Friday, August 21, 2015

Pawling School District's 2014 Tax Apportionment Mistake — School District Viewpoint

This third of three posts on the Pawling School District describes the immediate cause of the 2014 tax apportionment mistake by the Pawling School District. But looking deeper, the Pawling School Board's 8/29/2014 Resolution to confirm tax rolls and authorize tax levy provides evidence that the District's Assistant Superintendent for Finance and possibly also the School Board misunderstands some property tax concepts. Suggestions to improve the Resolution for this year are provided at the end of this post. The first post presents the recent history of the Pawling School District's property taxes. The second post describes in detail how the District's mistake affected taxpayers.

The previous post showed how property taxpayers in the Beekman, Dover, East Fishkill, and Patterson municipal segments of the Pawling School District saw a whopping 18.6 percent increase in their school taxes in 2014 (compared with 2013), when they should have seen a 5.3 percent increase. Meanwhile, taxpayers in the Pawling municipal segment saw only a 4.4 percent increase, when they should have seen a 5.3 percent increase. This unequal distribution of the tax levy by the Pawling School District violates New York State Real Property Tax Law.

OK, so how did this mistake come about in the first place? The explanation is very simple. It involves something I'm loathe to mention: the dreaded equalization rate. Not because equalization rate is difficult to understand, but because so few people seem comfortable with the concept. Readers not comfortable with the idea of equalization rate are encouraged to review it, for example by reading my “assessing” blog post Full Value versus Fractional Value Assessing — A Comparison, to which I will refer frequently in what follows.

Equalization Rate Versus Level of Assessment

One detail not fully explored in my assessing post is the relationship between equalization rate and level of assessment. Both terms refer to the ratio of assessed value to market value (also known as full value, true value, etc.). The only difference is who determines this ratio and when. In an assessing unit that practices fractional value assessing, the local assessor sets the level of assessment according to her analysis of market conditions before finalizing and certifying the yearly assessment (generally on July 1 of each year). A few weeks thereafter, the New York State Office of Real Property Services (ORPS) sets the equalization rate for the assessing unit. The State's determination of the equalization rate essentially overrides the local assessor's determination of the level of assessment, if they are different. This fact encourages local assessors to coordinate with the State before setting their level of assessment, so that it will not be changed by the State. That way, property owners won't be jerked around by the government, being told by their local assessor on July 1 that the market value of their property is a certain amount, and then effectively being told a few weeks later by the State that, no, the market value of their property is really a different amount. More to the point, this principle applies not just to individual property owners, but to entire towns and municipal segments. Most often, such coordination is successful, and the State essentially just endorses the level of assessment set by the local assessor.

Pawling's History of Level of Assessment and Equalization Rate

The Town of Pawling is one of the few assessing units in Dutchess County that still practices fractional value assessing. The State has accepted the Pawling Assessor's level of assessment every year since 2004 — except for 2013 and 2014, which are shown in the following table:

Town of Pawling
YearLevel of AssessmentEqualization RateDate Established
201348.92%43.31%7/23/2013
201451.00%44.86%7/28/2014

(Pawling's equalization rate history can be found in the ORPS database by selecting Dutchess, then Town of Pawling, then Current equalization information.) The fact that the State adjusted the Pawling assessor's estimate downward in 2013 and 2014 simply means that the State determined that the market value of the Town of Pawling is greater than what the Pawling Assessor said it was in those years. This in itself is not a problem.

Pawling School District Apportionment Calculation

Each year, when the Pawling School District's Assistant Superintendent for Finance performs the tax apportionment calculation, she simply uses the State's equalization rate for Pawling (as with all other municipal segments) to compute the market value of each municipal segment. My analysis shows that the Pawling School District has had a flawless record in this regard for every year between 2004 and 2013, apportioning the tax levy to each municipal segment correctly down to the dollar. Yes, even in 2013, when the State adjusted Pawling's assessments, the correct calculation was done.

