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Your Taxes are Going Way Up - Jump in Tax Appeals to Trigger Massive Increase in School Taxes-- Revisited

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Your Taxes are Going Way Up - Jump in Tax Appeals to Trigger Massive Increase in School Taxes-- Revisited

July 28, 2009 - 00:34
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An article published, on July 17th, in the Journal News provides additional evidence that New Rochelle school taxes will increase in excess of the 3.3% claimed by the district.

Back in early May I forecast that New Rochelle property owners could expect property tax increases between 6% and 9% (2 to 3 times higher then district projections) based on much higher then normal property tax relief appeals. The article in the JN confirms this as the number of property tax grievances is approximately double when compared to last year.

According to the JN roughly 21% of New Rochelle residential property owners have filed for property tax reduction. In my May 7th post I projected that the number would be 20%.

City tax assessor Louis Perone now says “The City is expecting around 2,500 (appeals) this year”. Last year 1,320 cases were filed. Perone expects a “majority” of the 2,500 grievances will be granted. Last year only 416 of the 1,320 (32 percent) were successful. When Perone states a “majority will be granted” we should expect something over 50%. I expect that number to be in the area of 75% to 80%.

Now that we know how many people have filed tax grievances the next is question is how much relief will those who are successful in their appeals receive. Using my own home as an example, I think it would be safe to say many of the homes in the City are currently on the tax roles at or near peak market values. The
Case-Shiller (CS) 20 City Composite Index
is down 33% from its June 2006 high. The CS New York City Area index is down 22% from 2006 highs. In the July 24th JN there was an article stating that Westchester home prices were down 16.3% from June 2008 to June 2009. Using resources like Zillow.com and the MLS I have found many New Rochelle properties that are offered at 20% to 25% discounts from peak prices. Keep in mind these properties are offered at those prices it certainly does not mean that they are selling. Given these data points, it would be safe to say that NR prices are down 20% to 30% from the peak. Additionally, I would also point out that there is a statute in place which caps the maximum assessment reduction at 25%. I had originally modeled a 30% price reduction with a 20% rate of appeal. This produced a property tax increase of approximately 9%. However, with a maximum reduction of 25% that number falls to 7.5% and with a 20% factor you are looking at a 6% increase in taxes.

Building the Model is not the hard part knowing how to use it is!

In the arena of financial models, the best model is the one that is always correct. Nearly as good are models that are always wrong, provided that you quickly realize that they are always wrong. Not surprisingly coming into contact with these types of models is a very rare occurrence. The bulk of models are sometimes right and sometimes wrong. The key is to understand when your model is going to be right or wrong and how to interpret errors when they occur. Being able to integrate and interpret new information when it becomes available is also important. In this specific case of the New Rochelle tax assessments I built a “top down” driven model, as I had a limited set of inputs to construct it. I was actually able to get some very helpful information from the City Tax Office which was useful in the interpretive analysis.

In the 2008-2009 tax year the City saw a 1.4% decline in assessables. Using my model I calculated that a 10% rate of successful appeal coupled with a 10% decline in fair market value (FMV) would result in a 1.4% decline in property tax revenue. The July 17th JN article provided some very useful information which helped me to better understand the model. 1,320 relief appeals were filed, in 2008, 11% of the residential tax roll. However, only 416 were granted roughly 3.4% of the tax roll. Using that appeal rate my model produced a 0.35% assessable reduction. In order to arrive at a 1.4% result my model would have to factor a 40% decline in FMV. Well above the statute limitation of 25%. There are additional factors that I did not build into the model that could account for this disparity. These factors include foreclosure activity, tax delinquencies and certiorari appeals on commercial R.E. (CRE is down 30% to 40% BTW). Additionally off budget spending and the difference actual and projected spending can have a significant impact. Although I am working on a fairly limited data set, it appears that the model produces an optimistic outcome bias. The information in the JN suggests that local property tax revenue is far more leveraged to the appeal process then previously thought. My projections using a 20% appeal rate and 20% reduction in FMV produces a tax increase of approximately 6.0% for those who do not file appeals. However, given the bias of the model, based on 2008 data, more successful appeals and a greater reduction in FMV I could easily see the number coming higher then 6.0%. I am comfortable with the original forecast of 6% to 9%. However the data provided from the JN article indicates that the probability that the number comes in much higher then 9% is not zero. I would attach a 10% probability that school tax increase could turn out to be 10% or higher.

It’s about process!

The model that I built is far from perfect and can be greatly improved based on a collaborative process. I was able to build the basic outline with limited information and input. This is not something I did on a full time basis. It took me 2 or 3 hours to build. What matters is I made an attempt to build it. Which is more then those who work in the finance office of the New Rochelle School district have done. To them simply calling the City finance department to “get the number” is enough. To them; when, how, why and what if do not really fit into the equation.

When you oversee a budget of a quarter of a billion dollars, most of which is funded directly by the residents of the City, simply calling to “get the number” is not enough. If you were a shareholder in a public company, would you find it acceptable if the CEO and the CFO did not provide revenue forecasts to the Board of Directors? Would it be acceptable for the Board of Directors not to demand revenue information from the management team? Of course it would not be acceptable. In fact it would be a violation of the fiduciary responsibility of both the management team and the Board of Directors. Well this unacceptable behavior is exactly what you are getting from senior management and the Board of the NRSD. I am sure if the School Board were to demand that the district finance department put together a process to forecast property tax revenue for the coming academic year they would be able to do it. If they were unable to do so I know of many able financial professionals, who live in New Rochelle, who could offer assistance free of charge.

