Fairview Fire Tax Dollars at Work

The Fairview Firefighters Union, IAFF Local 2623, invited me to participate in a live fire training drill at the Dutchess County Fire Training Center on November 12. I had the opportunity to go into a burning building to rescue a victim (fortunately, a dummy), and to fight the fire.  A respirator — and very close supervision by Fairview's finest — kept my body and soul together.  I also got to climb the Department's 100 foot ladder.  The photo shows me flanked by my two excellent guides, Fire Captain Chris Maeder and Union President Rob Ridley.
 
Safety and Risk

Although I felt pretty safe in the controlled training situation, it was obvious that firefighters could be at significant risk in a real emergency.  For me, the training session was only an adventure, but for firefighters, it's a way to lower their risk and increase their effectiveness when on a call.  Participating in these exercises increased my respect for the dangerous job firefighters do every day.

What Does All This Have To Do With Fire Taxes?

Two things:

1. Fairview firefighters are highly trained professionals (or in some cases highly trained volunteers).  Their compensation is the main component of the fire tax levy in predominantly career fire districts such as Fairview.  Our fire tax dollars primarily pay the people who save our lives and property.
   
2. Fairview firefighters use a great deal of specialized equipment to fight fires, to rescue victims, and to keep firefighters safe.  On any given call, only a small fraction of this equipment is used, but different calls will use different equipment.  The effectiveness of the fire department on a given call depends in part on having the right tool for the job at hand, as well as knowing how to use it. These tools cost money.  Most of this money comes from the local fire tax levy, although some expensive equipment, such as the “jaws of life”, is paid by other sources, such as federal or state grants. 
   

House Fire

By chance, I happened to witness a Fairview Fire Department team responding to a house fire last evening.  It took only 3 minutes after dispatch for this team to appear at the house with a fire truck, and only a few more minutes to get the fire under control.  This rapid response prevented major damage to the residence.  The rapid response was possible only because the team was already at the fire house, ready to go.  In other words, it was only because of Fairview's 24x7 career (paid) staff that this house incurred minor damage.  If it were necessary to wait for volunteers to arrive from other locations, this house would most likely have suffered major damage.

What Do Our Fire Tax Dollars Buy?

Fire tax is a hopelessly dry and geeky topic.  It's just a bunch of numbers on a piece of paper, or in cyberspace.  My report advocating consolidation shows dramatic differences in fire tax rates among fire districts in Dutchess County, with Fairview having the highest fire tax rate.  But what do the dramatically different fire tax rates buy?  Do higher fire tax rates tend to provide better protection than lower ones?  How much better?  What does “better protection” really mean?  The training drill and the house fire allowed me to touch and feel what the Fairview fire tax dollars buy:  Fairview fire taxes buy the ability to contain some fires in their early stages, limiting the threat to human life and the damage to property. 

Based on what I've seen and experienced, it is quite plausible to me that fire districts with low tax rates (typically staffed predominantly by volunteers) may tend to have longer response times to emergencies, and therefore less favorable outcomes.  In other words, you get what you pay for.  Is the high level of service in Fairview worth the high cost?  Undoubtedly, different taxpayers will answer this question differently.  This is the beginning of a new aspect of learning about fire districts for me.  I would like to see how things work in a predominantly volunteer fire district, in order to compare and contrast.

Beekman Taxpayers Face 10 Percent Tax Rate Increase

Q: What tax rate increase can Beekman taxpayers expect to see in 2010?
Short Answer: Just read the title of this post.
Long Answer: Read this whole post.

The answer is complicated by the fact that the Town of Beekman has proposed to transfer its $319,800 ambulance contract to the Beekman Fire District. This cost-shifting makes the Town of Beekman tax rate increase smaller than it would otherwise be, and it makes the Beekman Fire District tax rate increase larger than it would otherwise be. From the taxpayer's viewpoint, what matters is the combined effect of the Town's rate increase and the Fire District's rate increase. That's because, as I've written so many times before, the tax rate is all that matters.

One cannot simply add the two rate increases, because they pertain to different tax levies. Instead, one must first sum the tax levies, then calculate a combined tax rate, and then compare these rates for 2009 and 2010. Two factors make it even more complicated to compute the overall Beekman tax rate increase:

1. The tax base for the Town of Beekman is approximately 4 percent smaller than that for the Beekman Fire District, because of special exemptions (such as for veterans) that apply only to the Town tax. This means that about 4 percent of Beekman's assessed value pays only fire tax, no town tax.
2. The Beekman Fire District's tentative 2010 budget has very recently been modified to reduce the fire tax levy by $107,000, as I learned today from Beekman Town Supervisor John Adams.
   

Beekman Tax Bills

Taking all the above into account, Beekman property taxpayers can expect to see the following on their 2010 property tax bills:

1. Town of Beekman tax rate of $1.32 per thousand dollars of assessed valuation, representing a 0.7 percent decrease from 2009. This 0.7 percent decrease represents a correction of the blunder I reported yesterday, and which Adams has graciously confirmed.
2. Beekman Fire District tax rate of $0.65 per thousand dollars of assessed valuation, representing a 42.0 percent increase from 2009. (Without the recent $107,000 tax levy reduction, the tax rate increase would have been 56.3 percent.)
3. The combined effect of the above two taxes is an effective tax rate of $1.97 per thousand dollars of assessed valuation, representing a 10.2 percent increase from 2009. (Without the recent $107,000 fire tax levy reduction, the tax rate increase would have been 14.0 percent. None of the numbers in this item will appear explicitly on the tax bill.)
4. Possible additional taxes for properties in Pawling Lake Estates and Dover Ridge (water/sewer). These additional taxes are separate from the Town and Fire District taxes, and are not considered in this analysis.
   

The key number from the taxpayer's viewpoint is the 10.2 percent effective tax rate increase, combining the Town of Beekman tax and the Beekman Fire District tax. (Item 3) This number gives the best measure of how much more heavily each taxpayer's wealth — as measured by the market value of his property — is being taxed by the Town of Beekman and the Beekman Fire District.

Response from Beekman Town Supervisor

I'm pleased that Adams has added a comment to my previous Beekman post, and that we now agree about the effective Beekman tax rate increase. I'm also glad that Adams has chosen to publicly state the effective tax rate increase for Beekman. As I've said many times before in this blog, from the taxpayer viewpoint the tax rate is all that matters. On the other hand, Adams couldn't resist adding:

Keep in mind that the valuation of the Town dropped by about 6% so the effective change in dollars paid will be about 4%.

Although these are true facts, taxpayers are advised to disregard them. The main purpose of such statements is to make tax increases sound not as bad as they really are. I've written about this extensively in The Dirty Little Secret of Property Taxes.

Disclaimer: All of the above numbers are based on proposed budgets, and are subject to final approval of these budgets by the Town of Beekman and the Beekman Fire District.

Acknowledgments: My thanks to Beekman Town Supervisor John Adams, Beekman Town Budget Officer William Brady, and Beekman Town Councilman Daniel French for graciously providing information essential to this analysis.

Town of Beekman Blunder Overstates Tax Rate Increase

A blunder has caused Town of Beekman Supervisor John Adams to significantly overstate the proposed 2010 Town tax rate increase. A letter from Adams to Beekman Town Clerk Virginia Ward on October 19 includes figures indicating that the projected 2010 Town of Beekman property tax rate would increase 10.09 percent. Also, a Poughkeepsie Journal story on October 14 states that Adams is proposing a 10 percent tax rate increase. In reality, the projected 2010 Town of Beekman property tax rate would decrease 0.7 percent.