Equalization Rate Not Used in 2014

My analysis also shows that in 2014, the state equalization rate of 44.86 percent for Pawling was not used, but Pawling's level of assessment of 51.00 percent was mistakenly used instead. Pawling School District Assistant Superintendent for Finance Neysa Sensenig, who prepared the Pawling School District Board of Education's 8/28/2014 Resolution to confirm tax rolls and authorize tax levy, told me she has accepted responsibility for making this mistake, and that the facts of the matter are well known to all interested parties. She is adamant that she will not be making this mistake again. In addition, a plan is in place — coordinated with the State Office of Real Property Services — to adjust the 2015 Pawling School District's tax apportionment to compensate for the 2014 mistake. Presumably this will be done by adding an excess tax levy of $253,697 to the Pawling municipal segment, and subtracting the same amount from the tax levy of the other municipal segments, essentially just the reverse of what happened in 2014, as described in my previous post.

8/29/2014 Resolution is Flawed

These remedies are good news — as far as they go. However, the Pawling School Board's 8/29/2014 Resolution provides evidence that Ms. Sensenig and possibly also the School Board misunderstand some property tax concepts. The remainder of this post describes this evidence, and suggests how improvements can be made.

Resolution Table Heading Phrase “By Towns” is Gratuitous

Let's start off easy: The headings of the last three columns of the Resolution's table end in the phrase “... by Towns”. This phrase seems gratuitous in the present context, and seems especially inapplicable to the last row called “Total”. More on that last row below. In what follows, I'll assume “by Towns” has been removed.

Total Assessed Valuations — NOT

The heading for Column 3 is labeled “Total Assessed Valuations”, but that's not what the values are. The values are Taxable Assessed Valuations. Total assessed valuations would be larger values, because they would include tax exempt property such as schools, churches, government buildings, etc., which play no role in property tax apportionment. In what follows, I'll assume this heading is changed to “Taxable Assessed Valuations”.

Equalized Tax Rate — NOT

The heading for Column 4 is labeled “Equalized Tax Rate”, but that's not what the values are. Equalized tax rate is just another way of saying true value tax rate, full value tax rate, etc. If the values had been equalized tax rates, they would all be equal to $26.88217 per thousand dollars of market value. The values in Column 4 are actually un-equalized, or conventional tax rate, measured in dollars per thousand dollars of assessed value. The difference between market value and assessed value is exactly the difference between equalized tax rate and un-equalized tax rate. For further clarification, see my assessing post.

Total for “Taxable Assessed Valuations” is Garbage

There just isn't a polite way to say this: The value 594,770,851 in the last row of column 3 is garbage, or to borrow a phrase, it's not even wrong. Yes, the numbers are added correctly. The problem is that adding these numbers doesn't make any sense. Referring again to my assessing post, the “total” of column 3 is like saying you paid 28,000 Indian rupees for an iPad, and you paid 40,000 Japanese yen for another iPad, so you bought two iPads for 68,000 — what?

You might think, well, all the numbers in Column 3 are dollars, right? Wrong! That's just what's so convoluted about the whole concept of fractional value assessing. Assessed values are conventionally labeled as “dollars”, but they aren't really dollars. They're actually discounted dollars in which the discounts are the equalization rates. Assessed values with different equalization rates (as in Column 3) cannot be added together, any more than prices in Indian rupees and Japanese yen can be added together. It only makes sense to add prices after they have been converted to a common currency. Similarly, it only makes sense to add property values after they have been converted to a “common currency”. The obvious “common currency” for property values is market value, which is assessed value divided by equalization rate.

Summary of Suggested Changes

The above suggested improvements in the table of the Pawling School Board's 8/29/2014 Resolution can be summarized as follows:
  1. Change the heading for Column 3 to Taxable Assessed Valuations.
  2. Change the heading for Column 4 to Tax Rate, or even better, Tax Rate Per Thousand Dollars of Assessed Value. While you're at it, you might as well get rid of the word “equalized” in the line beginning “Therefore be it resolved ...”.
  3. Simplify the heading for Column 4 as simply Tax Levy.
  4. Get rid of the total value in the last row of Column 3. Just get rid of it. 

