Thursday, September 10, 2015

Pawling School District Promulgates Misleading Tax Information — Again

On August 24, 2015, Pawling School District Assistant Superintendent for Finance Neysa Sensenig presented 2015-2016 Tax Rates to the school board, after which the Board approved a resolution to set the 2015-16 tax levy to the same amount as last year's tax levy. In other words, this year's tax levy increase is zero. This sounds like good news.  However, Sensenig's presentation omitted the bad news about this year's Pawling School District tax:
  • The 2015 aggregate tax rate is $26.77 per thousand dollars of market value, the highest for the District in this century.
  • This tax rate will most likely be the second highest 2015 tax rate of any school district in Dutchess County (after Spackenkill).
  • The 2015 tax rate increase is 12.17 percent, the second highest tax rate increase for the District in the last decade. (The 2010 tax rate increase was 19.0 percent.)  
In my view, the public is mislead by the omission of this crucial bad news. It's especially ironic that a presentation entitled 2015-2016 Tax Rates didn't actually include the aggregate tax rate or its increase. But it's worse than that. Sensenig's presentation also commits mistakes in representing changes in tax rates for municipal segments (towns), and it presents data that makes no sense. These mistakes indicate that Sensenig does not understand how to properly manipulate property tax data in the presence of fractional value assessing — even though the issue had already been explained in one of my recent blog posts. It would not surprise me if Pawling's Board of Education also does not understand this issue.

Aggregate Tax Rate — Missing

Let's start with the most basic of questions: How steeply is the Pawling School District taxing its tax base for the 2015-2016 year? That is, what is the District's aggregate tax rate — the District's tax levy divided by the District's taxable market value? (In case you don't know why this tax rate is so important, see The Tax Rate Is All That Matters.)

In fairness, the 2015-2016 Tax Rates presentation actually does contain the District's aggregate tax rate, but it is so obscured that, for all practical purposes, it's not accessible. You won't find the aggregate tax rate in the main PowerPoint part of the presentation (the first 9 pages of the PDF), where the most important information is expected. You'll only find the aggregate tax rate immersed in a tax calculation chart comprising 6 rows and 11 columns of numbers, on page 13 of the PDF. It's shown in the last row of column 9 as  26.76701, and rounded just below it as 26.77. The chart does not clearly identify what this number represents, nor does it clearly indicate the units of measure, but it's actually $26.77 dollars per thousand dollars of market value (what Sensenig calls “full value assessment”). A glance at the Pawling School District Tax History shows that this is the highest tax rate for the District in over a decade. In fact, it's actually the highest tax rate for the Pawling School District in this century.

Aggregate Tax Rate Increase — Missing

Next question: How does the Pawling School District's 2015 tax rate of $26.77 compare with that of last year? That is, what is the percent increase in the tax rate? The 2015-2016 Tax Rates presentation does not answer this question.

One could calculate the percent increase from the presentation if the presentation contained last year's tax rate. One might think that one could get last year's tax rate from the same tax calculation sheet (page 13 of the PDF). That's because Column 10 on that sheet — the very next column after the 2015 rates — claims to contain the 2014 rates. And indeed it does, except that the given 2014 aggregate tax rate (the TOTALS line of column 10) is the wrong value. It is given as 26.882174, and rounded just below it as 26.88. The correct value — the 2014 tax levy divided by the 2014 taxable market value — is $23.86, as can be seen from the Pawling School District Tax History. Comparing the correct tax rates shows that the Pawling School tax rate has increased a whopping 12.17 percent for the 2015-2016 year. This is the second greatest tax rate increase in the history of the Pawling School District since 2000. It is also a far greater increase than that of any school district in Dutchess County last year. (Spackenkill had the greatest tax rate increase last year, at “only” 6.9 percent.) See 2014 School District Tax Rate Rankings.

Wait a minute, you might say. How can the Pawling School District's tax rate increase 12.17 percent, when the tax levy increased zero percent? Well, the tax rate measures how steeply taxpayers' wealth is taxed, and taxpayers' wealth — measured by the taxable market value of property — decreased 10.85 percent in the last year. The biggest component of this market value decrease is in the Town of Pawling, where the taxable market value dropped 11.51 percent.

But how could it be that Pawling's taxable market value dropped 11.51 percent since last year? The Pawling municipal segment's taxable assessed value is $522 million, a value that has hardly budged at all in the last 5 years. Right, but the Town of Pawling's equalization rate has been steadily increasing since 2009, and it incurred a dramatic increase this year, from 44.86 percent to 50.69 percent. Market value is assessed value divided by equalization rate.

One must understand that property tax in New York State (and in most other states) is based on market value, not on assessed value, despite what many property owners — and apparently many government officials — seem to believe. Fractional value assessing, that is, assessing property at an equalization rate other than 100 percent, is a Really Bad Idea, exactly because of its confounding effect on the public, and even on public officials. For more on this, see Full Value versus Fractional Value Assessing — A Comparison. Unfortunately, the Town of Pawling is still one of the few remaining towns in Dutchess County which practices fractional value assessing.

