget document also breaks some records for murkiness and confusion. That's saying a lot, considering the standard for inaccuracy, opaqueness, and just plain nonsense established by last year's budget, as I discuss here, here, and here.

Although I consider myself smarter than the average bear when it comes to following quantitative discussions, I had more than a little trouble understanding the thread of discussion on the first page of the draft budget. There's hardly a sentence on that first page that I can confidently explain to myself, let alone to someone else. One could begin anywhere, but let's start with the two tables on the first page. None of the entries in the four rows of these tables made any sense to me upon first reading. Even after an extensive analysis, only a few entries in these tables make sense.

First Row of Tables

The first row of each table is labeled “Tax Rate”, but all the entries are given as percents. That's more than a little odd, since tax rates are not ordinarily expressed in percents, but in dollars per thousand dollars of assessed (or market) value. Expressing tax rates as percents sounds a little like a cop stopping a motorist for speeding and saying, “I clocked you going 80 percent in a 55 percent zone.” Actually, it is possible in principle to express tax rates as percents ($10 per thousand dollars of market value is the same thing as 1 %), but I'm dead sure that's not what's intended here.

In attempting to understand the table entries, my first assumption was that the “Tax Rate” label was really intended to be “Tax Rate Increase”, since tax rate increase is commonly expressed as a percent. This assumption is confirmed by sentences in the second and third bullet items above the first table, both of which describe specific numbers in the first row as “Tax Rate increase”. With this repeated confirmation in prose, it hardly seems possible that “Tax Rate Increase” isn't the intended meaning.

Nevertheless, I doubt that “Tax Rate Increase” is the intended meaning. Here's why: My own calculation of taxes based on numbers given in the draft 2013 budget spreadsheets show a tax rate increase of 15.83 percent — not the 14.74 percent given in the last column of the second table. On the other hand, it just so happens that 14.74 percent is the tax levy increase corresponding to the draft budget. So most likely, the intended meaning of the first row of the tables is not “Tax Rate” but instead “Tax Levy Increase”. This implies that the two sentences above the first table which refer to “Tax Rate increase” should really read “tax levy increase”.

Not only are these numerical quantities called by their wrong name repeatedly, but the same numerical quantities are called by different wrong names in different places. They're never called by their right name. Readers of this document who have not done their own analysis can have no hope of understanding that the numbers in the first row of each table, labeled “Tax Rate”, are really “Tax Levy Increase”, nor that these same numbers, referred to in two sentences as “Tax Rate Increase” are really “Tax Levy Increase”.

Second Row of Tables

The second row of each table is labeled “Budget”. In this context, the term “budget” ordinarily refers to the total amount of revenue or the total amount to be spent by an agency. However, the $2,856,725 entry in the first column of the first table is neither of these. Instead, it is exactly equal to the 2012 tax levy portion of total 2012 revenue. Similarly, the $3,277,700 entry in the last column of the last table is the proposed 2013 tax levy. Both these numbers appear as  tax levies in the Excel spreadsheets on subsequent pages. Once again, readers of this document can have no way of knowing that the numbers in the second row, labeled “Budget” are really “Tax Levy”.

Third and Forth Rows of Tables

These rows are labeled with abbreviations for “Town of Poughkeepsie Tax” and “Hyde Park Tax”. The term “tax” is rather ambiguous, but one would expect it to relate to some dollar amount. No such luck: All the entries in these rows are percents. I found no clues in the text of this page, or in my own analysis, for the meaning of the numbers in these rows. I've thrown up my hands regarding the meaning of the entries in the third and forth rows.

First Page of Draft 2013 Budget Is Unintelligible

So let's summarize: On the first page, “tax rate” doesn't mean “tax rate”, “tax rate increase” doesn't mean “tax rate increase”, and “budget” doesn't mean “budget”. They all mean something else. And I have no idea what “TOP Tax” and “HP Tax” mean. Furthermore, I haven't even tried to unscramble the meaning of the first and second column headings, “2012 Budget with only Assessment change” and “2012 Budget with Assessment change +Salary/Benefits”. The accompanying prose only adds to the confusion. For example, the fifth bullet item reads, “The $40,000 "In Lieu of Taxes" from St Francis is now part of the TOP assessed value.” What? A payment in lieu of taxes can become part of an assessed value? That doesn't make any sense.