Town of Beekman Budget Officer William Brady has confirmed this blunder, which I discovered by examining Beekman's preliminary budget. The blunder was caused by mistakenly comparing the projected tax rate with the corresponding 2008 tax rate. The comparison should have been made with the 2009 tax rate, which is substantially higher. The net size of the tax rate error is 10.8 percent.

Effect on Property Taxpayers

Beekman property taxpayers will presumably be glad to know that their Town of Beekman taxes will decrease slightly, rather than increasing significantly. The bad news is that the Town of Beekman has held down its tax rate only by transferring a $319,000 ambulence-contract cost to the Beekman Fire District, thus raising the Beekman Fire District tax rate by a whopping 56 percent, from $0.46 per thousand dollars of assessed valuation to $0.72. Thus, the same taxpayers will be paying higher taxes out of another pocket. The dirty little secret of property taxes strikes again.

Poughkeepsie Journal Fails Truth-in-Taxing Test

The Poughkeepsie Journal has failed, in its recent stories about property taxes, to properly inform the public about what's really going on. Most readers of the Journal stories on property taxes in the City of Poughkeepsie and the Town of East Fishkill likely think that projected 2010 property taxes are going down substantially. The truth is that they're projected to go up from 5 to 9 percent. Most readers of the Journal stories on property taxes in the Town of LaGrange, the Town of Poughkeepsie, and the Arlington School District likely think that projected 2010 property taxes are going up by single-digit percentages. The truth is that they're projected to go up by double-digit percentages. The only recent Poughkeepsie Journal story that gets it pretty-much right is the one on the Town of Red Hook, where property taxes are projected to increase 25 percent.

Poughkeepsie Journal Parrots Government PR

In every one of these stories, the Poughkeepsie Journal has done nothing more than to rephrase the press releases and statements of government officials, even when those statements are deliberately misleading. None of the Journal stories has given any hint that there might be a different interpretation of the property tax situation than the government spin. The only reason the Town of Red Hook story is not misleading is that the government officials themselves were candid enough to provide the tax rate and tax rate increase.

The Tax Rate is All That Matters

From the viewpoint of property taxpayers and other members of the public (who pay property taxes indirectly through their rent), the most important measure of property taxes is the tax rate, and changes in the tax rate. In today's declining real estate market, property tax assessments are trending downward by single-digit or in some cases even double-digit percentages. In other words, the wealth of property owners — as measured by the market value of their properties — has diminished by these percentages. Under these conditions, property tax rates will tend to rise, even if the tax levy does not. And if the tax levy does rise, the tax rate will tend to rise even more. This is exactly what's been happening.

The Big Story is Being Missed

An increase in the tax rate is Really Bad News, because it means that our wealth is being taxed at a higher rate. Furthermore, it's likely that local governments will find it difficult to lower this rate to “normal” levels in the future, when the real estate market improves. In other words, the current dramatic increases in local property tax rates may result in permanent increases in the rate at which our wealth is taxed. This is a big story, and it's being played out in almost every local government jurisdiction. But you'd never know it from reading the Poughkeepsie Journal.

Government Officials are Just Doing Their Jobs

You won't hear this story from most government officials. When government officials discuss property tax issues in today's economic climate, it is to their advantage to deemphasize — or even omit — the tax rate and the change in the tax rate. Instead, they focus on the tax levy and/or the typical tax bill. In today's declining real estate market, increases in the tax levy and in the typical tax bill will be smaller than increases in the tax rate. By focusing on tax levies and typical tax bills, officials can make the tax situation seem not as bad as it really is, without actually lying. Putting the best face on a bad situation is what any good politician needs to do.

Truth in Taxing

Prominent disclosure of the tax rate and the change in tax rate is what I call truth-in-taxing. We cannot expect government officials to provide truth in taxing, because of their obvious conflict of interest. However, news sources such as the Poughkeepsie Journal have as a key purpose to inform the public about the workings of government. For stories related to property tax, such reporting means going beyond simply parroting the PR of government officials, especially when it is known that this PR is deliberately misleading. In property tax stories, the key issue is the tax rate and changes in the tax rate. This is always what the story is about, whether government officials wish to talk about it or not. Readers of the Poughkeepsie Journal need the tax rate and change in tax rate in order to understand the essence of what's happening. This means they need the change in the tax rate in the headline itself, in the lead sentence, and possibly also in the sidebar information — not buried in the tenth paragraph, or omitted entirely. The change in the tax rate is the story. Most recent Poughkeepsie Journal stories related to property taxes have failed to provide truth in taxing disclosures. I would very much like truth in taxing to become standard policy in the Poughkeepsie Journal's property tax reporting.

Truth in Taxing

Before 1968, consumers had very little protection in credit transactions. Lenders often used misleading figures to describe loan offers, so that it was impossible for most consumers to know whether a loan offer was good, bad, or indifferent, or to compare different loan offers. Lenders were not required to clearly disclose the cost of a loan. The truth in lending act, which became a federal law in 1968, changed all that. Now, lenders are required by law to disclose the annual percentage rate, or APR. The APR gives a standard measure of the cost of a loan, and allows direct comparison among loan offers.

In a sense, property taxpayers live in a pre-1968 world. Government officials often use misleading figures to describe property taxes, so that it is impossible for most property taxpayers to know whether a proposed property tax is good, bad, or indifferent, or to compare property taxes from one year to the next, or among municipal jurisdictions.

Truth in Taxing

Property taxpayers need something like truth in lending. I call it truth in taxing. And just as truth in lending has the APR, a standard measure of how much a loan costs you, truth in taxing has the tax rate as a standard measure of how steeply your wealth, measured by the market value of your property, is being taxed. For example, a tax rate of $2.00 per thousand dollars of market value means that you get to pay $2.00 for every $1,000 of market value of your property. If your property is worth $100,000 in the market (as determined by the tax assessor), then your tax is $200. If your property tax rate last year was $2.00 per thousand dollars of market value, and this year it's $2.20 per thousand dollars of market value, then your tax rate has increased $0.20, or 10 percent. Truth-in-taxing means that changes in property taxes are expressed as percentage changes in the tax rate. Other measures of changes such as changes in the tax levy or changes in the the average tax bill may be of some interest (no pun intended), but do not directly disclose how heavily a property owner's wealth is taxed. Only the tax rate expresses directly how heavily a property owner's wealth is taxed, and only changes in the tax rate measure how much more heavily (or less heavily) that wealth is taxed.

Your Property Tax Bill Implements Truth-in-Taxing

Under New York State law, property tax bills are required to display truth-in-taxing information, or at least come pretty close to displaying it. This fact indicates to me that New York State law recognizes the utility of the truth-in-taxing concept. Tax bills are required to display:

• The tax rate for each taxing purpose (such as town tax, county tax, fire tax, etc.). Unfortunately, the tax rate is given in dollars per thousand dollars of assessed value, rather than of market value. More on this below.
• The market value of your property.
• The equalization rate, confusingly called the uniform percentage of value on your bill.
  

When the equalization rate is 100 percent, all assessed value numbers are the same as market value numbers. For example, tax rates per thousand dollars of assessed value are numerically equal to tax rates per thousand dollars of market value. In this case, your tax bill directly displays the tax rates determining how steeply your wealth is taxed.

When the equalization rate is not 100 percent, one can convert tax rate in dollars per thousand dollars of assessed valuation to dollars per thousand dollars of market value simply by multiplying the former by the equalization rate.

