Learning about property values and assessed values

I’m under the weather from a continuing virus, so I was unable to attend TESD’s education meeting this morning — which is not good.  Right now the whole process of running a school district is being justifiably scrutinized because there is a strong public concern that we cannot afford to pay for the school system we have.  While the Finance meeting is where we learn about the numbers, the Education committee meetings are where we learn about the programs.  If we only look at the numbers, it’s absolutely the tail wagging the dog.  So I will look forward to a review of this morning’s meeting and I hope someone will post it here or on Community Matters (post there anyway — there has been some concern I am trying to reroute traffic here — when in factI think what I have to say here is pretty boring and is only read by hard-core numbers people).

 Ray Clarke posted an extensive commentary on this subject on the Benson blog recently, noting that school taxes have risen dramatically in relation to the income of our residents.  “At some point soon that limit will be reached. After five years of 10% union total compensation increases and 2% inflation, the percentage of pre-tax income paid in school property taxes by a household earning $100,000 living in a median T/E house assessed at $252,000 will have risen from 4% to 6%, after ten years, to 9%”  See Community Matters for the full text — Ray Clarke 1/11/10 on Continuing Budget Discussion for TE…

Mr. Clarke and I have discussed the nature of school funding on the blog and at the most recent school board finance meeting– and I posted data relating to the property tax revenue per enrolled student in several neighboring districts.  TE’s property tax revenue per enrolled student (the rate the district must set annually) is lower than many/most neighboring districts except those with earned income taxes.  That’s not to suggest (though it certainly does not disprove) that TE spends its income effectively compared to those districts — but it does illustrate a perspective I want us to consider.

I include info from these districts in response to another post who wanted PSSA scores included.  I am focused on revenue sources, not spending.  That’s the next piece once we identify what we can afford.

The local tax revenue from property taxes only per enrolled student is as follows:

TESD 13,359.45
GVSD 15,263.00
Radnor 16,376.43
Lower Merion 24,464.21
West Chester 12,497.04 plus EIT
U-CFSD 13,409.22 estimated on CC values
Central Bucks 9,675.55 plus EIT
Council Rock 10,767.00 plus EIT
Upper Merion 16,387.19

This most recent recession (I still think it’s more like a depression, but fortunately my background is in business, not economics so what do I know?) has badly damaged the incomes of many, many residents.  Unemployment is up, cost of services is up, taxes are up, ….yada yada yada.  Property values are no longer rising at the same steep level of the prior ten years, and could be called flat for the most part. 

Before I go into the specific details that trouble me in TE, here’s some background on how values are determined and therefore why there is evidence to consider millage comparison between districts as a legitimate tool in the discussion.

First, I take you to the State Tax Equalization Board  www.steb.state.pa.us

Here’s their job:

CERTIFICATION OF MARKET VALUE

The primary function of the Board is to determine annually the aggregate market value of taxable real property in each political subdivision and school district throughout the Commonwealth of Pennsylvania. Legislative restrictions as stipulated in Section 7 (3) and Section 14 of Act 447, determine the computation procedure to be used in an odd or even year.The market values are certified annually to the Department of Education and the respective school districts on or before July 1 of each year. These market values are used by the Department of Education as one factor in a legislative formula for the distribution of the state subsidies to each school district.

COMMON LEVEL RATIO

This function of the Board is to establish a common level ratio of assessed value to market value for each county for the prior calendar year. Act 267 of 1982 requires the State Tax Equalization Board to use statistically-acceptable techniques, to make the methodology for computing ratios public, and to certify the ratio of the chief assessor of each county each year.

The most recent (2008) common level ratio for several neighboring counties is as follows:

Chester  53.0

Delaware:  61.3

Montgomery: 54.0

Bucks: 9.7

Now, if you are a taxing authority concerned with how accurate your assessments are, that’s not too good.  The intended ratio for these four counties is 100.00  – it’s officially called “the predetermined ratio.”  Not every county has  full market value (100)as the goal, so automatically comparing millage rates can be misleading. You need to see the full range of numbers for the county/district.

As a taxpayer, however, the lower the number, the lower the ratio of assessed value to market value – and  you are being taxed on a property whose market value is higher than the assessed value.At 53.0, Chester County is lower than Delaware by a wide margin and comparable to Montgomery.  I’m not a statistician and won’t bother to work on the variability, but I will be content to say that the CLR is a statistically significant calculation certified annually, and it is what it is.

To understand how these numbers are used, I take you to this site for definitions:  http://www.assesslaw.com/terminologyanddefinitions.html

The short answer here is that the CLR is the ratio you can and will be required to use when evaluating your market value assessment.  (you use this ratio if it is more than 15% off the predetermined ratio).   It does create apples to apples across the state because PA has uniformity in property assessments — i.e., it’s not about equipment or what is produced on the property.  So the CLR equalizes values.

Now I take you to Testing the Fairness of your Assessment http://www.assesslaw.com/testingthefairness.html

All this stuff will hopefully lead you to accept the premise that the 3 counties and districts within them that I am using for comparison to TESD are comparable when looking at tax rates.  It’s not about the amount you pay — it’s about the relative amount of your property market value that you pay. 

Note:  You can test your own assessment value by multiplying the fair market value of your property (which is obviously opinion absent any legal appraisal)  by the CLR — that is the fair assessment for your property.

Assessments are done by county. SO, consider a house that sells for $500,000 in Tredyffrin township (fair market value).  If it was assessed correctly, the assessment value would be .53 x 500,000 or $265,000 .

The same sale price in Radnor (Delaware Co) would be assessed at 306,500; Lower Merion and Upper Merion (Montgomery county) at $270,000; Bucks County at $48,500.  I refer you to my next posting for the information on taxes relating to these assessed values.  I invite your comments in the meantime.

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