A Failed Attempt To Tell a Story

My sense is that this first page is attempting to tell a story about how the proposed 2013 budget has been developed, based on changes that have occurred in the past year. This is an admirable objective. Unfortunately, the attempt is a failure. The most polite way to say it is that the words used on the first page do not have their ordinary meanings. The sentences are at best ambiguous, and at worst nonsense. Most of the content of the first page of the draft 2013 budget is unintelligible gibberish.

Excel Spreadsheets Continue a Tradition of Tax Misinformation

Well, the first page of the Draft 2013 budget may be unintelligible, but at least everything in the accompanying Excel spreadsheets documenting the budget makes sense, right?

Well, no. Hopefully, the individual budget items make sense. I have no way of knowing one way or the other. But when it comes to tax parameters, the spreadsheets continue a tradition of misinformation going back at least to May 2011 and probably much further. All this misinformation derives from a failure by members of the Budget Committee to understand the full implications of the fact that property tax is fundamentally based on taxable market value — not on assessed value. Stated another way, assessed value and equalization rate do not relate in any essential way to budget or taxing considerations. They are nothing more than a legacy artifact of the way tax bills are generated.

The Budget Committee's misunderstanding affects the 2013 budget spreadsheets in at least two places:

1. On page 6 of the spreadsheet, the third line, called “Total Assessed Valuation” is garbage, as I have explained here. It is a meaningless concept, 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.”
2. On page 7 of the spreadsheet, the last line purports to show the tax rate increase for Hyde Park as 11.6912 percent. This value is incorrect, as I have explained here. It is like saying “I accelerated from 50 miles per hour to 100 kilometers per hour, so my speed increased by 100 percent.” (The correct tax rate increase for Hyde Park is 15.8282 percent — the same as for Poughkeepsie.)

Once again, this tax misinformation is not new, and neither is my critique of it.

Embarrassment for Fairview

In my view, the Fairview Fire District is not well served by a 2013 budget process which displays an incoherent story of the changes since 2012, and which presents tax misinformation. Not only are the general public and other stakeholders prevented from seeing an accurate picture of Fairview's financial situation, but the Board of Fire Commissioners itself can hardly make effective fiscal decisions in an atmosphere of confusion. At the very least, the Budget Committee has brought embarrassment to the Fairview Fire District, just as it did last year. It's clear that a different approach to the budget process is needed. Given the standard set by current officials, it would not be difficult for a different team to do better.

Automatic Notifications for this Blog Were Temporarily Broken

Automatic notifications of new posts to this blog, including email subscriptions, became temporarily broken after I changed the primary URL of this blog from FireTaxDutchess.blogspot.com to TaxBlog.BillRubin.info. Although automatic notifications are now restored, subscribers were not notified of my post yesterday, Fairview Fire District 2013 Budget Is a Record Breaker. My apologies for the inconvenience.

Fairview Fire District 2013 Budget Is a Record Breaker

The Fairview Fire District, already known for having the highest fire tax rate in Dutchess County and possibly the highest fire tax rate in New York State, has posted on its website a draft 2013 budget that  breaks many of its own records for high fire taxes. Although this budget is still only preliminary, it is the starting point for a proposed 2013 budget which must be approved by Fairview's Board of Fire Commissioners at an open meeting on September 25. The tax effects of this budget can be described with three superlatives:

1. The highest true value fire tax rate in this millennium, a whopping $6.63 per thousand dollars of market value.
2. The highest tax rate increase in this millennium, a whopping 15.8 percent increase over last year's tax rate.
3. The highest tax levy in this millennium, and almost certainly the highest tax levy in Fairview's history, at $3,277,000.

Tax Levy Increase

If there's any good news here, it's the fact that the budget does not call for the highest tax levy increase in this millennium. It only calls for the second highest tax levy increase in this millennium, at 14.7 percent. The highest was set in 2008, at 20.9 percent. This parameter is the one that New York State's new “tax cap” law tries to limit to two percent. Of course, the two percent tax cap doesn't really affect fire districts.

Fairview's Tax History

The following chart shows Fairview's tax rate history. The 2013 bar is yellow to indicate that it is only a preliminary value, not yet approved by the Board of Fire Commissioners.

If you find charts like this useful, you can find similar ones for Fairview's market value and tax levy, as well as the yearly increases in each, and the data they are derived from, in my document Fairview Fire District Property Tax Data.