Who Should Be Responsible for Truth-in-Taxing Disclosures?

I'm not suggesting that truth in taxing should be a law, as truth in lending is. I'm just suggesting that truth-in-taxing is a convenient label for disclosures which clearly state the meaning of property taxes for taxpayers. It would be asking too much of government officials to focus their press releases on truth-in-taxing. They simply have too strong a conflicting interest in obscuring this information, especially in a declining real estate market. But news sources intending to inform the public about property tax matters, rather than to promote a partisan view, would do well to focus on tax rate as the key component of truth-in-taxing. More on this in a subsequent post.

City of Poughkeepsie Proposes 5 to 7 Percent Tax Increase

If you've been reading this blog lately, you've read posts like this one too many times already. Well, I think five times is too many. For at least the sixth time in recent weeks, the Poughkeepsie Journal has reported a story related to property taxes in which the most important part of the story is obscured or omitted entirely. The most important part of a story on property taxes is the tax rate, and changes in the tax rate.

In this case, the story about the City of Poughkeepsie by reporter Michael Valkys in today's web edition of the Poughkeepsie Journal is entitled “Budget plan avoids layoffs, may cut taxes for some.” In the print edition, the front page title in the Mid-Hudson section reads, “City budget plan avoids layoffs,” with the title on the page 2 continuation reading, “CITY: Some would pay less in taxes.” The second sentence in the story describes a budget “that officials said calls for property tax decreases for many homeowners ... ”. City officials have gone about as far as they can go without actually lying, to make it seem as though taxes are going down. Their message is not technically false, but is totally misleading.

The Real Story

The real story is that the City of Poughkeepsie property tax rate would increase 5 to 7 percent, as I've titled this post. That's 5 percent for homesteads and 7 percent for non-homestead (commercial) properties. The 5 percent number actually appears in Tkazyik's 4-page letter to the Common Council as 4.79 percent, though it's buried at the bottom of the third page. The 7 percent number can be computed from the non-homestead tax rates mentioned in a side-bar to the story. Neither number is mentioned in the Poughkeepsie Journal story.

Ironically, the only tax rate changes mentioned in the story are those of “competing” cities in other counties: The story claims that the City of Newburgh proposed an 82.5 percent property tax increase for homeowners, and the City of Kingston a 10 percent increase. Why didn't the story mention the 5 percent increase for Poughkeepsie? Once again, the Poughkeepsie Journal has followed a fairly consistent pattern of obscuring the main story about property taxes, and instead has parroted the congratulatory PR of government officials.

Government Officials Are Just Doing Their Job

It is not my intent at all to bash City of Poughkeepsie Mayor John Tkazyik or his budget. I take no position on whether his budget is good, bad, or indifferent. But Tkazyik is doing what any good politician needs to do: Put the best face on a bad situation. And don't kid yourself, the situation is bad, not just in the City of Poughkeepsie, but throughout Dutchess County, New York State, and indeed the nation. When government officials discuss property tax issues in today's economic climate, it is to their advantage to deemphasize — or even omit — the tax rate and the change in the tax rate.

Poughkeepsie Journal Fails its Readers — Again

In my view, it is the Poughkeepsie Journal that has been serving its readers poorly by not presenting the real story — the increase in the tax rate. This has been a consistent pattern with the Poughkeepsie Journal. This story on the City of Poughkeepsie is just the latest example.

Perfect Calm Averts Major Fairview Fire Tax Increase

You've heard of a perfect storm, and the calm before the storm, right? I figure a perfect calm must be the opposite of a perfect storm.

The Perfect Calm in Fairview

Earlier this year, Fairview Fire District Treasurer James Passikoff announced that the District had a $600,000 fund balance at the end of 2008. This amount represents roughly 20 percent of the 2008 budget. When asked how it was possible that such a large fraction of the 2008 budget went unspent, Passikoff explained that a combination of factors were involved. Many major uncertainties in cost estimates for 2008 all ended up on the low end of their range. Passikoff agreed that what happened in 2008 was “the opposite of a perfect storm”. In other words, a perfect calm. (No, I don't mean the perfume or the relaxation exercises.)

Tax Rate Remains Constant

The proposed 2010 budget for the Fairview Fire District allocates $450,000 of this $600,000 fund balance to reduce the tax levy for 2010 to $2,832,000. Since Fairview's market value for the 2010 tax year is $566,452,002, the result is a projected fire tax rate of $5.00 per thousand dollars of market value. This tax rate is almost 2 percent lower than Fairview's 2009 fire tax rate of $5.09. In summary, Fairview's projected 2010 fire tax rate continues a trend begun in 2003, in which Fairview's fire tax rate is essentially constant, within just a few percent of $5.00 per thousand dollars of market value.

Perfect Calm Averts Tax Rate Increase

But the continuation of this trend of constant fire tax rate into 2010 is due only to the infusion of $450,000 from 2008's perfect calm. Without this infusion, Fairview's tax levy would have been $3,282,000, resulting a tax rate of $5.79 per thousand dollars of market value. This tax rate is almost 14 percent higher than Fairview's 2009 fire tax rate of $5.09. In summary, without the perfect calm of 2008, Fairview's 2010 fire tax rate would have increased nearly 14 percent.

Future Tax Rate Increases Expected

It is reasonable to assume that the Fairview Fire District will not see another perfect calm anytime soon. In addition, market values in Fairview are continuing to drop, following a national trend. Therefore, in the absence of dramatic changes, Fairview fire tax rate seems destined for significant increases in future years. This prediction is consistent with the dirty little secret of property taxes.

Fairview already has the highest fire tax rate in Dutchess County, and possibly the highest in New York State. The current analysis suggests that without some dramatic changes, Fairview taxpayers will continue to suffer this burden for at least the next few years.

Acknowledgement: My thanks to Ginny Buechele for calculating the tax rate that would result without the $450,000 infusion.

Poughkeepsie Journal Opposes Cost Shifting

The unsigned editorial in today's Poughkeepsie Journal, Cost shifts do nothing to help taxpayers, declares cost shifting among governments to be “outrageous”, and calls on governments to “look for efficiencies and savings and to share services better.” Though the focus of the Poughkeepsie Journal editorial is primarily on shifting costs among New York State, counties and towns, fire districts are also mentioned. These sentiments are in alignment with my own view of Joel Miller's cost-shifting proposals for fire districts.

I've commented numerous times in this blog about how Poughkeepsie Journal news stories about property taxes have presented the viewpoints of government officials, and have neglected the taxpayer perspective. I'm pleased that the Poughkeepsie Journal editor is taking the taxpayer's viewpoint on cost shifting. Cost shifting just wastes motion at best, and adds complexity — and further cost — to the system at worst.

Joel Miller Responds to Criticism of His Fire Tax Proposals

It is gratifying to learn that New York State Assemblyman Joel Miller agrees with much of my recent blog post, Joel Miller's Flawed Proposals for Funding Fire Districts. In a lengthy phone conversation on October 7, Miller agreed that his three proposals do not reduce the costs of providing fire protection and emergency services, but only shift these costs around. He also agreed that consolidation is the right approach for reducing the cost of these services — in the long run.

However, Miller's position is that consolidation is not politically feasible in the short run so long as there are great disparities in fire tax rates among consolidating fire districts. Districts with low fire tax rates will simply not be willing to consolidate with high tax rate districts, thereby increasing their own taxes for no apparent gain. Miller claims his proposals would tend to reduce the disparities in tax rates among fire districts. Once the disparities have been reduced, fire districts will be more willing to consolidate, thereby achieving cost savings.