Thursday, August 20, 2015

Pawling School District's 2014 Tax Apportionment Mistake — Taxpayer Viewpoint

This second of three posts on the Pawling School District (I'd originally hoped to complete this topic in two posts) describes how the 2014 tax apportionment mistake by the Pawling School District affects taxpayers. Briefly, this mistake caused property tax bills to overstate or understate the amount of tax due, depending upon the town in which the property lies. The first post presented the recent history of the Pawling School District's property taxes. A forthcoming post will discuss the apportionment mistake from the school district's viewpoint.

When Pawling School District taxpayers examined their tax bills in September, 2014, a few of them were surprised to find that their true value tax rates had increased a whopping 18.6 percent since 2013. But most others found that their true value tax rates had only increased a more modest 4.4 percent. Both these increases were mistakes. Although the District's total tax levy of $29,799,211 is as intended by the school board, the distribution of this tax among taxpayers was incorrect for all taxpayers. All taxpayers should have seen a true value tax rate increase of 5.3 percent. This post describes in detail the effect of this mistake on taxpayers.

Municipal Segments

The first thing to understand is that, like most school districts in Dutchess County, the Pawling School District comprises portions of more than one town. In addition to most of the Town of Pawling, the Pawling School District includes small portions of the Towns of Beekman, Dover, East Fishkill, and even the Town of Patterson in Putnam County. One might think that all of the Town of Pawling is included in the Pawling School District, but even that isn't true. Fully $6.3 million of taxable market value in the Town of Pawling (as of the July 1, 2014 assessments) is in the Arlington School District — not the Pawling School District. For taxing purposes, the various portions of Towns within a school district are sometimes referred to as municipal segments.

Tax Levy Should Be Proportional to Taxable Market Value

The second thing to understand is that New York State Real Property Tax Law requires the Pawling School District to distribute or apportion its tax levy (the amount it bills property taxpayers) among its municipal segments in such a way that all taxpayers are billed at the same true value tax rate. True value tax rate is simply the tax levy divided by the taxable market value of the property (not the taxable assessed value). Another way of saying this is that all taxpayers are to be billed in proportion to the value of their property on the open market (after accounting for STAR and other similar exemptions), with the same proportion being used everywhere in the District.

Town of Pawling Versus Other Towns

The following table shows what happened in 2014 with apportionment in the Pawling School District. Most of the data for Columns 2,  3, and 5 was derived from the tax rate pamphlets provided by Dutchess County's Real Property Tax Service Agency. However, data for the Patterson municipal segment is not available from this source. Pawling School District Assistant Superintendent for Finance Neysa Sensenig graciously provided me with the Patterson assessed value and tax levy data needed for these columns.

2014 Pawling School District Tax Levy Apportionment
Municipal SegmentsPercent Taxable Market ValuePercent Tax Levy Tax Rate Per $K of Market ValuePercent Tax Rate Increase Excess Tax Rate Per $K of Market ValueExcess Tax LevyPercent Excess Tax
Pawling93.3%92.4%$23.654.4% -$0.22-$253,697-0.9%
all others6.7%7.6%$26.8818.6% $3.02$253,69712.6%
All100%100%$23.865.3% $0$00%

As might be expected, most of the Pawling School District's tax base — in fact 93.3 percent — is in the Town of Pawling, with the remainder — 6.7 percent — divided among the 4 other municipal segments, as shown in Column 2 of the above table. If the Pawling School District's apportionment had been figured correctly, the percentages of tax levy billed to the Town of Pawling versus the other municipal segments (Column 3) would have been the same as in Column 2, namely 93.3 percent and 6.7 percent, respectively.