Fairview's Tax Rate Is Nearly 1/3 the School Tax Rate

Most property taxpayers in the Fairview Fire District also pay Hyde Park school taxes — the largest single tax on property tax bills. The Fairview fire tax is the second largest tax on property tax bills. Fairview's fire tax rate is 32 percent as high as the 2012-2013 Hyde Park school tax rate, even though the Hyde Park School District has its own list of superlatives, including the highest tax rate in this millennium. But that's another story.

Reserve Funds Unfunded — Again

Regular readers of this blog are aware that the Fairview Fire District has not been setting aside sufficient funds for future obligations in recent years. Fairview's 2010 budget contributed $143,000 to the reserve funds, roughly half of what should be contributed each year to finance long-term obligations. In 2011 and 2012 nothing was contributed to the reserve funds. The draft 2013 budget continues this short-sighted practice of contributing nothing to the reserve funds. So even with the exceptionally large tax rate increases of 2012 and 2013 (proposed), Fairview is getting further and further away from a sound fiscal footing. As I see it, even as Fairview's tax rates go through the roof, Fairview's long term financial crisis is deepening.

It Gets Even Worse

Perhaps you're thinking you've now heard all the Bad News® about the draft 2013 budget. But you haven't. Last year, Fairview's treasurer presented and Fairview's board of fire commissioners approved a budget document containing many flaws, including two contradictory tax rates, both of which were wrong. Fairview's board was clearly indifferent to whether the budget numbers presented to the public — or to themselves — made any sense.

I figured that this year, with two new board members, consideration would be given to avoiding the same kinds of embarrassing mistakes that were made last year. But I've clearly underestimated the ability of commissioners to create even more confusion than before. My analysis of presentation flaws in the draft 2013 budget is the subject of a forthcoming post.

UPDATE 11/1/2012 — Budget for 2013 is Finalized

At yesterday's Fairview Fire Commissioners meeting, the Board approved a final 2013 budget, unaltered from the above-described draft budget. Commissioners Ginny Buechele and Bob Gephard expressed “regrets” about the tax increase, but the vote was unanimous.

Pace Study's Analysis of Fairview Fire Tax Rate is Flawed

Pace University's Michaelian Institute for Public Policy and Management released its 189 page Fairview Fire District Consolidation and Efficiency Study final report on June 12. This work, known locally as the Pace Study, examines the feasibility of Fairview consolidating with one or more neighboring fire districts. Pace Study Principal Investigator Michael Genito will present this work at a public meeting this evening, according to the Pace Study website.

In spite of the central importance of tax rates to fiscal analysis, the final report devotes only three sentences and one chart to Fairview's past and future tax rates. Unfortunately, these three sentences, which pertain to average yearly tax rate increase and projection to 2017, are incorrect. Also, the chart contains some incorrect data and an incorrect linear approximation. When I presented my analysis to Genito, he readily concurred that all these statements and the chart are flawed.

Flawed Final Report Passage

The flawed information, on page 175 of the final report PDF (labeled page 167), is as follows:

The Fairview Fire District tax rate has increased on average 4.4% each year from 2008 through 2012. A linear regression of the past five years going forward indicates that by 2017 the tax rate would approximate $6.50 per $1,000 taxable assessed valuation. As such, and all things being equal, the median home would expect to see their fire service property tax to rise from $1,321 per year to $1,502 in 2017.

The above chart, copied from the final report, is confusingly labeled “Tax Rate per $1,000 Assessed Value”, but it is clear from context that this data is really tax rate per thousand dollars of market value, otherwise known as true value tax rate. This is the appropriate kind of tax rate for this analysis.

2008 Fairview Fire Tax Rate Is Incorrect

The key flaw is that the 2008 tax rate in the above chart is incorrect. Fairview's effective 2008 tax rate is $5.16, whereas the above chart shows it to be approximately $4.83. The final report's error in Fairview's 2008 tax rate leads to all the other errors in this passage, as will be explained below.

Genito's Blunder

How did Genito come to make this error? He apparently took an unwarranted shortcut. Instead of dividing Fairview's tax levy by Fairview's market value (the correct method, and the definition of true value tax rate), he took the Poughkeepsie portion of Fairview's tax levy and divided it by the Poughkeepsie portion of Fairview's market value. Under ordinary circumstances, such as between 2009 and 2012, Genito's method would give the same — or nearly the same — result as the correct method. Unfortunately, Fairview's circumstances in 2008 were far from ordinary.

