Property Tax Illusion

Because it works differently than most other taxes with which we’re familiar, it surprised me when first I learned how property taxes are calculated, at least in Tiverton. In short, the rate is almost an irrelevant statistic. Confusion over that fact has led local Budget Committee and TCC member Tom Parker to pen the following explanation

2009 property revaluations have been mailed out in Tiverton, and if you listen carefully you can hear a collective sigh of relief across the town: “My property value has gone down, my taxes must be going down. Life is good, and I’m safe, at least for the time being, from the insatiable tax demands of the Tiverton government. For once, I can relax…right?” Actually, no. Unfortunately, things are not what they seem. There are two good reasons why you need to pay careful attention.
First, the letter we taxpayers got in the mail was our property revaluation, and, indeed, for many of us it is significantly lower than the previous assessment (my own decreased about $120,000). The tax RATE is the other key component in the final calculation of YOUR property tax bill. The FY2009 tax rate proposed by the Budget Committee is $14.73/1000. This is a $3.47/1000 increase (31%) over the current tax rate of $11.26/1000. So even if your assessment has gone down, your taxes could substantially increase. In my case, even though my assessment decreased $120,000 (14%), I estimate my tax bill will increase by over $1,100 (12%).

The town doesn’t apply the rate to the property values to figure out how much money it has to work with. Rather, it figures out how much money it wants and then divvies the total up among all of the property in town. When property values go down, it doesn’t figure out how to function with less revenue; it simply adjusts the rate to ensure the same revenue as a matter of course, with no votes or political risks necessary.
So the key question, when it comes to revaluations and taxes isn’t whether your house is worth more or less; it’s how it changed compared with all of the other properties in town. If they all decrease by the same percentage, everybody’s taxes stay the same.
It’s true that, in Tiverton, a new methodology will skew taxes toward waterfront properties, this year, which means that recalculations will hurt those homeowners more. But as Tom describes, the huge leap in the rate likely means increase for anybody whose house’s value dropped less than 31%. And that’s before tax-revenue beneficiaries have their whack at the budget during the upcoming financial town meeting this Saturday.
ADDENDUM 05/09/09 5:10 p.m.
The deleted sentence is incorrect. See here for explanation. Apologies for the error.

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Monique
Editor
12 years ago

Excuse a slightly tangential issue.
Where do we stand on concrete numbers for the fire truck? Have advocates for it produced figures on what the cost of homeowners insurance will rise by if the truck is not purchased? If there is such an increase, have they done a side by side comparison of the annual cost of the truck versus increased homeowners premiums?
In the absence of such information, if I were a Tiverton voter, I would fill in my own figures (zero premium rise) and vote the truck down.

Harvey Waxman
12 years ago

Property taxes are based on an illusion, an assumption for most people. Only at the time of a sale is the value of property valid in that the buyer actually paid essentially the market value.
For everyone else we are taxed as if we too made a voluntary choice to purchase our homes at market value.
This must be change if we are ever to have fair local taxes. See more on my website:
http://righttax.org

David Robert - Tiverton Assessor
David Robert - Tiverton Assessor
12 years ago

Justin: Is there a new methodology that I’m not aware of in conducting property revaluations? You state: “It’s true that, in Tiverton, a new methodology will skew taxes…”. Strange, in over 20 years in the assessment field, I have not seen a new methodology in valuing properties. Assessments are based on market values which are based on sales data. If waterfront homes have maintained their value moreso that non-waterfront homes over the past few years, that is the fair shift in tax burden – the very reason for property revaluations in the first place.

joe
joe
12 years ago

Here is a pretty good article i found about the up coming vote on the ladder truck. everyone should read it! Get educated!
http://www.heraldnews.com/news/local_news/x2133268649/Fire-truck-will-be-hot-issue-at-Town-Meeting

Justin Katz
12 years ago

David:
How did you determine that water front properties maintained (and increased) their value?

Harvey Waxman
12 years ago

“If waterfront homes have maintained their value moreso that non-waterfront homes over the past few years, that is the fair shift in tax burden – the very reason for property revaluations in the first place.”
There is an assumption that increases in values are associated with increases in owners’ ability to pay and thus it is fair for them to pay more taxes. I am not aware of any such correlation.
The “reason for property taxes” is that they are the best way to insure that towns collect enough money to fund the tax levy. In this regard they are far better than sales or income taxes.
I didn’t mean to intrude but we need to re-examine property taxes from the ground up.