The presentation's tax calculation chart's stated tax rate increase (last row of column 11 on page 13 of the PDF) of -0.43 percent — essentially a small decrease — makes no sense. When the tax levy remains constant and the taxable market value decreases, the tax rate must increase.

Pawling School officials may have intentionally avoided reporting the aggregate tax rate and its increase, since these parameters are the ones that show how bad the situation really is for taxpayers. The officials can get away with this because the public has such a poor understanding of property taxes. For more on this, see The Dirty Little Secret of Property Taxes.

Municipal Segment Tax Rate Increases Are Wrong

Under ordinary circumstances, the Pawling School District's aggregate tax rate is also the rate at which each taxpayer will be billed, and the aggregate tax rate increase is also the tax rate increase each taxpayer will see. This is how property taxes work under ordinary circumstances for a school district like Pawling which utilizes neither the homestead tax option nor the apportionment option. (For detailed discussion of these options, see page 4 of 2014 School District Tax Rate Rankings.)

However, the circumstances in the Pawling School District were not ordinary last year, and they aren't ordinary this year either. Last year, the District committed an apportionment mistake, underbilling taxpayers in the Town of Pawling and overbilling taxpayers in the four other municipal segments. Pawling taxpayers paid at a low-ball rate, while all other taxpayers paid at a high-ball rate. Thus, Pawling taxpayers saw a low-ball tax rate increase, while all other taxpayers saw a high-ball tax rate increase. All this is explained in detail here.

The good news is that the 2015-2016 Tax Rates presentation correctly compensates this year for last year's apportionment mistake. That is, the extra quarter million dollars mistakenly billed to municipal segments other than the Town of Pawling last year have been correctly apportioned back to Town of Pawling taxpayers this year, thus overbilling Town of Pawling taxpayers this year by the same amount they were underbilled last year. Because of last year's mistake and this year's compensation for last year's mistake, the aggregate tax rate and aggregate tax rate increase once again will not describe what any taxpayers will experience.

The bad news is that the 2015-2016 Tax Rates presentation for municipal segments' tax rates (table on page 6) is misleading, and its tax rate increases are just plain wrong. (Same with the table on page 5.) The problem is that the tax rates in columns 2 and 3 of the presentation are the rates per thousand dollars of assessed value, which makes no sense in this context. Tax rates per thousand dollars of assessed value cannot be compared when they have different equalization rates, for the same reason that assessed values cannot be added when they have different equalization rates. Comparison can only be made when tax rates are equalized — converted to a market value basis — as in the following table:

Pawling School District Tax Rate Increases
Tax Rate per $K
of Market Value
Percent Tax
Rate Increase
East Fishkill$26.88$23.66-11.97%-11.97%

Notice that Sensenig's calculation of percent tax rate increase (last column) gives the correct value (green background) for Beekman and East Fishkill. That's because Beekman and East Fishkill have the same equalization rate (100%) for 2014 and 2015. Dover and Pawling's equalization rates changed from 2014 to 2015, which is why the presentation's results are incorrect (red background). The more the equalization rate changes, the more difference it makes. Pawling's equalization rate changed dramatically, as already noted, so the presentation's result is way off. Taxpayers in the Pawling municipal segment will see a 14.24 percent tax rate increase this year, not the 1.10 percent increase shown in the presentation. (Regarding Patterson, which has been at 100% equalization rate for many years, it's not clear why the presentation shows its 2014 tax rate as $26.62 rather than $26.88, thereby getting an incorrect tax rate increase.)

Overconfident Officials Unintentionally Mislead a Gullible Public

On August 21, 2015, I emailed Pawling School District Assistant Superintendent for Finance Neysa Sensenig, copying the Pawling School Board, saying that she, and possible the Board, misunderstands some property tax concepts. I included a link to my recent blog post, which provides evidence of this misunderstanding. Part of this evidence is that she added assessed values with different equalization rates, producing a garbage result. My email seems to have had no effect, since Ms. Sensenig repeated the same mistake on page 13 of the presentation PDF (bottom of first column). The mistake was compounded with the presentation's incorrect municipal segment tax rate increases. The public interest is not well served by the Pawling School District's 2015-2016 Tax Rates presentation, which omits the aggregate tax rate and its increase, which promulgates incorrect municipal segment tax rate increases, and which repeats easily-omitted calculations that produce garbage results.

I wish I could report that the Pawling School District is the only local taxing jurisdiction in Dutchess County to misunderstand fractional value assessing, resulting in the promulgation of misleading tax information. Unfortunately, the Hyde Park School District, the Town of Hyde Park, the Town of Pleasant Valley, the Fairview Fire District, and even the Poughkeepsie Journal have made similar mistakes. The officials responsible for these mistakes include at least three CPAs, none of whom seemed able to grasp that they had made a mistake even when confronted with the evidence. The officials responsible for these past mistakes have generally been so confident of their basic numeracy skills that they saw no need to check their work — or my critique of their work — with an authoritative third party, such as the good folks at the Dutchess County Real Property Tax Service Agency or the New York State Department of Taxation and Finance. Now overconfident officials at the Pawling School District have joined this list of errant number crunchers.

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