Miller's Response Prompts More Questions

As I see it, Miller's viewpoint is worth further discussion. His proposals would tend to reduce the disparities in tax rates among fire districts. But would more equal fire tax rates make consolidation — and the resultant savings to taxpayers — easier to achieve, or more difficult? On the one hand, low-tax fire districts would be less likely to object to consolidation, since their tax rates would not increase as much. But on the other hand, the political pressure to consolidate would be decreased as well, since this pressure comes mainly from the high tax fire districts. If the symptom — high fire taxes — is alleviated, how willing will stakeholders be to attack the sickness — waste and inefficiency in fire protection and emergency services?

Also, to what extent would Miller's proposals add complexity and therefore further cost to a tax system that is already overly complex? Miller downplayed this effect, but in my view, the cost of complex systems is under-appreciated. Do we really want to move our tax system in the direction of the health care industry, where administrative costs are already a major problem? (Hmmm, we're already there, but that's not a reason to make it worse.)

Your Views Wanted

These questions don't have easy answers. I'd like to hear from readers who can add to the discussion. You are invited to post your comments.

East Fishkill Might See 9 Percent Tax Increase

A story in today's Poughkeepsie Journal by reporter Michael Woyton (print edition) was headlined “East Fishkill property tax could drop a bit in 2010”. The subtitle says, "Town proposes 1.3% less spending, 8.87% lower homeowner levy". The web edition's headline is “East Fishkill might see slight tax decrease”. Sounds like everything is down. Great news for property taxpayers in these difficult economic times, right?

Wrong! The real story, buried in the tenth paragraph, is that the tax rate would increase by 8.87 percent (essentially 9 percent). And the tax rate is all that matters. That's why this blog post says “9 percent tax increase”. All those other statistics are just spin, intended by East Fishkill Town Supervisor John Hickman to mislead the public into thinking that things aren't as bad as they really are.

East Fishkill is now the fifth local jurisdiction I've commented on in recent weeks for which the Poughkeepsie Journal's stories on property taxes are misleading. As I predicted in The Dirty Little Secret of Property Taxes, it is in the interests of local government officials to downplay the tax rate increases in times of falling property values. And for at least the fifth time, a Poughkeepsie Journal reporter fell for — or has gone along with — this deception. Most readers, especially those that only read the headlines, won't recognize the true story either.

To Hickman's credit, he clearly explained why tax bills are slightly decreasing even though the tax rate is increasing 9 percent: It's primarily because taxpayer wealth, as measured by property values in East Fishkill, has decreased by 8.3 percent ($500,000 house is now worth $458,650). A considerably less important reason is that the tax levy shows a slight (under 0.1 percent) decrease. These facts are exactly in line with my predictions, as discussed in detail in The Dirty Little Secret of Property Taxes.

In my view, readers of the Poughkeepsie Journal are not well served by stories like this which simply parrot the PR of local government officials.

Town of Red Hook Gets It Almost Right

After my previous posts about how the Arlington School District, the Town of Poughkeepsie, and the Town of LaGrange have tried to mislead the public about the true extent of property tax increases, it's a pleasure to report that the Town of Red Hook has made a serious attempt to tell it like it is. This is especially commendable since the news is very bad: In a press release dated September 30, 2009, Red Hook Town Supervisor Sue Crane announced a 25 percent property tax increase in the Town's proposed 2010 budget.

Unfortunately, the press release does not specifically say exactly what “25 percent property tax increase” really means. Does it mean a 25 percent increase in the tax rate? In the tax levy? In the typical tax bill? There's no way to know from reading the press release. If you've been reading my recent blog posts on this subject, it really makes a difference. The tax rate is all that matters. What's needed is the percent increase in the tax rate. With all the deception commonly practiced by other jurisdictions, as reported in this blog, one can't assume that “25 percent property tax increase” necessarily means “25 percent property tax rate increase”.

But I'm happy to report that it does mean exactly that. Town of Red Hook Deputy Supervisor Jim Ross confirmed this fact in a recent phone conversation. Ross and I agreed that it would have been more informative for the press release to have explicitly mentioned that the 25 percent increase is in the tax rate. The omission of this information is the only issue I found with the tax increase announcement, and is the reason for my “almost right” qualification.

Poughkeepsie Journal Echos Officials — Again

A story by reporter Rasheed Oluwa appeared in the Poughkeepsie Journal's October 5 edition under the headline “Red Hook weighs 25% tax hike”. Unfortunately, this story is nothing more than a paraphrase of the Town of Red Hook's press release. The same ambiguity about the meaning of “25 percent” that appears in the press release is simply repeated in the Poughkeepsie Journal's story. It would have better served readers if the reporter had investigated sufficiently to clarify this important matter. Regrettably, this is not the first time that a Poughkeepsie Journal story has comprised nothing more than a parroting of government officials.

Valerie Hail Responds to Charges of Deceit

If you believe Valerie Hail, the falsehood on her reelection campaign website really isn't her fault! In a phone conversation with me this morning, she said the website was crafted — without her awareness — by other high-ranking officials of the Town of Hyde Park, two of whom she named. I will withhold their names out of pity for them.

Hail takes the charges of deceit as being not a very serious matter, and she expressed surprise that others do. Her email response to me yesterday expressed a flippant attitude:

Great blog by the way, printed it out so I could read it on the road..also forwarded the letter two weeks ago .from their attorney to our atorney. We had quite a chukle. (Would like to FOIL that invoice and see how much we taxpayers had to pay for that)..

Hail told me — but only after I pressed her — that she will work with other Hyde Park officials to revise her campaign materials, and presumably to take down the offending falsehood. But this plan didn't sound as if it was a high priority.

Voters Will Judge

It hardly needs mentioning that even young children are taught to take responsibility for their own words. In attempting to blame others for her own campaign website, Valerie Hail seems not to have learned this lesson.

Hail probably thinks I'm doing her a favor by writing this post. Her first words to me were, “Bad press is better than no press.” She didn't sound as if she were joking. It remains to be seen whether Hyde Park voters in Ward 2 will agree with her.

Valerie Hail Versus the Fairview Fire District

There are no winners here, folks, in the battle between Hyde Park Town Councilwoman Valerie Hail and the Commissioners of the Fairview Fire District. Their dispute is about who should take credit for the dramatic (over 14 percent) drop in the fire tax rate in 2009 in the Hyde Park portion of the Fairview Fire District. Councilwoman Hail claims on her re-election web page that her primary accomplishment is that she “reduced 2009 Fairview Fire District taxes by 14.3%”. The Fairview Fire Commissioners, through their attorney, sent her a vehement — and I mean really vehement — open letter insisting that she had no hand in doing that.

The Commissioners are certainly right about Councilwoman Hail's role. Councilwoman Hail's claim is false, false, and false. There's no other way to say it, except maybe “baseless”. Her blatant fabrication deserves full denunciation.

That said, the irony for the Commissioners is that in calling attention to Councilwoman Hail's deceit, they must also confront their own embarrassing role in the 14 percent drop in fire tax rate. The lawyer's letter handles this artfully, by saying, “It was not you who reduced taxes. It was not you who reapportioned the valuations leading to the reduction in fire taxes in the Fairview Fire District portion of Hyde Park.”