David
David
12 years ago

Justin: I answered your question – all values are based on sales data. However, you did not answer mine. You claim there is a new methodolgy that skews values. Please explain.
Harvey: You’re right.

Justin Katz
12 years ago

David:
I wasn’t being evasive. It’s possible that I misunderstood something that was previously described to me, so I’m asking: How is it that houses in some areas went up while others (most?) went down? Has there been any difference in the collection or use of sales data (especially given the fall-off in sales generally)?

Monique
Editor
12 years ago

“all values are based on sales data”
The owners of waterfront properties in other towns face the same problem as their counterparts in Tiverton. Market value is established on the basis of the most recent sales. As I understand, the sale of waterfront properties around the state stalled just after prices reached their peak.
Non-waterfront properties (commercial, residential) did sell during that period. But prices tracked the market and became the basis for the town to assess comparable properties at a lower value.
Unfortunately for waterfront property owners, the strong implication of no or few sales for the last year or more – no one is buying so values may have dropped considerably – cannot be factored in when the municipality calculates property value for that category.

David Robert
David Robert
12 years ago

Well said Monique. However, that being said, it’s surprising how many people truly don’t understand the revaluation process. I have offered and held several revaluation seminars over the past three years and sadly, they were poorly attended. So, misconceptions continue to spread with knee jerk reactions without any effort in trying to learn about the process. And then, when comments are made like “a new methodology will skew…” are written as fact (whether the author was misinformed or not), it fosters further discord. Property revaluations are not perfect, but it is the best tool we have right now to comply with state law. For a little perspective of what my office is up against: An average appraisal costs $300 – $400. We pay a vendor $20 – $35 per parcel to develop a computer model to assign values. We have limited access to all properties compared to an appraiser. So is it truly realistic to expect that we’ll hit the mark 100% of the time? My office door is always open for any resident who has concerns about the process or their assessment.

Harvey Waxman
12 years ago

And David explains exactly why the present system is flawed. Even if assessments were perfect 100% of the time one must assume that that perfect assessment is a fair basis upon which to tax a homeowner.
In fact it is only an indication of what a new buyer is willing and able to pay for a similar property at this point in time.
It has no relevance to the ability of an existing owner to pay taxes today.
And I can verify how poorly understood the property tax process is understood even by well informed people, including the ones making our laws.

Justin Katz
12 years ago

David,
So why won’t you answer my questions?
1. What’s the quick synopsis of the process?
2. Has there been any difference in the collection or use of sales data this year?
3. What effect has the drop in sales had on your ability to find equitable comparisons?

David Robert
David Robert
12 years ago

Justin: To simplify, we collect data on all sales. We then analyze those sales taking into account style, location, condition, age, etc. This is the same process used for decades, and is the same process used in this current reval. There is NO OTHER WAY of conducting a revaluation. When you ask about the drop in sales, are you referring to price or the number of sales? Price – doesnt’ matter. A low number of valid, arm’s length transactions makes it a challenge to have confidence in the statistics, just as in a political poll. The more of a sampling you have, the greater the confidence in the final result.
I was not avoiding your questions, I just thought that my earlier response with the others you’d piece it together.
If you truly want to learn more about the process, I’m inviting you to stop by my office so we can cover more ground than in these posts.
And that invite is extended to the person who you misunderstood.

Jeff Caron
Jeff Caron
12 years ago

Harvey, nice to meet you finally. I first read about your reform efforts about five years ago. Thank you for your efforts. ########## I have learned a lot about property taxes since 2003 and some of that knowledge is shared below. Dave, please correct any areas where I may be wrong. Property Taxes are Ad Valorem (At Value) taxes. They are enabled by state law which empowers cities and towns to levy a tax on real property, the amount of tax prorated across all properties based upon the value of the property as of Dec 31. State law also requires that revaluations happen every 3 years (Tiverton: 2002 Full, 2005 Statistical, 2008 Statistical, 2011 Full…). In a full revaluation every property in the town is inspected. In a statistical revaluation only the homes that sold are inspected. In both cases the sales from preferably the 3rd year (2008 in this case) are used to “extrapolate” the values both temporally (to December 31) and town wide. If there is limited sales data from year 3 then year 2 sales data likely needs to be invoked. In this process there are certain assumptions: 1) The value of identical houses is the same regardless of location (construction costs are the same across town), and 2) Value differences due to location (waterfront, waterview, inland – for this conversation) are attributed in the land value. Based on these general concepts, and a whole lot of iterative effort, the process should converge on a self consistent set of values as of Dec 31, 2008 (in this case). This is called a mass appraisal, which is just that. Particular nuances to a specific property could lead one to challenge the 12/31 value. Similarly a challenge could be based upon a property or section of town being “out… Read more »

David Robert
David Robert
12 years ago

Jeff: You are correct sir. I’m glad you have been paying attention! 😉

Harvey Waxman
12 years ago

I was told that a town must use sales only within the town as a basis for assessments. If there were no sales of waterfront property, for example, during the year then there can be no change in values for those properties even if in an adjacent town there were comparable properties that were sold. This seems highly questionable to me.