Inequitable Apportionment

Long-time followers of my work know that for every year from 2001 to 2008, apportionment of Fairview's fire tax levy between Poughkeepsie and Hyde Park has been inequitable, resulting in different true value tax rates for the Poughkeepsie and Hyde  Park segments, in violation of New York State Real Property Tax Law. In 2008, the Poughkeepsie segment had a true value tax rate of $4.83 — the number on Genito's chart — but the Hyde Park segment had a whopping true value tax rate of $5.96. All these facts were documented in detail four years ago here, and especially here.

Corrected Chart

In order to fairly graph tax rates, the Y-axis should ordinarily begin at zero dollars. Genito's chart begins the Y-axis at $2, presumably to better visualize small changes in tax rate. The following chart, using the corrected 2008 value, takes this decision further, beginning the Y-axis at $5. This way, small changes in tax rate can be seen even better.

Although the final report's chart includes a straight line approximation to the data and an extrapolation to 2017, such analyses are not appropriate to the corrected data. That's because the corrected data simply does not fit a straight line well enough to justify such an approximation. The corrected data cannot meaningfully be used to linearly extrapolate Fairview fire tax rate out even one year — let alone five years. Once again, Genito concurs with this judgement, which is supported by generally accepted criteria for goodness of fit to a straight line. What this means is that there is simply no basis to support the second and third sentences in the final report's passage, which project 2017 values.

Fairview's Tax Rate Has Been Trending Down Until 2012

We know that taxes are always going up, right? Well, not in Fairview. Examination of the corrected chart between 2008 and 2011 shows that Fairview's yearly tax rate change has been downward twice and upward only once. Even the single upward change from 2010 to 2011 leaves Fairview's tax rate lower than it was in 2008. A standard linear approximation to Fairview's 2008—2011 tax rate would show a decreasing tax rate, not an increasing one.

Fairview's Tax Rate Has Been Approximately Constant — Until 2012

Fairview's downward trend in the 2008—2011 time period is actually quite small. It would probably make more sense to approximate Fairview's tax rate during this time period as a constant value. With such an approximation, Fairview's 2008—2011 tax rate is $5.10 plus or minus 1.2 percent for every year in this interval. The 2011 tax rate is equal to this constant value to within 0.2 percent.

Fairview's 2012 Tax Rate Breaks the Pattern

This pattern of constant tax rate is broken in 2012, where the tax rate soars 12 percent from its historical value of $5.10. It is this break from the pattern that makes it infeasible to predict future tax rates. Another way to look at it is that there is no way one could have predicted Fairview's 2012 tax rate by extrapolation from the previous 4 years.

Average Yearly Tax Rate Increase Is Misleading

What about the first sentence in the final report's passage (average tax rate increase of 4.4 percent per year)? This statistic depends crucially on the 2008 value. With the corrected value, the average tax rate increase is only 2.6 percent per year, not 4.4 percent. Thus the passage's first sentence is incorrect.

Of course, even the corrected sentence is of dubious value. Averages can be deceiving. Why mention a formally correct “average increase” when the tax rate actually decreases as often as it increases. A man drowned in a river whose “average” depth was 6 inches. But he was in the 10-foot part. For the average yearly tax rate increase, essentially all of the tax rate increase during the 5-year period occurred in the last year.

Flawed Passage Is Best Removed

According to Genito, the report's inclusion of the above-quoted passage stemmed from a request by Fairview officials (the “Study Committee”) for a projection based on a 5-year history. Now that Genito has accepted my correction, he and I seem to agree that no future projection can be justified by the data. As I see it, the average tax rate increase is misleading as well, and is best omitted. The only part of the flawed passage that could be of positive value is the corrected chart. This chart is certainly useful for understanding Fairview's fiscal situation, but such an understanding appears to be outside the scope of this report.

Why Has Fairview's Exempt Percent Increased?

The Fairview Fire District has the highest fire tax rate in Dutchess County, and possibly the highest fire tax rate in New York State. One of the reasons for Fairview's high tax rate is that roughly half of Fairview's market value is exempt from paying fire taxes, but the exempt half still accounts for half the fire and emergency service calls to the Fairview Fire District. Fairview's taxable property owners pay not only their own share of fire tax, but also pay for service to the exempt properties. Fairview residents and property owners have had a longstanding interest in knowing exactly what percent of Fairview is exempt, and how Fairview's exempt percent may be changing over time. Unfortunately, there has been a history of misstatement of Fairview's exempt percent, which I have attempted to correct. See Fairview Fire District's Exempt Percent Is Misstated — Again.

