According to the a recent NY Times article, the reason property taxes are so high in this area (Westchester and neighboring counties), besides the political strong-hold of local unions, is because, for one, property values are higher than in the rest of the country. Westchester County median sale price is about $530,000 while the national median price is in the ballpark of $180,000. Slightly obscured! In addition, tri-state residents demand and expect a higher level of service–with good reason. Believe it or not, compared to other parts of the country, we get do get a lot for our money. Above all, we enjoy top-rated schools and a police station and fire station on every corner-and a Starbucks too. If our property taxes were not so exorbitant, most of the local counties like Westchester and Nassau would be bankrupt–just ask Californians how their budget deficit is going or Floridians how good their school systems are.
Since property taxes are relative to property values, I’ve wonder what impact the recent market decline is going to have on local budgets and the revenue they receive from homeowners. Here’s my quick example for illustration purposes only.
If property values have decreased by over 20% since it’s peak back in 2006, does that meanthat property taxes will also decrease by 20%? Humh? I wonder? Cost of running a town have not exactly decreased over that same time period. Are the local officials going to offer the same services that residents have enjoyed with a budget that’s 20% lower? I don’t think so!
I assume that instead of lowering property taxes, the towns will just have to increase tax rate to compensate for the depreciation. These are fictitious numbers. Every municipality has it’s own convoluted scientific formula for figuring out taxes called the Residential Assessment Ratio (RAR).
- local tax rate was 2% of assessed value
- $500,00 home
- equals $10,000 in annual property taxes
Now, if property values have decreased by 20%, then home is now only worth $400,000. The assumption is that property taxes should also decrease by the same rate to $8,000. Right? I highly doubt it. My thinking is that they will reduce some, but not proportionately to prices depreciation. The town will just have to increase the tax rate to compensate for their loss, of course. Therefore, if the town raises the property tax rate by 1/4%, to 2.25%, then the new effective tax would be $9,000. In this scenario (and it’s only a scenario), the town would have only lost $1,000 while the homeowner lost $100,000. That seems fair, don’t you think?
