Real estate taxes in Westchester County, New York are really starting to become an issue. The funny money of the Greenspan boom has evaporated and the upper middle class of the New York suburbs is starting to feel the pinch. The number of high end homes being put on the market by out-of-work investment bankers and hedge fund traders is mushrooming. With this high end depression as a backdrop, local governments are having trouble with budgets that historically would have drawn a yawn.
In the Village of Irvington, the School Board received a petition of 250 signatures demanding a 5% reduction in the 2009-2010 budget.
In neighboring Dobbs Ferry, where I live, a very curious graph appeared in the Rivertowns Enterprise on Friday, April 24, on page 7. Paid for by an ad hoc group of citizens, the graph shows the Village budget spinning out of control relative to inflation by 2020.
The remarkable thing that these spontaneous taxpayer revolts is that the Irvington school tax increase is only 0.83%, while the Dobbs Ferry Village tax increase is 4.9%. In yesteryears such numbers would have been greeted with a hearty relative backslap. Today, it is the absolute dollar amount that is causing the backlash.
I have done similar statistical work on the rate of increase of Dobbs Ferry taxes. For 2000 – 2009 normalized Village taxes for single family homes have gone up 85%. During the same period, CPI is up about 25%. So Village taxes have been going up 3 times faster than the cost of living.
You can’t blame this 85% increase on ‘tax and spend’ Mayors like Brian Mohanan, Joe Bova and Scott Seskin, – whether Republican or Democrat – because Village employment has gone up only about 10% since 2000. Though 10% is too much, given that Village population is flat and service delivery is basically the same except for the Library and a senior citizen program, a surge in employment is not the culprit.
You can blame Messrs. Monahan and Bova for over-budget and poorly executed capital projects like the new Library and the new Department of Public Works garage. These gold-plated construction projects cost the Village more than $13 million and have increased its debt service by 50% over the decade.
However, a much more important factor has been the 215% increase in pension and medical insurance costs since 2000 for members of the civil service unions – which are most of our Village employees. These costs are controlled at the New York State level, i.e, by David Paterson, Sheldon Silver, Malcolm Smith and their local sidekicks, Richard Brodsky and Andrea Stewart-Cousins, so the Village just looks on as New York State hands out these goodies. Governor David Paterson appears to be taking on the civil service unions, even though he is a Democrat. At a recent dinner party, a State employee told me that he has soured on our accidental governor and was going to work to get him unseated in the next election because he was threatening his right to retire at 55 and asking him to forego a 3% pay raise.
But even with medical benefit costs exploding in 2009, the Village Supervisor, Marcus Serrano, and the department heads did a good job restraining spending, so that year-on-year expenditures were only up 1.3%.
So what explains the difference between the 1.3% increase in spending and the ultimate 4.9% increase in the tax rate in Dobbs Ferry this year? The real reason has to do with something called the Equalization Rate. This is a mechanism in the Assessment Roll [list of the value of all properties in the Village] that shifts taxes between two pools of property owners – residential and commercial – based on shifts in relative market value. During the Greenspan housing bubble, single family homes went up 116% in value while commercial properties went up less than 25%. This has resulted in a shift in the tax burden from commercial properties to residential properties. This year that shift was exemplified by a Certiorari costing $900,000 related to the Asko-Nobel property neighboring the Sawmill River Parkway. Certiorari’s (which means review in Latin) is a restoration of property taxes improperly levied in the past.
The effects of the Equalization Rate will peak in the next few years because a new judge has decided to clear up the backlog of old cases — some as much as fifteen years old. In addition, the residential values peaked in 2006 and as they drop the room for or value of a commercial Certiorari will decline. Eventually, the residential and commercial lines could cross and then homeowners will start to seek reductions and refunds in their taxes. However, this crossing of the lines will require a very substantial drop in real estate values because most homes in Dobbs Ferry are undervalued so the taxpayer has no incentive to challenge his or her assessment.