Fairview's Exempt Percent

The following table shows a 5-year history of Fairview's exempt percent, according to my calculations:

Year of Tax Bill	Exempt Percent
2008	47.9*
2009	47.5
2010	47.9
2011	50.8
2012	51.7

* Listed exempt percent for 2008 is after correcting for a blunder by the Town of Poughkeepsie Assessor's Office.

Note that the 2008 “land” tax bill (including the fire, town, county, and other taxes) corresponds to the 2007 assessment roll, and so forth. This table shows that for the years 2008 — 2010, Fairview's exempt percent has been 47.7 plus or minus 0.2 percent. However, beginning in 2011, Fairview's exempt percent has noticeably increased, standing at 51.7 percent for 2012 tax bills. What accounts for this 4 percent increase in Fairview's exempt percent over two years? This post will examine this question.

Exempt Value has Increased While Taxable Value Decreased

Property values have been falling every year in Dutchess County since the 2008 economic meltdown. Fairview's taxable market value fell 11.8 percent between the 2010 and 2012 tax bills. If Fairview's exempt market value had also fallen 11.8 percent during this period, Fairview's exempt percent would have stayed the same as 2010, at 47.9 percent. But Fairview's exempt market value did not fall 11.8 percent — it actually increased by 2.5 percent! In terms of dollars, Fairview's exempt market value for the 2012 tax bill was about $74 million greater than it would have been if Fairview's exempt percent had remained constant. This $74 million caused Fairview's exempt percent to increase from 47.9 to 51.7 in two years. The $74 million arises from two sources:

1. Four exempt parcels saw dramatic increases in assessed value, for a total of about $41 million. 
2. Fairview's other exempt parcels fell in value by only about 4 percent on average, rather than by the 11.8 percent decrease for taxable parcels. These exempt parcels are assessed at approximately $33 million more than they would have been if they'd depreciated in proportion to taxable parcels.

Why did four exempt parcels dramatically increase in assessed value?

One might assume that the dramatic increases in four parcels simply reflect major construction projects on these parcels. Surprisingly, this assumption is true only for one of the four parcels. Marist College's parcel at 30 Fulton Street (Parcel number 134689-6162-05-035776-0000) increased in value from $240,000 in 2010 to $17,760,000 in 2012 because student residence halls were constructed on that property between those years.

The other three parcels, detailed in the following table, are part of the water and sewer systems for the City and Town of Poughkeepsie:

Parcel number 134689-6062-02 -xxxxxx-0000	827844	835560	818562
Address	3431 North Rd	Kittredge Pl	173 Kittredge Pl
Land use class	822 (water supply)	853 (Sewage)	853 (Sewage)
Owner	City of Poughkeepsie and Town	City of Poughkeepsie	Town of Poughkeepsie
2008 tax bill	$4,274,000	$111,400*	$159,300
2009 tax bill	$4,274,000	$235,000*	$316,000
2010 tax bill	$4,274,000	Not in roll	$316,000
2011 tax bill	Not in roll	Not in roll	$300,500
2012 tax bill	$12,000,000	$10,000,000	$5,250,000

The above three parcels have had no significant construction or other actual increase in market value in many years. These parcels have just been improperly assessed for at least 5 years:

• The 835569 property was erroneously listed as taxable rather than exempt for the 2008 and 2009 tax bills, as indicated by * after its assessed value.
• This same property was erroneously listed with land use class 340 (Vacant land located in industrial areas) for these same years.
• Two of the three parcels were erroneously omitted from the assessment roll corresponding to the 2011 tax bill. One was erroneously omitted from the assessment roll for the 2010 tax bill.
• None of the assessed values for any of these three parcels for any of the 5 years is remotely correct. Even for the 2012 tax bill, the total assessed value is $27,250,000 — only a fraction of the true value of these three properties.

According to my discussion with Town of Poughkeepsie Assessor Kathleen Taber, the 2012 values are only the beginning of an attempt to correct the assessments for these parcels. A realistic correction will not be in place until the 2013 land tax bill, which is based on assessments being finalized this month. The current Parcel Access database, applicable to 2013, shows a tentative total assessed value for these parcels of $125,000,000 — nearly $100 million more than this year's assessment.

Why did exempt parcels decrease in value less than taxable parcels?