More Blame than Credit

This carefully-worded statement is factually correct, but might lead many readers to the mistaken conclusion that whoever “reapportioned the valuations leading to the reduction in fire taxes” must be the person to be commended for the 14 percent drop in fire tax rate. The person who “reapportioned the valuations” for at least the last decade is James Passikoff, CPA, Treasurer of the Fairview Fire District. The lawyer's letter was careful not to state that Passikoff should be credited with the 14 percent drop in Hyde Park's tax rate, and for good reason: Not only is this conclusion wrong, it's backwards! Passikoff is to blame for overcharging Hyde Park taxpayers 15 percent in 2008, and lesser percentages in previous years, probably in violation of New York State's real property tax law. For 2009, Passikoff did not overcharge Hyde Park taxpayers, resulting in a 14 percent drop in Hyde Park's fire tax rate. The 2009 Hyde Park fire tax did not in any way compensate for Passikoff's previous mistakes; it merely meant that Passikoff did not make additional mistakes for the 2009 tax apportionment calculation. In other words, the 14 percent drop in Hyde Park's fire tax rate is due to the fact that fire tax overcharges stopped for Hyde Park in 2009.

Fire Commissioners' Role in Apportionment Mistakes

Under New York State law, the Fairview Fire Commissioners are ultimately responsible for everything that goes on in the Fairview Fire District. As is typical in fire districts, the Fairview Fire Commissioners delegate the responsibility for all financial and tax matters to the Treasurer of the Fire District. The Commissioners are responsible for electing or re-electing a Treasurer of the Fairview Fire District at the beginning of each year, and for setting his compensation during the fall budget process. When the Fairview Fire Commissioners learned of James Passikoff's apportionment mistakes in September 2008, they unanimously agreed not to re-elect him as Treasurer for 2009. Just kidding! What they actually did was to award him an 8.7 percent raise in the 2009 proposed budget. It was only after objections by taxpayer Beverly Allyn during the public hearing that Passikoff's raise was lowered to a smaller percentage in the final 2009 budget. (Full disclosure: Beverly Allyn is my wife.) The Commissioners unanimously voted to re-elect James Passikoff as Treasurer for 2009.

My Role in Uncovering This Mess

My own role in uncovering this mess, and in the 14 percent drop in Hyde Park's fire tax, has been publicly known for more than a year, and is documented in the Unfair Apportionment section of my companion website. Here's a brief summary: On July 29, 2008, after months of my own investigation, Beverly Allyn and I met with James Passikoff and Fairview Fire Chief Tory Gallante, in order for Passikoff to explain Fairview's 2008 apportionment calculation. Beverly and I documented a large number of separate mistakes of reasoning in Passikoff's procedure. On August 4, 2008, Beverly and I met with John Anspach, Chairman of the Board of Fairview Fire Commissioners to discuss our findings. Commissioner Anspach assured us at that meeting that the apportionment mistakes would no longer occur. I published my initial report, Unfairness in Fairview -- Inequitable Apportionment of the Fire Tax Levy, on September 11, 2008, (Document #5). A subsequent report predicted a 14.7 percent decrease in Hyde Park's 2009 fire tax rate.

Although my investigations revealed that responsibility for fair apportionment lies with the Fairview Fire District Board of Commissioners and its Treasurer, and that the inequitable apportionment was probably in violation of New York State's real property law, Commissioner Anspach made repeated public statements denying these findings, eventually insisting that his denials were based on advice from Fairview Fire District attorney Bill Spampinato. Commissioner Anspach's denials ended only after I documented my own conversation with Spampinato on October 23.

Why This Rant Now?

Valerie Hail's blatant falsehood in claiming credit for a 14 percent drop in Hyde Park's taxes gave the Fairview Fire Commissioners an opportunity to set the record straight, or at least to not further distort the record. Unfortunately, the commissioners chose a statement that's at best ambiguous:

“It was not you who reduced taxes. It was not you who reapportioned the valuations leading to the reduction in fire taxes in the Fairview Fire District portion of Hyde Park.”

This statement points not to a creditworthy party, as one would reasonably suppose, but to the blameworthy party, James Passikoff, Treasurer of the Fairview Fire District, whom the Commissioners have continued to support and even to reward. In my view, it is long past due for the Fairview Fire Commissioners to take responsibility for mistakes made on their watch, and to correct them — not to cover them up.

Joel Miller's Flawed Proposals for Funding Fire Districts

New York State Assemblyman Joel Miller's latest attempt to alleviate the burdens of property taxpayers in high-tax fire districts comprises three legislative proposals:

1. Allow fire districts to bill insurance companies.
2. Subsidize fire districts through county sales tax.
3. Subsidize fire districts by introducing a college student safety fee, whose cost would be passed through to New York State.

These proposals, documented in Miller's letter to New York State Assembly Minority Leader Brian Kolb, with cover letter to Mark Bendel, Vice President of the Fairview firefighters' union, are fundamentally flawed. Miller's proposals do not address the basic problem with fire and emergency services, which is that these services cost more than they need to. New York State's current system of fire districts and fire protection districts is inefficient and wasteful. At the same time, evolution of this system since its origin nearly a century ago has resulted in great disparities among districts in both costs to taxpayers and levels of service, with costs and service levels often not related.

Consolidation Provides Efficiency and Fairness

Many government officials and thoughtful observers have come to recognize that levels of service can be increased, total costs can be reduced, and costs can be distributed more equitably by consolidating small fire districts into larger ones. In today's economy, larger enterprises have substantial advantages over smaller ones. The businesses of fire protection and emergency service can benefit greatly from economies of scale. By consolidating fire districts, the region as a whole wins with better and more consistent levels of service, and more equitable funding of fire protection and emergency services. Property taxpayers also win with lower fire taxes on average, because the total cost of these services is less.

Although consolidation of fire districts has great public benefit, restrictive New York State laws have made consolidation an impractical option — until now. As part of an initiative to reform local governments by Attorney General Andrew Cuomo, revisions to New York State laws were put in place a few months ago, so that it is now feasible for local governments such as fire districts to consolidate. It has never been easier for fire districts to consolidate than it is now.

Miller's Proposals Simply Shift Costs

None of Miller's proposals reduce the actual cost of providing fire and emergency services, but simply shift current costs away from property taxpayers to other parties. But who are these “other parties”? With Miller's proposals, it is insurance companies, county governments, and New York State. Where do all these other parties get their money? From us, homeowners (insurance), consumers (sales tax), and wage earners (state income tax). So if Miller's proposals shift costs to these other parties, we will pay for them, one way or another, even if we see our fire tax rates decrease.

Miller's Proposals Add Costs

Not only do Miller's proposals not reduce costs for fire and emergency services, but they add costs for other parties. The administrative costs of billing insurance companies for health care is already a significant (and, many say, needless) drain on patient resources. If fire districts billed insurance companies as Miller proposes, another layer of unneeded complexity and extra expense is introduced. The same holds for Miller's safety fee proposal. Saying that the insurance companies and the State pay these extra costs is just saying that we're paying them indirectly.

County-Wide Consolidation

Regarding Miller's proposal to subsidize fire districts from the county sales tax, it's worth considering the logical extreme of this policy: Suppose that Dutchess County didn't just subsidize its fire districts, but instead paid the full amount of all fire taxes for all 30 fire districts in the county! In such case, the County would be wise to conclude that since it was paying for everything in the fire districts, it should control everything in the fire districts. (“Where money goes, power flows.”) That way, the County could make changes which would reduce costs and improve levels of service at the same time. In effect, we would have one county-wide system for fire and emergency services under the county executive.

But there's no need for a new law to achieve a county-wide system for fire and emergency services. Under current law, it would be feasible — and much preferable — to simply consolidate all 30 fire districts of Dutchess County into a single county-wide fire district under a set of fire commissioners.

