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.