While taxable parcels fell in value 11.8 percent in two years, most exempt parcels fell only about 4 percent. As I understand Taber's explanation for this, many exempt properties are difficult to assess because they don't generally appear on the open market. People don't generally buy or sell municipal sewage treatment plants, college academic buildings, or hospital atriums. Changes in the market value of these properties are difficult to gauge because there really isn't a market for these properties. Taber also mentioned that “commercial” properties tend to decrease in value more slowly than residential properties.

It may also be that less attention is given to properly assessing exempt properties simply because the stakes are lower. For taxable parcels, property owners pay real money proportional to the assessment. Taxpayers want assurance that they are paying no more than necessary, while municipal governments receiving taxes want assurance that they are collecting the full amount of money from every taxable parcel. Therefore, tax assessors are under considerable pressure to make assessments of taxable properties that are neither too high nor too low. For exempt properties, these incentives are not present. Inaccurate — apparently even wildly inaccurate — assessments aren't so much noticed.

Summary

There isn't one simple answer as to why Fairview's exempt percent has increased in the last two years. According to my analysis, there are three contributors, in order of decreasing importance:

1. Although Fairview's taxable market value fell by 11.8 percent, Fairview's exempt market value fell by only about 4 percent. The difference means that Fairview's exempt properties were valued $33 million higher than they would have been if they had tracked the taxable decline.
2. Three municipal water and sewer parcels were grossly under-assessed. The assessor made a correction of $23 million.
3. Marist College built student residences, increasing the value of one parcel by $18 million.

These three factors contribute 45%, 31%, and 24%, respectively, to Fairview's increase in exempt percent. Thus, all three factors contribute significantly to Fairview's increase.

Pattern of Under-Assessment of Exempt Properties

The careful reader will have noticed two reasons why Fairview's exempt percent may not be as meaningful as one would like. The first is that gross under-assessment of high-value exempt properties is a bigger issue than previously assumed. Two years ago, I found that the St. Frances Hospital complex had been under-assessed by over $100 million. At the time, I assumed this blunder was a one-time event that would be unlikely to be repeated. Now there's a second instance:  Municipal water and sewer parcels have been under-assessed by over $100 million. Most of this under-assessment will not be corrected until Fairview's 2013 tax bill. This pattern will continue: The recent construction of dormitories at Dutchess Community College — worth tens of millions of dollars — will not be reflected in Fairview's 2013 exempt percent. Taber told me she didn't have time to add the DCC dorms to the current assessment roll, the basis for Fairview's 2013 tax. The omission of such major contributors to exempt value results in underestimation of the true exempt percent.

Unequal Depreciation

The second reason why Fairview's exempt percent may not be so meaningful is that market forces apparently do not affect taxable and exempt properties equally. Nearly half (45 percent) of the increase in Fairview's exempt percent in the last two years is due to the fact that the average exempt property lost only one third as much value as the average taxable property did. At least, that's what the assessment rolls say. Do the assessment rolls accurately reflect exempt property values? There is some reason to wonder. If exempt properties have been overvalued in the last few years, Fairview's corresponding exempt percent is artificially high.

Joel Miller Just Can't Get Fairview Facts Straight

“Everyone is entitled to his own opinion, but not his own facts.” Daniel Patrick Moynihan

Try as he might, New York State Assemblyman Joel Miller just can't get his facts right regarding the Fairview Fire District. On his first try, in a Poughkeepsie Journal Valley Views article on April 22, 2012, he wrote

Fairview alone had fire district tax rates nearly 10 times higher than 27 other towns in Dutchess County in 2010.

I pointed out in Joel Miller's Flawed Legislation for Fire District Budget Empowerment that there are only 20 towns in Dutchess County, and that even if he meant “fire districts” instead of “towns” (which would have made more sense), his statement is still not even close to correct.

Flawed Staff Work

In preparation for that blog post, I spoke with the staffer for Miller who had generated this misstatement. This staffer had already reviewed some of my own reports, including The Big Three Fire Districts of Dutchess County. It became clear to me that this staffer was not well prepared to interpret quantitative information, and the staffer readily conceded as much. My instinct was that if Miller were to release a corrected statement, it might also be wrong. Because I genuinely wanted facts to be correctly stated, I suggested a corrected statement, and I offered to preview any proposed new statement about Fairview. I never heard from Miller or any of his staffers about this matter.

