Assessing our Assessments

 

by Edwin D. Reilly, Jr.

For the Sunday Gazette

     Judging from widespread and continual citizen reaction, general understanding of the operation of the real property tax system appears to be far less than that of the sales tax or income tax. At the heart of this is the stubborn refusal of some municipalities to assess real property at the only percentage that makes sense, 100%, or to maintain that rate over time.

     If someone were to tell me that my house was assessed at, say, $150,000, then I could immediately do a mental calculation that compares that price with what I believe I could sell my home for right now. For most parts of our county, such a number would be pretty close to 100% of market value. But if I were told that my assessment is only $4,000, as is typical in Rotterdam, I wouldn’t know what to think. Such a number would not be the bargain it appears to be if I found out that most homes similar to mine were assessed at only $3,000.

     Not only did Schenectady adopt 100% assessment several years ago, but its very competent assessor Tony Popolizio has been trying valiantly to maintain that number by carefully monitoring sales trends and adjusting assessment where necessary. But because of the currently “hot” real estate market, the city’s equalization rate—the ratio of the average city assessment to the purported average actual value—has slipped to 89%. Slippage in Glenville, Niskayuna, and Duanesburg, all of which were once in the vanguard of adopting full value assessments, has been even worse. Glenville’s equalization rate is down to 84%, Niskayuna’s to 75%, and Duanesburg’s to just 39%. Rotterdam’s was as low as 9% as far back as 1982, and is now a miniscule 4%. Equalization rates are needed not just to educate property owners, they are absolutely essential in order to make sure that owners of comparable homes in, say, Glenville and Rotterdam, pay the same county tax even though their assessments are more than $100,000 apart.

     So, couldn’t all of these towns and the hard-pressed City of Schenectady, reap a windfall by using or returning to 100% assessment? Not at all. As assessments rise, tax rates fall to compensate. The tax rate is a derived quantity, the ratio of the amount of money a municipality needs to collect in property tax divided by the total assessed value in that venue. A town or city may need to collect more from one year to the next, and that would raise taxes, but changes in assessment alone would not. Let’s see why.

     Imagine a very small town that has only one assessable parcel, a large apartment building where all residents live, including its elected officials. All other buildings are churches or exempt State property, and the apartment complex is assessed at one million dollars. Last year, the town adopted a budget that called for the collection of $40,000 in property tax, leading to a tax rate of $40 per thousand of assessed value. The owner of the building, of course, then pays 40 times 1,000 thousands, the entire $40,000 that the town needs to stay in business; there is no one else to tax.

      This year, the assessor determines that, based on sales of comparable apartment buildings in the same county, “her” apartment building is undervalued, so she raises its assessment to two million, But since the (frugal) Town Board still needs only $40,000, the new tax rate will be just $20 per thousand. So the apartment owner now pays 20 times 2,000 thousands, the same $40,000 tax as the year before, no more, no less, there being no one else to help.

 

      The same thing would happen in a town of 12,620 property parcels (such as Rotterdam) if all assessments were uniformly multiplied by 25—the tax rate would become 4% of what it had been, and every owner would, with the same town budget, pay the same amount as the year before. Of course, such an exercise would just perpetuate whatever rampant unfairness that creeps into an assessment system that has not been updated in many decades. There must be another governing parameter, and there is.

      Adopting a uniform percent of full value is not inherently unfair, it merely confuses matters. The important concern is how closely assessments cluster about the adopted percentage. The State is the umpire in all this; the Office of Real Property Services (see www.orps.state.ny.us) collects sales statistics to measure the deviation from uniformity, a stat with the imposing name “coefficient of dispersion,” or COD. Their target, feebly enforced by withdrawing a modicum of state aid if it is exceeded, is 15%. In a  municipality with that COD, two homes each of which has a true value of $100,000 might have assessments that are $115,000 and $85,000 respectively, meaning that the owner assessed more highly would pay “only” 35% more in tax than his luckier counterpart.

     Clearly, a COD of 15% is not very good, but given the volatility of the real estate market, it is very hard for an assessor to maintain a COD of less than 10%.  The lowest and hence fairest in the county is that of Niskayuna at 8%. Next in order are Glenville at about 10%, Schenectady at 13%, Rotterdam at 16%, and Duanesburg at a whopping 22%. The Rotterdam Town Board finally seems ready to do something about their combination of a high COD combined with a vanishingly small assessment ratio, as certainly they should.

    The best way to make sure that our whole county enjoys the benefits of 100% assessment with a low COD is through use of a well-funded county assessing unit. This is the consolidation step that most needs to be taken. We’d still need the current assessors; the savings would come from the economy of scale that would obtain whenever an updated countywide reassessment is deemed necessary. All that would be necessary to implement this would be a referendum in which the city and the towns (collectively, not individually) each vote approval. I don’t know what’s rotten in Denmark, but what’s rotten in New York State is its unacceptably long list of municipalities with a bloated COD.

 

Edwin D. Reilly, Jr., a former Supervisor of Niskayuna, is a regular contributor to the Gazette.