Tax Levy Mismatch With Taxable Market Value Shows Apportionment Mistake

But Column 3 is not the same as Column 2, indicating an apportionment mistake in violation of New York State Real Property Tax Law. Only 92.4 percent of the tax levy was distributed to the Pawling municipal segment, with the remaining 7.6 percent distributed to the other municipal segments. It turns out that within these other municipal segments, all taxpayers were billed at the same true value tax rate — they just weren't billed at the same tax rate as the Town of Pawling's taxpayers.

When a Dog Wags Its Tail ...

So instead of all taxpayers being billed at the aggregate $23.86 rate (last row of Column 4), the Pawling taxpayers were billed at only $23.65, while all others were billed at $26.88 (Column 4). Column 5 shows that instead of all taxpayers seeing a 5.3 percent tax rate increase, Pawling taxpayers saw only a 4.4 percent tax rate increase, while all others saw a whopping 18.6 percent increase. Why this disproportionate effect? When a dog wags its tail, the dog shakes a little bit, but the tail shakes a whole lot. The Town of Pawling is the dog; the other municipal segments are the tail.

Excess Tax Rate

Another way to look at the disproportionate effect of the apportionment mistake is to compare the true value tax rates of the municipal segments to what they should have been. Column 6 shows that Town of Pawling taxpayers got a small break of $0.22 off their tax rate, whereas all the other municipal segments saw an extra tax based on a rate of $3.02 per thousand dollars of market value. This extra tax can be compared with the 2014 $3.65 tax rate for the Dutchess County Government, which all these property taxpayers paid the previous spring. So it's as if these taxpayers had to pay the equivalent of 83 percent of a second Dutchess County Government tax in the same year.

Excess Tax Levy

Column 7 shows yet another way to measure the mistake: $253,697 — fully a quarter million dollars of tax — was mistakenly shifted from the many (Town of Pawling) to the few (other municipal segments). This shift represents only 0.9 percent of the tax in the Town of Pawling, but 12.6 percent of the tax in the other municipal segments, as shown in Column 8. Just more manifestations of the dog wagging its tail.

What would correct apportionment have looked like?

Had it not been for the apportionment mistake, that is, if Column 3 were equal to Column 2, then all the entries in Columns 4 through 8 for “Pawling” and “all others” would have been the same as in the last row (“All”) of those columns.

OK, so how did this mistake come about in the first place? That is the subject of a forthcoming post.

Sunday, August 16, 2015

Pawling School District Tax History

This first of two posts on the Pawling School District presents the recent history of the District's property taxes. A subsequent post will describe the 2014 tax apportionment mistake committed by the Pawling School District, in violation of New York State Real Property Tax Law, which caused property tax bills to overstate or understate the amount of tax due, depending upon the town in which the property lies.

The following table summarizes the Pawling School District's recent tax history. Most of the data for this table was derived from the tax rate pamphlets provided by Dutchess County's Real Property Tax Service Agency. However, data for the portion of the Pawling School District in the Town of Patterson (Putnam County) is not available from this source. Pawling School District Assistant Superintendent for Finance Neysa Sensenig graciously provided me with the Patterson assessed value and tax levy data needed to complete this table.

Pawling School District
Year of
Tax Bill
Taxable Market Value Tax LevyTax Rate
Market ValuePercent
Increase
Tax LevyPercent
Increase
Tax Rate
per $K of
Market
Value
Percent
Increase
2004$1,217,637,391$19,689,971 $16.17
2005$1,404,750,43815.4%$21,805,61810.7%$15.52-4.0%
2006$1,556,342,67710.8%$23,219,1966.5%$14.92-3.9%
2007$1,717,266,53310.3%$24,787,8136.8%$14.43-3.2%
2008$1,794,131,7694.5%$26,262,7276.0%$14.641.4%
2009$1,708,746,526-4.8%$27,545,1914.9%$16.1210.1%
2010$1,457,903,591-14.7%$27,975,6581.6%$19.1919.0%
2011$1,399,836,368-4.0%$29,338,5674.9%$20.969.2%
2012$1,381,982,151-1.3%$29,629,2381.0%$21.442.3%
2013$1,289,459,789-6.7%$29,219,136-1.4%$22.665.7%
2014$1,248,731,004-3.2%$29,799,2112.0%$23.865.3%