If this concerns you then consider the school board is meeting tomorrow to receive their auditor's report. If you are as concerned as I am about the lackadaisical attitude of the school district towards the budgeting process perhaps you will consider showing up tomorrow night at City Hall. Only when New Rochelle residents show up and demand accountability and transparency from our Board of Education are we going to get accountability and transparency from our Board of Education.

There are 5 Comments

One more campaign talking point coming true.
The time to remember all this is next May when immediate past president Cindy Babcock Deutsch will be up for election.

J. Wagner

And Where Will you be Dr.?

under a comparable blog the other day i mentioned that the district and city's lack of due diligence has brought this to a head. the internal inconsistencies are frightening and while the economy can be cited as a contributing cause, there is plenty of issues with both the way the city and the school district has handled revenues and expenses in new rochelle.

no sense in beating a dead horse. if you don't know the issues by now you have been living in a vacuum. recently, chuck strome suggested he would have to re-visit first provider and other city collective bargaining agreements to wrest some concessions to try to pay for shortfalls. That is both unfair and impractical given the excessive lack of attention paid by city management to its biggest millstone, the incredibly overfunded and undermanaged school district that consumers two-thirds of taxpayer taxes as well as producing negative results, non-accountability and no transparency.

the city is not much better. they top Pontius Pilate at the art of washing their hands of this baseline consideration in terms of municipal growth and development. they have had opportunities since 2007 to rework certain amenities with developers regarding abatements, etc and have felt more like a dependent than a sponsor. this echo bay sitution reeks of unfulfilled egocentrism; it is like Obama's zeal toward health insurance --- but legacies cannot and should not be earned on the back of taxpayers.

jack wagner is right, but he needs to help us go even further. the school board must be immediately confronted by all means possible and that could include some issues around fiduciary trust. they are showing no good faith allowing for example, the union representative to hold positios that are to the detriment of collective bargaining for the taxpayer who might want and should want to insist that items be presented at bargaining that would share the burden of paying for extraordinary costs among the rank and file. for example, there is no record that any executive in the district took a tax cut; in fact, organisciak, the suffolk county resident, reached out for a 13 thousand or so dollar increase. No signficant organizational changes were made or budget cuts initiated. the little done was fluff. a responsbile management team, oversight board, and city admininstration would have demanded a presentation of three different budgets calling for reductions of graduating percentages, maybe 5%, 8% and 12%; something. in additon the city council may be the biggest fans of the pontius pilate approach as they are mutely silent on the issue.

we hear that there is something called a sustainability project which sounds much like the equvalent of the Body Mass Index our district so proudly signed up for. What we are not hearing are PLANS -- meaningful developmental plans to grow our tax base through proper residential and commercial expansion, ideass such as the tram shuttle to reduce congestion, traffic flow and parking..... how much more do I need to say?

One thing,, Strome wanted to open up the first responder contracts. Lets demand that the district open up the FUSE contract; let the representatives come back with a refusal. Once they do, lets's find out precisely what was placed on the table a month or two back. Lets find out what the AFT and NYSUT, FUSE, etc. intends to do about forcing this city and others to be shut out of federal Recovery funds because they refuse to have teachers "held accountable" for performance, etal. It is camofluage anyway, the existing contract would protect just about anyone beyond a probationary period from any disciplinary acttion. Lets insist that the city charter go back to integrating the school distict under city manageent of some sort. Count on it, Arne Duncan will up at DOE in Washington.

this hass become a dysfunctional almost arrogrant and non-responsive city to live in. So few people have anything to say; the best and brightest minds in the city sit and hack away at blogs while the lesser talents run the institution.

If you will not fire the incompetents in the district, rescind their increases pronto. If you allow the fallacy called "hosting" and other half-arsed procedures to misrepresent district student headcount, charge them tuition or fire everyone who counted noses, wrote the procedures, approved the counts, and you trustees who are mute and sadly silent at this point on this topic ought to be ashamed of themselves.

Chrisanne Petrone you need to be, like Caesar's wife, beyond reproach. so resign either from the board or the PTA review process. One or the other.

i have some friends in DOE and I will get back to you on whether there is anything we can do to take the tax monkey off our back for a few moments due to the insufferable condition of union control overs reasonable standards and politician cowardice in aligning their loyalties where the money is. Shame on you all.

warren gross

Warren,

I am with you. Its frustrating, perhaps its time to use a bit of humor. Here is a joke that perfectly describes our local political leadership.

Five surgeons are discussing who are the best patients to operate on.

The first surgeon says, 'I like to see Accountants on my operating table because when you open them up, everything inside is numbered.'

The second responds, 'Yeah, but you should try Electricians! Everything inside them is colour-coded.'

The third surgeon says, 'No, I really think Librarians are the best;everything inside them is in alphabetical order.'

The fourth surgeon chimes in, 'You know I like Construction Workers. Those guys always understand when you have a few parts left over at the end, and when the job takes longer than you said it would.'

But the fifth surgeon shut them all up when he observed, 'You're all wrong. Politicians are the easiest to operate on. There's no guts, no heart, no balls, no brains, and no spine, and there are only two moving parts - the mouth and the asshole - and they are interchangeable!

People get the government they deserve! I was at the board meeting at which the auditors made their report. I and Bob Cox and one or two others.
The report was made secretly to the board in a closed session. The auditors left before any public session and were unavailable to answer questions.
I suggested to the board that a paper audit is useless. Remember Enron and Anderson Consultants. What is needed is a physical inventory of all the personnel on the payroll to determine if they are really employed or simply holding "no show" or minimal jobs. This inventory should include an evaluations of the necessity of each person's position. For instance, we have, in the schools, teachers known as "floaters". Their job is to be available to do whatever the principal wants done. Otherwise they sit in the teachers' lounge drinking coffee.
Such an inventory will never take place unless a lot of people show up at a board meeting to demand it.

J. Wagner

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