Miller Should Facilitate Consolidation

Consolidation of all 30 fire districts — or even consolidation of a few fire districts — will take time and effort. But the end result will be reduction of waste, improvement of service, and alleviation of inequitable fire taxes. Instead of working to prop up the current byzantine system of fire districts by making it even more convoluted, Miller should use his influence to facilitate consolidation.

Town of LaGrange Proposes 14 Percent Tax Increase

A story in today's Poughkeepsie Journal (web edition) by reporter John Davis was headlined “LaGrange homeowners face 6 percent tax hike”. So why does this blog post say “14 percent increase”? Because the tax rate for homeowners would increase by 14 percent, and the tax rate is all that matters.

If you've been following my blog lately, this story should sound familiar. Once again, as I predicted in The Dirty Little Secret of Property Taxes, local government officials are attempting to mislead property taxpayers by focusing their public statements on tax levies, budgets, and tax bills. In today's economy, with falling real estate values, changes in tax levies, budgets, and tax bills all understate the true cost to taxpayers. That's why these officials prefer to focus on them. They can talk about tax levies, budgets, and tax bills all they want without making any false statements, and can leave the impression that things aren't as bad as they really are.

It's the Tax Rate, Stupid

As repeated many times already in this blog, the way to know how bad things are, and how much better or worse they're getting, is by looking at the tax rate, and changes in the tax rate. You already know things are getting worse. The thing is, they're getting worse faster than many of you think. How else can I say it? You've got to look at the tax rate.

Reporting Becomes a Little More Balanced

At this point, I'm pleased to credit reporter John Davis for some noticeable improvements in coverage, compared with both his previous story on the Arlington School District, and reporter Michael Valkys' story on the Town of Poughkeepsie. Unlike in those previous stories, Davis' story on LaGrange actually contains the key piece of information — the 14 percent increase in the tax rate — though it's buried in the seventh paragraph.

More Balanced Reporting Still Needed

There's still a great deal of room for improvement in coverage of property tax issues by the Poughkeepsie Journal: It's great that the most important part of the LaGrange story — the 14 percent increase in the tax rate — at least appears in the story, but it deserves more prominence. Ideally, it should be in the headline. But as a minimum, it should appear in the “Impact” statistics, along with less important measures like the budget and tax levy. It would also help to explain to readers how the tax rate relates to an example property whose assessed value decreases. See below.

Interpreting the Town of LaGrange PR

The LaGrange story describes an example home assessed at $400,000 whose owner would pay “only” $42 more (6 percent more) in tax next year. But this example also assumes that the home is assessed 7 percent lower next year. Ordinarily, if your wealth, as measured by your home value, decreased by 7 percent, you'd hope to pay 7 percent less in tax. Instead, you're paying 6 percent more. This is just another way of saying that the right way to look at it is that your wealth is being taxed at a 14 percent higher rate. It would have been helpful to readers of the LaGrange story to explain this simple fact.

LaGrange Town Councilman Ed Jessup is quoted in the story as saying, “A 6 percent increase in these times is pretty good.” Well, a 6 percent increase in these times may or may not be “pretty good”. The problem is that it's really a 14 percent increase. How good is that?

Town of Poughkeepsie Proposes 12.5% Tax Increase

Today's lead story in the Poughkeepsie Journal by reporter Michael Valkys was headlined “Town weighs 8.9% hike in tax levy”. So why does this blog post say “12.5% increase”? Because the tax rate for homeowners would increase by 12.5 percent, and the tax rate is all that matters. Actually, it's even worse for commercial properties. The tax rate for commercial properties would increase by a whopping 20.6 percent!

Balanced Reporting?

Unfortunately, you won't find these higher percentages in the story. (But you can compute them yourself from the 2009 tax rates and the projected 2010 tax rates, which are mentioned in the story.) If the tax rate increases are so important, why aren't they mentioned in the story? Two reasons:

1. Town of Poughkeepsie officials probably did not explicitly provide the tax rate increase numbers, because it is to their advantage not to do so. By focusing on tax levy instead of tax rate, the increase is made to appear smaller than it really is.

2. The Poughkeepsie Journal story presented the information that Town of Poughkeepsie officials wanted to publicize, which is fine. However, the story contained no hint that there might exist a different interpretation of the Town of Poughkeepsie tax situation than the one Town officials provided. Not so fine. Poughkeepsie Journal readers would be better served by more balanced reporting, so that they can hope to understand what's really going on.

If you've been following my blog, you may notice that the above reads almost exactly like my last post, which discussed the Arlington School District. This is no accident. A corollary to the dirty little secret of property taxes is that in a declining real estate market, property tax rates will tend to rise more than the tax levy. That's exactly what's happening in the Town of Poughkeepsie.

Interpreting the Town of Poughkeepsie PR

The second sentence of the Poughkeepsie Journal story is extremely misleading: “Officials estimated town tax bills for owners of homes assessed at $365,000 would increase $82 next year to $1,200.” The $82 increase (which represents a mere 6.9 percent increase in the amount of tax) is true only under the assumption that the home's assessed value drops 5 percent to $346,750. Poughkeepsie Town officials are well aware that most homes in the Town have in fact dropped 5 percent in assessed value. (I reported the 5 percent decrease for the Fairview portion of Poughkeepsie on May 8.) Although Town officials used the 5 percent decrease in assessed value in the calculation of the $82, this key fact is mentioned nowhere in the story. In summary, you'd pay “only” 6.9 percent more because your house is worth 5 percent less! All this is just another way of saying that your true increase is 12.5 percent.

Just as with the Arlington School District, Town of Poughkeepsie officials are exploiting taxpayers' generally weak understanding of property taxes to hide the true size of the proposed tax increase. If I sound like I'm repeating myself, it's because it's really just the same story as in my last post. And you can count on hearing this story again from government officials in other local jurisdictions. That's because the motive for misleading taxpayers as to the true cost represented by their property tax dollars is driven by the nation-wide decrease in market values of properties.

The Dirty Little Secret of Property Taxes

News Flash: Property taxpayers and public officials have some conflicting interests. Property taxpayers would like their taxes to be as low as possible. Public officials are responsible for providing adequate services, which tend to cost money — property tax money. This perennial conflict is greatly amplified by the current declining real estate market. The dirty little secret of property taxes is that in a declining real estate market, property tax rates will tend to rise, even if the tax levy does not. High tax rates are inherently bad for property owners, because tax rates measure how steeply their wealth is taxed.

Although this post is in response to a story about Arlington School District taxes, every school district, fire district, town, and county in New York State has the same dirty little secret.

A front-page story by reporter John Davis in the Poughkeepsie Journal's August 27 edition appeared under the following provocative headline, “Arlington tax hike to be smaller than rate increase suggests”. The tone of this headline should raise suspicions that someone is trying to put something over on you — and someone is: Arlington School Superintendent Frank Pepe is attempting to spin the major increase in Arlington school taxes so that it doesn't sound as detrimental to taxpayers as it really is. It is part of Pepe's job to put the best face on a bad situation, and Pepe seems to do it well. Every statement attributed to Pepe in the article is factually correct. The article quotes Mr. Pepe as saying, “Very often people will confuse the tax rate increase with how much they will have to pay.” Pepe is so right! And ironically, it's just this confusion that he exploits to mollify property taxpayers into thinking that things aren't as bad as they sound. But they are as bad as they sound. Maybe even worse, as described below.

Balanced Reporting?

