[RP TownTalk] Budget and taxation

[Rob Oppenheim]

>On Wed, 16 May 2007 07:16:34 -0400, Sarah Wayland wrote:
>The error is the result of using different numbers, but I'd like to
>know *where the different numbers come from*.
 
The difference is not just different numbers. It is real dollars.
Several hundred dollars. For some close to a thousand $$$s.
 
For young families that bought a home in the last year, 
the increase will be around 50%. These people are already 
struggling to meet their mortgage. This could be crushing.

Our taxes are going to go up, but it should not be such a huge increase.

Remember to think about the RP tax increase in context. 
Other taxes are rising too. If all our real estate taxes went up 
by these kinds of numbers then people would be paying
several thousand more per year. Now I don't think all the taxes
are going up this much, but they are going up and RP's
increase should be more inline with them and with inflation.

We are now in a declining revenue period, so it is time to tighten
up and reduce spending. Wait for an expanding revenue period 
(like when M-Square comes on line) to expand government. 

Put off expenses like the recreation building and hold the line
on the number of employees. Delay some new hires and purchases. 
The proposed budget includes several new employee positions. 
We got by with the current number of employees last year, 
why not next year?
 
For homes that have been owner-occupied for at least a year, 
the rate increase is 18% (not the 11% computed by Vernon). 
This is a huge increase when inflation for this year is only 2.6% 
 
According to the state's constant yield rate, the average increase 
for all RP properties is 27%. That is over 10 times the inflation rate!
  
>...but I'd like to know *where the different numbers come from*.
>Without that information, this is a simple exercise in mathematics.
 
Okay, I will repeat the formulas I used and show their derivation.
I will also show where Vernon's numbers went wrong. 
But what follows really is an exercise in mathematics. Most 
people will not want to wade thru this and really do not need to. 
 
Sarah, perhaps you can get Alan to verify this math.
 
---- Most readers will want to skip the rest of this email ---
 
Here is the derivation of the tax formulas and percentages.
 
Start with this simple concept: 
To compute the change in taxes, subtract last years taxes from this years proposed taxes.
ChangeInTaxes = Taxes2007 - Taxes2006

To compute last years taxes, 
multiply last years assessment by last years tax rate of 0.00641, that is,
Taxes2006 = (AssessedValueFor2006 * 0.00641)
 
To compute this years proposed taxes, 
multiply this years assessment by this years proposed tax rate of 0.00687
Taxes2007 = (AssessedValueFor2007 * 0.00687) 

So the formula to see how your RP taxes will change is
ChangeInTaxes = (AssessedValueFor2007  * 0.00687) - (AssessedValueFor2006 * 0.00641)
 
Because the tax rate is usually quoted as cents per $100 of evaluation, the 
above formula is often shown as follows, which is mathematically the same,
(call this the BasicChangeFormula):
 
(AssessedValueFor2007 / 100  * 0.687) - (AssessedValueFor2006 / 100 * 0.641)
 
For homes that were owner occupied for at least one year, assessments 
are restricted to rise no more than 10% per year. Hence for these people, 
this year's assessment is 1.1 times last years assessment. That is  
AssessedValueFor2007 = AssessedValueFor2006 * 1.1
 
Substituting that in the above BasicChangeFormula, gives...
 
((AssessedValueFor2006 * 1.1) / 100  * 0.687) - (AssessedValueFor2006 / 100 * 0.641)
 
which can be reduced as follows:
(AssessedValueFor2006 * 0.007557) - (AssessedValueFor2006 * 0.00641)
AssessedValueFor2006 * (0.007557 - 0.00641)
AssessedValueFor2006 * 0.001147
which is the formula I gave in my last email for this set of people.
Call this the OwnerOccupiedSimplifiedChangeFormula = AssessedValueFor2006 * 0.001147
 
Note that for this set of people, the above formulas show their 2007 taxes are
Taxes2007 = (AssessedValueFor2006 * 0.007557) 
and
Taxes2006 = (AssessedValueFor2006 * 0.00641) 
 
So the ratio of Taxes2007 to Taxes2006 is 
(AssessedValueFor2006 * 0.007557) / (AssessedValueFor2006 * 0.00641) 
which evaluates to 1.18 hence this years taxes will be 18% higher
than last years (for long-term owner occupied homes).
 
The average increase for all properties can be calculated by dividing 
the proposed tax rate of 0.687 by the the constant yield tax rate of 0.542 
which yields 1.27, hence this years taxes will be 27% higher on average
for all properties. The constant yield tax rate is available at
http://www.dat.state.md.us/sdatweb/stats/cytr.htm
 
Vernon's instructions follow this formula which is in error:
AssessedValueFor2006 * 0.1  / 100 * 0.687
which reduces to AssessedValueFor2006 * 0.000687
This equates to a tax increase of about 11% instead of the correct 18%
for long-term owner-occupied homes.
 
To convert Vernon's formula to the correct OwnerOccupiedSimplifiedChangeFormula, 
you can multiply by a constant of .001147 / .000687 = 1.67
which is what I suggested people do that had already 
computed their taxes via Vernon's instructions. That is, Vernon's
formula underestimates the tax by 67%.
 
For non-owner occupied homes or recently purchased homes, there 
is no simple multiple that will convert Vernon's formula into the correct 
BasicChangeFormula. For them, it is easiest to recalculate from scratch 
using the correct formula. Their computed change will be a great deal 
higher than Vernon's formula.
 
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