Taxable Market Value

It is helpful to visualize the Pawling School District's taxable market value (column 2 of the above table) as a chart. The chart below shows clearly the increase in property values through 2008, followed by the economic meltdown which has decreased property values every year since then. The Pawling School District's experience follows that of Dutchess County as a whole (see first chart in my recent post Dutchess County Gov't Tax Rate Keeps Climbing), and indeed that of most of New York State, and even most of the country. Note that the Pawling School District's taxable market value for the 2014 tax is only slightly (2.6%) greater than that for 2004.


This same data can be visualized in terms of the yearly increase in taxable market value (column 3 of the above table):



It should be noted that all these market values lag tax bills by a year and three months. For example, for tax bills to be paid on October 2, 2014, the corresponding market values are as of July 1, 2013.

Tax Levy

The Pawling School District's tax levy — the total amount billed to property taxpayers (column 4 in the above table) — can be visualized as follows:


Although the Pawling School District's tax base (taxable market value) increased only 2.6 percent in the last decade, the above chart shows the tax levy increasing 51.3 percent in the same time period. The tax levy has increased every year, except for a 1.4 percent decrease from 2012 to 2013, as shown in the following chart (column 5 of the above table):


Tax Rate

As I have written many times before in this space, tax rate, that is, true value tax rate expressed in dollars per thousand dollars of market value, is a useful way of comparing taxes among jurisdictions, among years, and even among different kinds of property taxes. For a given year, tax rate (column 6 of the above table) is simply tax levy divided by taxable market value. The following chart depicts Pawling School District tax rate for each of the last 11 years: 


True value tax rate measures how steeply your personal wealth, as measured by the taxable market value of your property, is being taxed. The above chart shows that your wealth has been taxed more steeply every year since 2007 — just before the economic meltdown. Tax rates for the years 2000 through 2003 (not displayed in this post) are mostly higher than for 2004, but never higher than $17.41. This means that in 2010, your wealth was taxed at a steeper rate than ever before in this millennium. Since then, the tax rate has increased every year. The following chart (column 7 of the above table) shows the tax rate changes in more detail:


All tax rates in this post describe both how steeply the Pawling School District taxes its tax base and how steeply property owners are taxed (after accounting for STAR and other similar exemptions). That's because the Pawling School District utilizes neither the homestead tax option nor the apportionment option (for explanation of these options, see my 2014 School District Tax Rate Rankings).

Well, actually, this isn't quite true for 2014. The 2014 tax rate only describes how  steeply the Pawling School District taxes its tax base. It does not describe how steeply property owners were taxed in 2014. That's because in 2014, the Pawling School District made a mistake in apportioning the tax levy, which caused property tax bills to overstate or understate the amount of tax due, depending upon the town in which the property lies. This mistake, which violates New York State Real Property Tax Law, will be described in detail in a forthcoming post.

Careful readers will notice a slight discrepancy between the Pawling School District's aggregate tax rate of $23.86 reported here and the $23.82 rate reported last month in my 2014 School District Tax Rate Rankings). That's because last month's tax rates did not take into account the Town of Patterson segment of the Pawling School District. Ordinarily, the Town of Patterson's taxes should make no difference in the tax rate. It's only because of Pawling's 2014 apportionment error that the difference appears. This post's aggregate tax rate of $23.86 is correct. Similarly, this post's 2014 tax rate increase of 5.3 percent is correct, not the 5.1 percent reported last month. These small corrections do not affect last month's school district rankings.

The author is grateful to Pawling School District Assistant Superintendent for Finance Neysa Sensenig for her kindnesses in accommodating my requests for data and other information.