<HTML><HEAD>
</HEAD>
<BODY>
<div><FONT FACE="Arial" SIZE=3 COLOR="#000080"> >On Wed, 16 May 2007 07:16:34 -0400, Sarah Wayland wrote:</FONT></div>
<div><FONT FACE="Arial" SIZE=3 COLOR="#000080"> >The error is the result of using different numbers, but I'd like to</FONT></div>
<div><FONT FACE="Arial" SIZE=3 COLOR="#000080"> >know *where the different numbers come from*.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> The difference is not just different numbers. It is real dollars.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> Several hundred dollars. For some close to a thousand $$$s.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> For young families that bought a home in the last year, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> the increase will be around 50%. These people are already </FONT></div>
<div><FONT FACE="Arial" SIZE=3> struggling to meet their mortgage. This could be crushing.</FONT></div>
<div> </div>
<FONT FACE="Arial" SIZE=3> </FONT><div><FONT FACE="Arial" SIZE=3> Our taxes are going to go up, but it should not be such a huge increase.</FONT></div>
<div> </div>
<FONT FACE="Arial" SIZE=3> </FONT><div><FONT FACE="Arial" SIZE=3> Remember to think about the RP tax increase in context. </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Other taxes are rising too. If all our real estate taxes went up </FONT></div>
<div><FONT FACE="Arial" SIZE=3> by these kinds of numbers then people would be paying</FONT></div>
<div><FONT FACE="Arial" SIZE=3> several thousand more per year. Now I don't think all the taxes</FONT></div>
<div><FONT FACE="Arial" SIZE=3> are going up this much, but they are going up and RP's</FONT></div>
<div><FONT FACE="Arial" SIZE=3> increase should be more inline with them and with inflation.</FONT></div>
<div> </div>
<FONT FACE="Arial" SIZE=3> </FONT><div><FONT FACE="Arial" SIZE=3> We are now in a declining revenue period, so it is time to tighten</FONT></div>
<div><FONT FACE="Arial" SIZE=3> up and reduce spending. Wait for an expanding revenue period </FONT></div>
<div><FONT FACE="Arial" SIZE=3> (like when M-Square comes on line) to expand government. </FONT></div>
<div> </div>
<FONT FACE="Arial" SIZE=3> </FONT><div><FONT FACE="Arial" SIZE=3> Put off expenses like the recreation building and hold the line</FONT></div>
<div><FONT FACE="Arial" SIZE=3> on the number of employees. Delay some new hires and purchases. </FONT></div>
<div><FONT FACE="Arial" SIZE=3> The proposed budget includes several new employee positions. </FONT></div>
<div><FONT FACE="Arial" SIZE=3> We got by with the current number of employees last year, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> why not next year?</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> For homes that have been owner-occupied for at least a year, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> the rate increase is 18% (not the 11% computed by Vernon). </FONT></div>
<div><FONT FACE="Arial" SIZE=3> This is a huge increase when inflation for this year is only 2.6% </FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> According to the state's constant yield rate, the average increase </FONT></div>
<div><FONT FACE="Arial" SIZE=3> for </FONT><b><FONT FACE="Arial" SIZE=3> all </FONT></b><FONT FACE="Arial" SIZE=3> RP properties is 27%. That is over 10 times the inflation rate!</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3 COLOR="#000080"> >...but I'd like to know *where the different numbers come from*.</FONT></div>
<div><FONT FACE="Arial" SIZE=3 COLOR="#000080"> >Without that information, this is a simple exercise in mathematics.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Okay, I will repeat the formulas I used and show their derivation.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> I will also show where Vernon's numbers went wrong. </FONT></div>
<div><FONT FACE="Arial" SIZE=3> But what follows really is an exercise in mathematics. Most </FONT></div>
<div><FONT FACE="Arial" SIZE=3> people will not want to wade thru this and really do not need to. </FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Sarah, perhaps you can get Alan to verify this math.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><b><FONT FACE="Arial" SIZE=3> ---- Most readers will want to skip the rest of this email ---</FONT></b></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Here is the derivation of the tax formulas and percentages.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Start with this simple concept: </FONT></div>
<div><FONT FACE="Arial" SIZE=3> To compute the change in taxes, subtract last years taxes from this years proposed taxes.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> ChangeInTaxes = Taxes2007 - Taxes2006</FONT></div>
<div> </div>
<FONT FACE="Arial" SIZE=3> </FONT><div><FONT FACE="Arial" SIZE=3> To compute last years taxes, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> multiply last years assessment by last years tax rate of 0.00641, that is,</FONT></div>
<div><FONT FACE="Arial" SIZE=3> Taxes2006 = (AssessedValueFor2006 * 0.00641)</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> To compute this years proposed taxes, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> multiply this years assessment by this years proposed tax rate of 0.00687</FONT></div>
