By Eugene Quinn
The East Greenwich Town Council recently conducted a 20-year analysis of median house values” from FY 1998 to FY 2017, including median tax bills. Among the conclusions stated were that, over the period of the study,
• The median house value grew approximately 136 percent
• The median tax bill grew by approximately 149 percent
This is the latest installment in a continuing series of communications intended to create the impression that the town is on an unsustainable path with respect to property taxes, and that drastic actions like level funding the schools are called for.
Like the resident mailer from last spring, it is easy to tell at a glance that these numbers are wrong. If tax bills had increased faster than property values, the FY 2017 tax rate of $24.06 should be higher than the FY 1998 tax rate of $26.22, but it is not.
So, why are the numbers wrong?
East Greenwich property owners recently received an official notice jointly issued by Northeast Revaluation Group, LLC, and the East Greenwich tax assessor. Referring to the December 31, 2017, valuation it states: Please do not multiply this value by the current tax rate. Your assessed values do not reflect any exemptions to which you may be entitled.
Yet, this is exactly how the supposed median tax bills were computed for both FY 2017 and FY 1998. Ignoring exemptions makes tax bills look are higher than they actually are, and invalidates the computed medians.
A more subtle problem with the methodology involves the comparison of the overall median tax bills and property values 20 years apart. While the median home values presented for FY 2017 and FY 1998 are technically correct, computing the percentage increase from these two numbers produces a meaningless comparison of the assessed values of two different homes, 20 years apart in time.
Just as retailers look at ”same store sales” to estimate trends, you have to look at ”same house changes.” This is important because between FY 1998 and FY 2017, nearly 300 new homes with a median value in the $750,000 range were added to the tax base.
An apples-to-apples comparison requires that you look at the FY 1998 and FY 2017 assessments and tax bills for each individual home, house by house, and compute the median of those changes. Failure to do so produces inflated estimates of the actual increases in valuations and tax bills due to new construction.
Every analysis published by the Town Council, including the resident mailer and the subsequent correction, has failed to do this (which explains the difference between their numbers, even the ”corrected” ones, and mine).
Another obvious error is the exclusion of the Fire District taxes in the FY 1998 numbers. It is easy to verify that the median FY 1998 tax bill was computed from the median valuation using a rate of $23.88, which is the FY 1998 town rate. According to the Tax Assessor, the Fire District rate for FY 1998 was $2.34. Because the FY2017 number includes the fire district and the FY 1998 number does not, the increase in the median tax bills is overstated.
It is not clear why FY 2018 was excluded from the analysis. The FY 2018 tax roll has been posted on the town website for months. Including FY 2018 would produce a slightly lower estimate of the growth in tax bills, because the FY 2018 rate of $23.66 is lower than the FY 2017 rate of $24.08.
This illustrates another flaw in the methodology. Although the title would lead you to believe that 20 years of data were analyzed, in fact only two years of data (that happen to be twenty years apart) were used. From the years 1998-2017, you can make 190 different pairs, and each gives a different estimate of the medians and growth.
There are much better ways to estimate trends that use all of the data, such as the regression model I published in response to a two-point analysis the council used to estimate the growth in the tax levy.
These methods are much less sensitive to cherry-picking the start and end years (coincidentally, FY 1998 is the only year in recent history with a 4 percent increase in the tax rate within a revaluation cycle).
So, if these flaws are addressed, what is the result?
Extracting the individual tax bills from the FY 1998 and FY 2017 tax rolls and matching the contents house-by-house produces a list of 3,619 single family (state code 01) homes that appear on both tax rolls. Computing the percentage change in the assessed values and actual tax bills for individual homes produces the following median perentage changes:
• The median percentage change in valuation was 104.3 percent
• The median percentage change in the actual tax bill was 91.4 percent
These annualize to 3.8 percent and 3.5 percent per year over the interval. As noted earlier, the result of any trend analysis based on only two points is likely to be quite sensitive to the choice of starting and ending years. If we repeat the analysis using FY 1994 and FY 2018 as the endpoints, the results are:
• The median percentage change in valuation was 178.3 percent
• The median percentage change in the actual tax bill was 117.6 percent
The annualized values are 4.4 percent and 3.3 percent, respectively.
In summary, the Town Council’s study contained numerous flaws that render its conclusions invalid, while a more careful analysis found no evidence that the tax bills of single family homes are increasing faster than their assessed values (if anything, valuations are increasing faster).
I asked three economics professors if a situation where property values were increasing faster than property taxes would be considered sustainable, and all three said essentially that it’s a no-brainer, as long as you are able to come up with the cash to pay the tax bill it is sustainable.
A list of the 3,619 properties used in this analysis, ordered by percentage increase in their tax bills, is posted here.
Eugene Quinn, Ph.D., a resident of East Greenwich, is a professor of mathematics at Stonehill College in Massachusetts. He has been challenging figures put out by the town over the past year.