David Robert
David Robert
12 years ago

I’m not aware of such a directive.

Justin Katz
12 years ago

So what communities were used for comparison?
And if waterfront and non-waterfront are assessed separately, you must compare the with different groups. Did waterfront depend more on, say Little Compton, while non-waterfront derived mostly from Tiverton or elsewhere?
And if it’s difficult to have a sizable pool of comparisons during downturns, did you have to extend the reach into the past more for one area than for another?

Harvey Waxman
12 years ago

I spoke with Dept. of Municipal Affairs and they didn’t believe my information was correct either. My assessor is apparently misinformed.

David Robert
David Robert
12 years ago

Justin: Harvey wasn’t talking about Tiverton per se.
I’m not going to continue to respond here any longer. My main purpose was to ask you what new methodology was used, as alleged, that would skew values. Even if you were misinformed as claimed, you didn’t do your homework and confirm with my office if this was true. Part of the reason most folks don’t truly understand the process is because misinformation such as yours is spread without ever being challenged. My goal is to help residents understand the process so not to spread more frustration and angst. Perhaps you can help me and the residents of Tiverton by learning more and then writing about it. It would be greatly appreciated and I’m sure the residents that you want to help would appreciate it as well.

Justin Katz
12 years ago

I continually run into the wall of having to work. Given the time constraints of just about anybody who would engage in citizen media, I see blogs as more of a conversation than a medium for journalism, and my approach reflects that understanding. I gladly correct errors when pointed out, but I prefer to feel comfortable that I’ve reached a conclusion before I do so.
I cannot possibly make it to your office during business hours, and my phone usage is similarly restricted during that period. Can we continue the discussion in email? If so, I reissue the questions in my previous comment.
You can reach me by clicking the word “Email” next to my picture toward the upper left of the main page.

Rob Coulter
Rob Coulter
12 years ago

Good morning, I had a very helpful conversation with a gentleman from the vendor last night and I learned quite a bit about this. By the way, he was very patient and cordial and I was very impressed with him, even if we may arrive a different conclusions. I agree with you Justin that this should be an exploratory dialogue. I do not pretend to have all the answers either, but maybe this will help I think the truth is somewhat in the middle of what I’m reading here. As far as I can tell, they are using a multi-variable regression computer model. It is susceptible to error because the sample sizes are not statistically robust enough for so many variables. When this happens, judgment calls have to necessarily be made. In a sense, the “methodology” has not changed but there are still many, many variables were the appraiser has to make a judgment call. I don’t want to go so far as to call these judgment calls arbitrary. But there is definitely enough play between the joints for the appraiser to “skew” (if that’s the right word) a result based on assumptions being made. Though it sounds fancy and complicated, the idea of using mulitvariable regression is to let the computer try to find the impact of one variable while holding all others constant. It’s like algebra on acid. This can’t be done by hand when there are dozens and dozens of variables, as there are here so we let a computer do it. I do not believe that it is incorrect to use this type of modeling. But there are two very important qualifiers. 1) The model only works if there are enough samples for EACH variable. I’m not sure there are here. 2) More importantly, this model… Read more »

David Robert
David Robert
12 years ago

Rob: Very well stated. However, just as you have some issues with assumptions, isn’t also your very own assumption that a solar panel will add value? The problem is finding the sale information that would support your claim. Just as I would assume a very nice landscaped yard would add value compared to an average yard, but is there a market indication via sales? Don’t forget, a regular “appraisal” is also subjective, as is a RE Broker’s opinion of market value. While there is ‘science’ behind assessments, there is also art.

Rob Coulter
Rob Coulter
12 years ago

Thanks, David. I completely agree.
I’m not saying I’m right one way or ther other about solar panels, just that it’s a good illustration of the debate over assumptions. Lanscaping is another good one.
Thanks, also, for being willing to jump in and help inform this discussion.

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