<div><FONT FACE="Arial" SIZE=3> Taxes2007 = (AssessedValueFor2007 * 0.00687) </FONT></div>
<div> </div>
<FONT FACE="Arial" SIZE=3> </FONT><div><FONT FACE="Arial" SIZE=3> So the formula to see how your RP taxes will change is</FONT></div>
<div><FONT FACE="Arial" SIZE=3> ChangeInTaxes = (AssessedValueFor2007 * 0.00687) - (AssessedValueFor2006 * 0.00641)</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Because the tax rate is usually quoted as cents per $100 of evaluation, the </FONT></div>
<div><FONT FACE="Arial" SIZE=3> above formula is often shown as follows, which is mathematically the same,</FONT></div>
<div><FONT FACE="Arial" SIZE=3> (call this the BasicChangeFormula):</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> (AssessedValueFor2007 / 100 * 0.687) - (AssessedValueFor2006 / 100 * 0.641)</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> For homes that were owner occupied for at least one year, assessments </FONT></div>
<div><FONT FACE="Arial" SIZE=3> are restricted to rise no more than 10% per year. Hence for these people, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> this year's assessment is 1.1 times last years assessment. That is </FONT></div>
<div><FONT FACE="Arial" SIZE=3> AssessedValueFor2007 = AssessedValueFor2006 * 1.1</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Substituting that in the above BasicChangeFormula, gives...</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> ((AssessedValueFor2006 * 1.1) / 100 * 0.687) - (AssessedValueFor2006 / 100 * 0.641)</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> which can be reduced as follows:</FONT></div>
<div><FONT FACE="Arial" SIZE=3> (AssessedValueFor2006 * 0.007557) - (AssessedValueFor2006 * 0.00641)</FONT></div>
<div><FONT FACE="Arial" SIZE=3> AssessedValueFor2006 * (0.007557 - 0.00641)</FONT></div>
<div><FONT FACE="Arial" SIZE=3> AssessedValueFor2006 * 0.001147</FONT></div>
<div><FONT FACE="Arial" SIZE=3> which is the formula I gave in my last email for this set of people.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> Call this the OwnerOccupiedSimplifiedChangeFormula = AssessedValueFor2006 * 0.001147</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Note that for this set of people, the above formulas show their 2007 taxes are</FONT></div>
<div><FONT FACE="Arial" SIZE=3> Taxes2007 = (AssessedValueFor2006 * 0.007557) </FONT></div>
<div><FONT FACE="Arial" SIZE=3> and</FONT></div>
<div><FONT FACE="Arial" SIZE=3> Taxes2006 = (AssessedValueFor2006 * 0.00641) </FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> So the ratio of Taxes2007 to Taxes2006 is </FONT></div>
<div><FONT FACE="Arial" SIZE=3> (AssessedValueFor2006 * 0.007557) / (AssessedValueFor2006 * 0.00641) </FONT></div>
<div><FONT FACE="Arial" SIZE=3> which evaluates to 1.18 hence this years taxes will be 18% higher</FONT></div>
<div><FONT FACE="Arial" SIZE=3> than last years (for long-term owner occupied homes).</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> The average increase for </FONT><b><FONT FACE="Arial" SIZE=3> all </FONT></b><FONT FACE="Arial" SIZE=3> properties can be calculated by dividing </FONT></div>
<div><FONT FACE="Arial" SIZE=3> the proposed tax rate of 0.687 by the the constant yield tax rate of 0.542 </FONT></div>
<div><FONT FACE="Arial" SIZE=3> which yields 1.27, hence this years taxes will be 27% higher on average</FONT></div>
<div><FONT FACE="Arial" SIZE=3> for all properties. The constant yield tax rate is available at</FONT></div>
<div> <A HREF="http://www.dat.state.md.us/sdatweb/stats/cytr.htm"><FONT FACE="Arial" SIZE=3> http://www.dat.state.md.us/sdatweb/stats/cytr.htm</FONT></A></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> Vernon's instructions follow this formula which is in error:</FONT></div>
<div><FONT FACE="Arial" SIZE=3> AssessedValueFor2006 * 0.1 / 100 * 0.687</FONT></div>
<div><FONT FACE="Arial" SIZE=3> which reduces to AssessedValueFor2006 * 0.000687</FONT></div>
<div><FONT FACE="Arial" SIZE=3> This equates to a tax increase of about 11% instead of the correct 18%</FONT></div>
<div><FONT FACE="Arial" SIZE=3> for long-term owner-occupied homes.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> To convert Vernon's formula to the correct OwnerOccupiedSimplifiedChangeFormula, </FONT></div>
<div><FONT FACE="Arial" SIZE=3> you can multiply by a constant of .001147 / .000687 = 1.67</FONT></div>
<div><FONT FACE="Arial" SIZE=3> which is what I suggested people do that had already </FONT></div>
<div><FONT FACE="Arial" SIZE=3> computed their taxes via Vernon's instructions. That is, Vernon's</FONT></div>
<div><FONT FACE="Arial" SIZE=3> formula underestimates the tax by 67%.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
<div><FONT FACE="Arial" SIZE=3> For non-owner occupied homes or recently purchased homes, there </FONT></div>
<div><FONT FACE="Arial" SIZE=3> is no simple multiple that will convert Vernon's formula into the correct </FONT></div>
<div><FONT FACE="Arial" SIZE=3> BasicChangeFormula. For them, it is easiest to recalculate from scratch </FONT></div>
<div><FONT FACE="Arial" SIZE=3> using the correct formula. Their computed change will be a great deal </FONT></div>
<div><FONT FACE="Arial" SIZE=3> higher than Vernon's formula.</FONT></div>
<div><FONT FACE="Arial" SIZE=3> </FONT></div>
</body></html>