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Sunday, August 22, 2010

As If On Cue, More on Property Taxes

Leaving the grocery store this morning, I happened to glance at the cover of the Boston Globe and see this story about property taxes rising despite falling home values.  Eureka! It's almost like I just wrote about that subject on Wednesday!  I don't think the point needs to be belabored - it's a pretty simple concept, yet one worth making again.  The opening line of the Globe article is:

"Despite dropping home values, Massachusetts property tax bills continued to rise last year."

Again - property taxes need to be proportioned to town spending.  Many of us have been somehow conditioned to think about property taxes as a percentage of our home value - but that's an irrelevant benchmark.  The amount of revenue the town needs to collect is not a function of the paper value of all the homes in town - it's a function of how much the town spends.

If you want lower taxes, you need lower spending.  Lower home values do not, and should not imply lower taxes.

-KD

15 comments:

mario said...

to true, the value of your home is irrelevant really as it operates under completely different market conditions to the rest of the economy.

Kid Dynamite said...

to clarify, Mario, my point is that the amount of revenue your town needs to collect depends on the amount of money they spend - not the value of homes. thus, property taxes also should not depend on the absolute value of homes (but rather, the relative value of your home vs the other homes, as I explained in the previous thread).

Anonymous said...

I recently received my new tax assessment of my home/property. Believe it or not it looks like my property taxes are going from ~$20k to ~$15k. I've got to be reading this wrong.

Anonymous said...

meanwhile the assessed value of my home went up!!!

Kid Dynamite said...

anon - has there been a lot of press about your town slashing its budget? actually, that wouldn't really explain it either - since they'd still want to keep revenues the same. I'm shocked that anyone's property taxes are going down by 25% right now. One way that could happen, I guess, is if there was massive new development in your town - more houses to share the tax bill - but that would have to be HUGE!

where do you live?

Anonymous said...

I'm in NJ. I know the tax RAISE has been capped by our friend Gov Christie but now sure if I'm reading this new tax coupon bill correctly. I will investigate and report back.

Anonymous said...

I know my home has not been assessed in at least a decade. They appraised my house recently (came inside and everything...;-) and the value went up... which makes sense considering how low it was 10 years ago. Now taxes are going down if I'm to believe my new tax coupon. I will touch base with town (Colts Neck, NJ) and report back.

Kid Dynamite said...

ah hah - there's a potential explanation:
your house hasn't been assessed in SO long, that when they reassessed it and the value went up, it went up LESS than everyone else's... get it? so your share of the tax pool goes down...

ie, if your assessed value went up 20%, but everyone else's went up 50%, then your taxes go down (if spending stays constant)...

Chris said...

KD - no dumb questions, only dumb people...

Are property taxes the only source of revenue that a town/city has for its coffers, or simply the most "lucrative?" In other words, your point so far has been that property taxes should be proportional to spending, not in relation to paper/perceived value of homes.

As such, is there another way to combat the issue of spending without increasing property taxes? Local income tax? Increased fees for services?

Again, no dumb questions...etc.

Thanks,
CC

Blue Moon said...

Chris:

My city (in Texas) gets to tack on 1% to the state sales tax, and .085% to property tax. But, my city is also the recipient of revenue from natural gas leases. We don't have an income tax.

Increasing property taxes is "progressive" in theory - usually the poor are renters not owners. One of our debates right now is that the city council wants to close 30% of the city's library branches to save money (from 13 to 10). Of course, the council members in the affected districts are objecting... Everyone has a vested interest in something, which is why nothing ever gets cut completely.

Kid Dynamite said...

CC - sure, there are other kinds of taxes - every town is different. I wrote a few weeks ago about Colorado Springs, who get most of their revenues from sales taxes (i think - if i recall correctly).

i would think that most towns get the majority of their revenues from property taxes - but that may be wrong. Here in NH it's almost certainly true, but in other areas they may get more from sales taxes.

in NH, we have no sales tax (or income tax), but we have a "meals and rooms tax" - 9% on hotels and restaurants.

IF said...

I would put it otherwise: absent of living in a trailer the city has you by the balls if you are unable to move your property out of their reach. Which could be accomplished by secession or another prop 13 alike? (Well, I think this one might go in the next years. But the home owning colleagues are in denial.)

Kid Dynamite said...

IF - i think my point is that measures like Prop 13 do no good - and are precisely why Federal dollars should NOT be used to bail California out of their budget woes. People vote in budget measures that limit taxation but not spending, and then want other people to make up the difference for them. no thanks.

Anonymous said...

Hey KD,
This is a separate but related issue--check out this study by the Pew Center on the States. (URL below.) The study's takeaway is that almost all state pension funds are woefully underfunded and it's going to be a disaster when the money runs dry. I like your writing and would like to hear your take on this. Specifically what should be done? And how do you think an individual can really affect change on this issue (besides voting on Election Day, yadda yadda), if at all? Would love to hear your $0.03.

URL:
http://www.pewcenteronthestates.org/report_detail.aspx?id=56695

Kid Dynamite said...

yes anon - pensions are a huge problem. there's no easy answer about how to deal with past retirees who have already "earned" their benefits. I'd say that the first step is to fix it for FUTURE benefit recipients - which i still don't think has been done (ie, future return assumptions are still too high, so we'll continue to have this problem in the future)

i left this comment at The Reformed Broker's post on pensions (http://www.thereformedbroker.com/2010/08/22/welcome-to-the-jungle/)

"As you know, LJH, pensions are based on math, not magic (actually, some people may not realize this!). The problem is that the assumptions behind the entitlements were incorrect (ie, 8% annualized return). The question is, who pays for that mistake? The workers who made the contributions under the bad assumptions? The next generation of workers, in some sort of ponzi scheme, using their payments to pay the prior generation? The citizens of the town that promised the entitlements based on bad assumptions (ie, city or state taxes) ? The citizens of the whole country (ie Federal taxes) ?

My sister is now paying roughly 11% of her salary toward her future pension benefits - higher than the roughly 8% that you and each of my parents paid - but it probably still won't be enough - the bigger issue is the faulty return assumptions that pension funds are still using."