My instinct turned out to be correct. On April 26, Miller sent a press release to each Fairview Fire Commissioner. This press release was essentially a rewording of his Valley Views article, except that the incorrect statement about Fairview was replaced by a new incorrect statement about Fairview:

Fairview alone had fire district tax rates nearly eight times higher than 30 other fire districts in Dutchess County in 2010.

The irony is that the above statement appears to be a mis-quote of a statement in my own report, which reads

Fairview’s tax rate is nearly eight times the average of the non-big-three districts.

Apparently the staffer thought the word “average” in my statement didn't really mean anything important, and could just be omitted! But as most European high school students know, an average of a bunch of numbers must be smaller than some of the numbers being averaged. In fact, for ordinary data like tax rates, roughly half the numbers can be expected to be greater than the average. Maybe even much greater.

And so it is in this case. Half the non-big-three fire districts had tax rates greater than the average of the non-big-three, and half had tax rates less than the average. So Fairview's tax rate was eight times higher than only 14 other fire districts — not 30 other fire districts.

Incidentally, “30 other fire districts” in Miller's statement is wrong too. There were only 30 fire districts in the whole analysis, and the big three fire districts were excluded from this average, so there could only be 27 non-big-three districts. The (weighted) average of these 27 was greater than 14 of these districts, and smaller than 13 of these districts, as one would expect. For five of these districts, Fairview was only about four times higher — not 8 times higher as Miller claimed.

Miller Has Been Ambivalent About Accuracy

This post isn't about flawed staff work. The principal is responsible for the work of his staff. If Miller had any doubt whether his staff could handle the fire tax rate issue, the doubt was resolved the first time the mistake was made. At that point, Miller knew — or should have known — that his staff didn't know what they were doing on this issue, and so were unlikely to make a proper correction on their own. Miller could have arranged for an independent review of his proposed “correction” before it was released. (I would have been glad to accommodate.)

But this post isn't just about fire taxes either. Joel Miller represents 6 of Dutchess County's 20 towns in the New York State Assembly. Yet he allowed himself to write “27 other towns in Dutchess County,” a gaffe that he or any member of his staff could easily have corrected without knowing anything about fire tax rates.

Taken together, these mistakes show Miller to have been ambivalent about the accuracy of his factual statements. Such lapses affect his credibility.

Joel Miller Combats Incestuously Elected Fire Commissioners

New York State Assemblyman Joel Miller has introduced legislation to provide for election of fire commissioners in the November general election. Under current New York State law, election of fire commissioners is held on the second Tuesday of December from 6:00 P.M. to 9:00 P.M., often at a different polling place than for the November general election. According to my recent conversation with Miller, he had intended to mention this initiative, called the Fire District Community Participation Act, in his April 22, 2012, Valley Views article in the Poughkeepsie Journal, but it was somehow omitted.

I heartily support Miller's initiative.

Why should fire districts be any different from other local governments?

Fire districts are just one more kind of local government in New York State, along with towns, cities, villages, and counties. I know of no reason why fire districts should live by different rules than any of these other local governments. In my recent post Joel Miller's Flawed Legislation for Fire District Budget Empowerment, I used this reasoning to oppose Miller's initiative for popular vote on fire district budgets. Here, the same reasoning argues in favor of Miller's initiative to make the fire commissioner election process the same as that in other local governments. My view in both cases upholds the basic principle that fire districts should live by the same rules as other local governments.

Current law for fire district elections distorts the voice of the people

Although fire commissioners — the representatives in our representative democracy — are nominally elected by popular vote, New York State law provides that this vote must take place on a different day from the general election, usually at greatly restricted hours, and often at a different polling place from the general election. The practical result is that most voters who bother to vote in fire district elections are those with a substantial personal stake in the outcome — firefighters, fire district officials, and their families. Miller, in the Valley View article, describes the resulting distortion of the people's voice in his usual restrained way as “incestuously elected commissioners.”

How low is voter turnout in fire district elections?

Voter turnout in fire district elections can be put into perspective by comparing it with that in the general election. An article in the New York Times of November 16, 2010, asserts that New York ranked dead last among all 50 states in voter turnout in that year's general election. How low was dead last? Only 32.1 percent of registered voters voted. But that was in the general election. In the Arlington Fire District's election of December 13, 2011, voter turnout was 0.44 percent, according to data in Miller's Valley View article. So in the general election, one out of three registered voters actually voted, but in the Arlington Fire District's election, it was one out of 230. Such a minuscule voter turnout is probably typical for fire district elections in New York State. It is clear that representative democracy is not working effectively for fire districts in New York State.