It's fine for the Poughkeepsie Journal to replay Arlington School District PR on its front page, but it's unfortunate that the story contained no hint that there might exist a different interpretation of the Arlington school tax situation than the one Mr. Pepe proposes. Poughkeepsie Journal readers would be better served by more balanced reporting, so that they can hope to understand what's really going on. I will try to supply some of that balance here.

Property Tax Rates Have Not Changed Much In Recent Years

To sort out Mr. Pepe's position and to see why it's disingenuous, you need to understand how property taxes work in New York State (and most other states). Property owners pay taxes according to their wealth, as measured by the market value of their property. The greater your wealth, the greater will be your property taxes. Many property taxpayers have the perception that their taxes have been dramatically increasing in recent years. This perception is incorrect in an an important way. What's really been happening in most cases is that property taxpayers' wealth — as measured by their property's market value — has been dramatically increasing for years. Property values in Dutchess County have roughly doubled in the last decade. Therefore, property owners likely pay double the tax dollars they paid a decade ago, assuming the same tax rate. This is because their “wealth” has doubled. This doubling of wealth would be realized if they sold their property.

The tax rate, measured in dollars per thousand dollars of market value, is the factor that determines how much tax you pay on your wealth — on your property's market value. I've already written two blog posts explaining the central role of tax rate. See The Tax Rate Is All That Matters and Fire Tax Rate. (School, town, and county property taxes work the same way as fire taxes.) Most property tax rates haven't changed a whole lot in recent years. It is your tax rate — not your tax bill — that measures how high your taxes are.

Increasing Property Values Allow “Painless” Increased Spending

Budgets and tax levies for school districts, fire districts, towns, and counties have dramatically increased over the last decade. These increases have been primarily financed by increases in the market value of taxable properties. In this way, local governments have been able to increase their tax levies each year without increasing the tax rate. This “painless” way of increasing tax levies without raising the tax rate has been working well.

Until now. This scheme of ever-increasing tax levies without increasing tax rates only works if property values keep going up. But property values aren't going up any more. In fact, they're going down. The Arlington story reports that property values have decreased in various parts of Dutchess County by 6 to 9 percent — and even by 23 percent in Pawling. And these decreases are for a valuation date of July 1, 2008 — before the economic meltdown. Property values have dropped further since then, but we won't see this effect on our taxes until Fall 2010.

The Dirty Little Secret

Falling property values put local governments in a bind. Even if they don't increase the tax levy at all, which is difficult to do when costs are rising, they will still cause the tax rate to increase. All other things being equal, the only way to prevent tax rate increases is to decrease the tax levy in proportion to the decrease in property values. Such measures tend to be beyond the capabilities of many local governments. The dirty little secret of property taxes is that when property values fall, tax rates tend to increase, meaning that taxpayers' wealth is taxed at a higher rate than before.

Interpreting the Arlington School District PR

Now we are in a position to correctly interpret the lead sentence in the Arlington story:

Most Arlington homeowners face double-digit increases in their school tax rates, but school officials said what most will actually pay is about a 5.2 percent increase due to reductions in assessed property values reflecting a sagging real estate market.

The first part of the sentence — the double-digit increases in school tax rates — is the most meaningful fact. The large tax rate increase is bad for Arlington property taxpayers, because it means that their wealth will be taxed at a 10+ percent higher rate than before. Period. That's all you need to know.

The second part of the sentence, “... what most will actually pay is about a 5.2 percent increase ...” is a bunch of smoke and mirrors, meant to exploit taxpayers' generally weak understanding of property taxes. Mr. Pepe is using the fact that you're paying somewhat fewer dollars in tax because you're not as wealthy as you used to be. See my recent post The Tax Rate Is All That Matters for a detailed analysis of this exact situation.

The Property Tax Situation Is Even Worse Than It Sounds

The Really Bad News is that there's nothing about this situation that's unique to the Arlington School District. The same principle applies to all local property taxing jurisdictions in Dutchess County and New York State, including fire districts, towns, and counties. All kinds of property tax rates are likely to increase this year, even if tax levies are held constant — which Arlington has not done. You will undoubtedly see other officials in many other property taxing jurisdictions attempt to use the same specious argument that Mr. Pepe used.

And next year will be even worse. The reason is that this year's decreased property values are based on a valuation date of July 1, 2008 — before the economic meltdown which caused property values to fall further. Therefore, property tax rates will likely increase again next year.

And what about the longer-term future, when property values can be expected to rise once again? Will the inflated tax rates come down to previous levels? Not necessarily. After a couple of years of higher tax rates, governments will find it politically easy to get away with saying, “We're not going to increase taxes next year.” This claim means nothing other than “We're not going to increase tax rates next year.” In other words, we may be in for a permanent increase in property tax rates, that is, a permanent increase in the rate at which our wealth is taxed. That's the worst part of why the tax rate increase is such bad news. That's why we should reject the spin of government officials about the amount of dollar increases in tax.

The Tax Rate Is All That Matters

Whether it's sales tax or property tax, the only thing that matters is the tax rate. The tax rate tells you whether your taxes are high or low, increasing or decreasing, and by how much. This post explains property tax rate (for fire tax, school tax, town tax, county tax, etc.) by comparison with the more-familiar sales tax rate.

A Simple Sales Tax Example

Let's say you go into a used car lot, and a salesperson shows you a car for $10,000. If you buy the car at that price, your sales tax, using Dutchess County's 8.125 percent sales tax rate, will be $10,000 times 0.08125, or $812.50. But suppose you talk the salesperson down to $9,300, a 7 percent decrease. Then your sales tax will be only $9,300 times 0.08125, or $755.63. The sales tax amount is 7 percent less because the cost of the car is 7 percent less. Fair enough.

Now let's add a game-changing hypothesis: When you go back to the dealer the next day to buy the car for $9,300, suppose a new sales tax rate has just gone into effect: The 8.125 percent sales tax rate has been replaced by a 9 percent sales tax rate. So your sales tax becomes $9,300 times 0.09, or $837.

Your used car salesperson tries to mollify you, “That $837 is only $24.50 more sales tax than the $812.50 you would have paid yesterday — if you'd bought the car then for $10,000. That's only a 3 percent increase.”

You don't fall for this specious logic. Your plan was to buy the car for $9,300, not for $10,000. As far as sales tax is concerned, the only thing that really matters is the fact that the sales tax rate increased from 8.125 percent to 9 percent. So the $9,300 car is costing you $81.37 more in sales tax today than it would have cost you yesterday (a 10.8 percent increase), because the sales tax rate increased by 10.8 percent. The old price of $10,000 has nothing to do with the situation. It is the sales tax rate increase that's costing you more money than you would otherwise have had to pay.

Sales Tax Versus Property Tax

The main difference between sales tax and property tax is that you pay sales tax because you bought something (a car), but you pay property tax because you own something (your house). Sales tax is charged at the time you buy something, while property tax is charged every year that you own something. In both cases, the only thing that matters is the tax rate. The tax rate is used to compute the amount of your tax. The amount of your tax is simply the monetary value of the thing you bought or own times the tax rate.

Sales tax is usually expressed as a percent, like the 8.125 percent Dutchess County sales tax. Property tax could be expressed as a percent, but for historical reasons it's expressed as dollars per thousand dollars of market value. For example, a property tax rate of $10 per thousand dollars of market value could just as well be expressed as 1 percent. So a property tax rate of $10 per thousand dollars of market value means that 1 percent of your wealth (your property's market value) is paid to the government. Each year.

