Wednesday, June 6, 2012

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 BillExempt Percent
* 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
Address3431 North RdKittredge Pl173 Kittredge Pl
Land use class822 (water supply)853 (Sewage)853 (Sewage)
OwnerCity of
and Town
City of
Town of
2008 tax bill$4,274,000$111,400*$159,300
2009 tax bill$4,274,000$235,000*$316,000
2010 tax bill$4,274,000Not in roll$316,000
2011 tax billNot in rollNot 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.


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.

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