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

(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. 

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