Abolish taxation with slanted representation

In decades past, fire districts were mostly volunteer, and their tax rates were correspondingly low. It could be argued that fire district “taxation with slanted representation” didn't matter too much in the past, because little money was at stake. Those days are long past. In many districts, volunteerism has dropped off dramatically, and been replaced by career firefighters. Like paid employees in any other field, career firefighters are expensive. Fire tax rates have soared. In some fire districts in Dutchess County, fire taxes are the second largest item of property tax, bested only by school taxes. There is no place in today's world for fire district taxation with slanted representation. Fire district taxation should have the same standard of representation as other local governments do. This means that fire commissioner elections should be part of the general election, as Miller proposes.

As always, I welcome your reasoned comments to this opinion piece.

Joel Miller's Flawed Legislation for Fire District Budget Empowerment

New York State Assemblyman Joel Miller has introduced legislation to provide for public vote on fire district budgets in the November general election. Under current New York State law, fire district budgets are controlled by the district's board of fire commissioners. Miller's legislation A9762A, called the Fire District Budget Empowerment Act, shifts the approval of fire district budgets from the fire commissioners to the general public. Miller announced his popular vote initiative in an April 22, 2012, Valley Views article in the Poughkeepsie Journal.

Popular Vote on Budget Is Inconsistent With Other Local Governments

As I see it, popular vote on fire district budgets is a risky departure from most governance in this country. There is no public vote on the federal budget, there is no public vote on the New York State budget, there is no public vote on the Dutchess County budget, or on city or village budgets. Instead, the general public votes for representatives (government officials such as legislators, councilmen, etc.) who in turn decide on agency budgets. This is the principle of representative democracy, one of the foundations of this country. In the case of fire districts, the people vote for fire commissioners, who in turn control the budget.

Direct Democracy Is Seldom Used But Often Problematic

Miller's initiative is an example of direct democracy, in which policy decisions are made by popular vote, bypassing or overriding government officials. Direct democracy for economic decisions is used only sparingly in the United States. In California, many major economic decisions beginning with the infamous Proposition 13 have been made by popular vote, with disastrous results.

The founding fathers were very much opposed to direct democracy (also called “pure democracy”), according to Wikipedia. John Witherspoon, a signer of the Declaration of Independence, said, “Pure democracy cannot subsist long nor be carried far into the departments of state – it is very subject to caprice and the madness of popular rage.” The American colonists favored representative democracy — not direct democracy. That's why they said “No taxation without representation.” They didn't say “No taxation without popular vote.”

Why should fire districts be any different from other local governments?

Fire districts are just one more kind of local government taxing authority in New York State, along with Towns, cities, villages, and counties. I know of no reason why fire districts should be governed differently than any of these other taxing authorities. In my view, fire districts should continue to use the same budget approval process as most other local taxing authorities.

Incorrect and Misleading Statements in Valley View Article

Miller's Valley View article contains misleading statements, and at least one statement that is just plain wrong. In the context of the Fairview Fire District's high fire tax rate, Miller writes:

Fairview alone had fire district tax rates nearly 10 times higher than 27 other towns in Dutchess County in 2010.

This statement is absurd, since there are only 20 towns in Dutchess County. Well, perhaps Miller meant “fire districts” instead of “towns”, since there are about 31 fire districts in Dutchess County. I checked with Miller's office, and was assured that yes, that's what he meant. Well, wrong again! My tax rate analysis from 2009 shows (page 14) that Fairview's tax rate was 10 times higher than 13 other fire districts — not 27 other fire districts. Miller's research staffer has conceded that the Valley Views statement — even after changing “towns” to fire districts” — is incorrect.

Miller misleadingly writes, “This legislation will permit public participation in fire district budgets ...,” as if public participation in the fire district budget process doesn't already exist. But New York State law already requires a fire district to publicize its tentative budget and to hold a public hearing on the budget, during which public input is received. In this way again, state law provides for public participation in the fire district budget process just as it does in most other kinds of local government, including counties, cities, villages, and schools.

This Is My Opinion

Most of my previous posts have been nonpartisan, focusing on objective facts. This post (except for the last section) is clearly my own opinion. Therefore, it's marked with an “Opinion” label. As always, I welcome your reasoned comments.