A Simple Property Tax Example

Unlike sales tax, property tax is paid every year. The amount of tax you pay each year is the product of your market value and the tax rate. Either or both the market value and the tax rate can change from year to year. Let's say your property had a market value of $200,000 last year, and that last year's school tax rate was $10 per thousand dollars of market value. Then last year's school tax would have been $200,000/$1,000 times $10, or $2,000. (I'm neglecting here the confounding effect of New York State's School TAx Relief (STAR) Program, which essentially subtracts a fixed dollar amount from school taxes for qualifying taxpayers.)

This year, because of declining real estate values, your property is only worth $186,000 on the open market, a 7 percent decrease. But this year's school tax rate has increased to $11.08 per thousand dollars of market value, a 10.8 percent increase. Therefore, your school tax this year is $186,000/$1,000 times $11.08, or $2,061. In summary, this year your property tax bill is $61 greater than last year, or about 3 percent greater. Now, here's your test: How much has your school tax rate increased this year?

If you answered “3 percent” you haven't been paying attention. Go back to the beginning of this post and read again. This time notice that in both the sales tax example and the school tax example, the value you're taxed on decreases by 7 percent, but the tax rate increases by 10.8 percent, resulting in a net increase in tax payments of about 3 percent.

The correct answer is that your school tax rate has increased by 10.8 percent, from $10 to $11.08 per thousand dollars of market value. Once again, the fact that you're only paying 3 percent more dollars is a reflection of the fact that you're paying taxes on a property that's worth 7 percent less.

Why does it matter? Why should you care?

This matters because politicians will try to fool you into thinking that somehow a 10.8 percent increase in property taxes is “really” only a 3 percent increase. Indeed, they already have. My next blog post will show how the Arlington School District is doing this.

Footnote on Measuring Property Tax Rate: Unfortunately, the property tax rate, measured in dollars per thousand dollars of market value, is generally not readily available. Instead, tax bills and public officials tend to talk about property tax rate measured in dollars per thousand dollars of assessed value. These two measures of property tax rate are not quite the same thing, and you may be in a world of trouble unless you understand the difference between the two. Short answer: They're related by the equalization rate. For a more detailed explanation, see pages 6—7 of Document #5 at my companion website.

Fire Tax Revenue from Pendell Commons

Note to flamers: This post is not intended to be an argument for or against the Pendell Commons proposal. My purpose is only to provide a simple fire tax analysis. I have not taken a position for or against Pendell Commons.

Pendell Commons is a proposed $10 million housing project to be built in the Fairview Fire District (FFD). Many residents have raised objections to this proposal based on a variety of issues, especially those related to the already-overburdened and over-taxed FFD. It has been argued that Pendell Commons would increase the pressure to add staffing to FFD. Less attention seems to have been paid (no pun intended) to the additional revenue such a project would bring to Fairview.

Revenue Analysis

Here's a simple back-of-the-envelope revenue analysis: The fire tax rate in Fairview is approximately $5 per thousand dollars of market value, and has been so for many years. The Pendell Commons project can be assumed to increase the market value of the Pendell Road parcel by about $10 million. Multiplying these two numbers together shows that if Pendell Commons were built — and it stays entirely on the tax rolls — approximately $50,000 in fire taxes would be added to FFD coffers each year.

It has been reported that Kearney Realty & Development, the company proposing Pendell Commons, would donate $50,000 to FFD “to help defray costs”. Assuming this is a one-time donation in addition to fire taxes, we can conclude that FFD would see $100,000 increased revenue the first year, and $50,000 each year after that.

Additional Firefighter?

The budgetary cost of a full-time professional firefighter in Fairview is approximately $120,000 per year. Thus, if Pendell Commons is built and stays entirely on the tax rolls, it could pay for most of one additional full-time professional firefighter the first year, and could pay for nearly half of a full-time professional firefighter in succeeding years. This would be in addition to the current 18 full-time professional firefighters in Fairview.

Fairview's New Tax-Exempt Myth

The Fairview Fire District has the highest fire tax rate in Dutchess County, and possibly the highest in New York State. (See Document #11 at my Fairview Fire Tax website.) The question is, “Why?”

Hint: It's not only because of Fairview's tax-exempt properties, and it's not even mainly because of Fairview's tax-exempt properties. How can that be? Read on.

Fairview's Old Tax-Exempt Myth

Fairview's old tax-exempt myth, widely believed until about a year ago, was that Fairview's fire taxes are so high because up to 80 percent of Fairview is tax exempt. That myth was busted by Document #1 at my Fairview Fire Tax website. That report shows that only 42 percent of Fairview's market value was tax exempt in 2008. For 2009, the figure is 47 percent, still less than half.

Fairview's New Tax-Exempt Myth

Since the old myth was busted, it now seems to have been replaced by a new myth: Fairview's fire taxes are so high because nearly half of Fairview is tax exempt. In other words, the reasoning is the same, but “up to 80 percent” is replaced by “nearly half”. This myth is stated as fact in a widely-circulated July 29, 2009, letter by New York State Assemblyman Joel Miller to Dutchess County Executive William Steinhaus. In a widely-circulated response to Miller's letter, Mark Bendel, Vice President of Fairview's Firefighter Union, appears to disagree with most of what Miller wrote. However, regarding Miller's assertion about the reason for Fairview's high taxes, Bendel writes, “You are absolutely right.” Thus, at least two public officials with divergent views believe the new myth. I suspect that many more officials believe likewise.

What's Wrong with Fairview's New Myth?

The best that can be said for the new myth is that it isn't all wrong. For a start, it is factually correct that nearly half the market value of Fairview is tax exempt. (No, it's not half the land that's tax exempt, as Miller claims. A quick glance at the map of Fairview on the Firefighter Union's website shows that only a quarter to a third of the land area (the yellow areas) is tax exempt. Anyway, it's the market value, not the land area, that matters for calculating fire tax rate.)

Secondly, it is true that with nearly half of Fairview's market value tax exempt, Fairview's fire tax rate is significantly higher than it would otherwise be. But Fairview's tax exempt properties are not the sole reason why Fairview's taxes are so high, and it is not clear that they are the most important reason. Document #12 at my Fairview Fire Tax website shows that even if all Fairview's tax exempt properties paid their “fair share” of fire tax, Fairview’s fire tax would still be the second highest in Dutchess County.

“Second highest fire tax rate in Dutchess County” does not sound to me like “problem solved”. It sounds more like “major problem”. Indeed, when Fairview's fire tax rate is adjusted in Document #12 for the assumption that all tax exempt properties pay their “fair share” of fire tax, the adjusted Fairview fire tax rate is still two and a half times greater than the weighted average fire tax rate for Dutchess County.

Here's another way of looking at it: Fairview's fire tax rate is 4.5 times higher than the average Dutchess County fire tax rate. Of that 4.5 times, only 1.8 times is accounted for by tax exempt properties. The other 2.5 times (these are multiplicative factors, not additive terms) must be attributed to other factors. So most of Fairview's high fire tax rate must be attributed to factors other than the existence of tax-exempt properties.

Why Is Fairview's Fire Tax So High?

So we're back to the original question: What factors other than tax exempt properties might account for Fairview's high fire tax? I don't really know for sure, but here's my guess: Fairview is a very small fire district. It has only one fire house. Nevertheless, Fairview still requires an accountant, a lawyer, a full-time secretary, a fire chief, and probably many fire-fighting resources I don't know about. Fairview cannot achieve the economies of scale that larger districts can. Knowledgeable readers are encouraged to post additional and more detailed factors.