Taxes are a necessary evil. Taxation allows us join together to fund public schools, plow our streets, and support the needy.
The property tax, based on ownership of real property, is New York’s only tax on wealth (as opposed to a tax on income or consumption, i.e. sales). A major source of revenue for local government, it provides one-fifth of total revenue for counties, cities and towns, over two-fifths for villages and half of all revenue supporting public schools. In New York State, only New York City and Yonkers impose an income tax.
While no tax is popular, the property tax is arguably the most confusing. The purpose of this post is to shed light on how the property tax is assessed and administered.
Your tax bill
The principle behind the property tax is simple. The city/town/village/school governing board creates a budget that determines the amount of money to be raised from the tax. That’s the tax levy. The levy is shared among property owners according to each owner’s share of total property value.
Suppose the Village Board of Bedford Falls concludes that it needs $1 million to provide needed services. There are 2,000 property owners with identical houses that are each worth exactly the same amount. Divide the levy by 2,000 and that’s the tax bill－$500 each for each owner.
The same principle applies when houses are not identical. Suppose 1,000 homes are worth $100,000 and 1,000 are worth $200,000. The total property value is $300 million (you can do the arithmetic!). The owner of each $100,000 house owns 0.033 percent of the property, thus owes 0.033 percent $1 million levy, or $333. The owner of each $200,000 house owns 0.067 percent of the property, thus owes 0.067 percent of the levy or $667.
The arithmetic gets messy with many properties of varying values, but the principle does not change. The share you own is the share you owe. Your bill goes up if the levy goes up and your share of total value stays the same. Your bill also goes up if the levy stays the same, but your property value rises relative to everyone else’s. The same math applies in reverse.
Your assessment
How do assessors decide what your property is worth? An assessor’s goal is to estimate what your property would fetch on the market were you to sell. They rely on recent market sales and on comparative factors like square footage, number of rooms, lot size, architectural style, and age to compare your home to similar dwellings within your neighborhood. It is an imperfect process. We owe it to ourselves to review our assessments and compare them to those of neighboring properties, challenging the assessor when we think we’ve been unfairly treated. There is a state-determined process to challenge assessments, although the schedule is determined locally.
Note: While some villages in New York do their own assessing, most assessments are completed by towns and cities.
Fractional assessment
While assessed values are based on market values, the assessed value of a property can still be very different from its market value. This can make the task of verifying your assessed value difficult, although it does not make your assessment unfair.
Remember that your tax bill wholly depends on your property’s share of total assessed value. Returning to Bedford Falls, if the assessor concludes that all of those identical $100,000 homes should be assessed at $200,000 and every $200,000 home at $400,000, every tax bill would be exactly same (provided that the levy was unchanged). The total property value is now $600 million. The owner of each now-$200,000 house still owns 0.033 percent of the property and still owes $333. The owner of each now-$400,000 house still owns 0.067 percent of the property and owes $667.
Let’s travel back in time to learn why assessed values can be different from market values. You’re the assessor of Bedford Falls in 1960. You’ve read about computers and might have even seen one in operation. But you still work in a world of adding machines, index cards and file cabinets. Each of the 2,000 properties in Bedford Falls has an index card in a file drawer.
Over a period of years, the value of homes slowly rises as inflation changes the value of the dollar. Twenty of the identical $100,000 homes have sold for $110,000. That’s the new market value of all 1,000 homes. You really ought to go through your 1,000 cards and change the assessed values to $110,000. It would not be fair to change the assessments of only the homes that sold. These owners would own a larger share of total assessed value and would, therefore, owe a larger share of the Bedford Falls tax levy than the owners of the identical homes that had not been sold.
In a world of computers, you would adjust all 2,000 assessed values to the current market price ($110,000) with a few keystrokes. But in a card-file world, you save a lot of time by leaving all the assessed values at $100,000, even the ones that just sold for $110,000. After all, the tax levy is divided by each property’s share of total assessed value. It doesn’t matter if these identical houses are each assessed at $5 or $5 million. What matters is that they are assessed the same relative to one another. Eventually, however, the assessed values look nothing like the market values.
We do have computers today, of course, and there is no reason to leave old values in place for decades at a time. Most assessors in our region do a good job of adjusting assessed values on a regular basis as properties change hands in the market, thus keeping assessed values within shouting distance of market values.
The town of Webster’s assessed values were about 64 percent of full value in 2022 (“full value” being roughly equal to market value for our purposes). A home with a market value of $200,000 in Webster was likely to be assessed at about $128,000. This 64 percent is called the “equalization rate,” a figure that is calculated by New York State. Webster has the lowest equalization rate in Monroe County.
The state calculates the equalization rate to make it possible for school districts and counties to fairly allocate their levy across jurisdictions that assess property at different proportions of market value, e.g. Webster and Sweden. We’ll leave the arithmetic to another day.
Not all taxing jurisdictions maintain assessed values near market values, unfortunately. For reasons that are unclear to me, many New York City metro counties use assessed values that are just a small fraction of market values.
Two NYS counties–Nassau and Tompkins–assess all properties in the county.
Nassau may be the state’s most confusing property tax regime. Assessed values in 2022 were a baffling 0.16 percent of full value. Thus, a home worth $200,000 (possibly a spacious closet on Long Island) would be assessed at $320 (no, that is not a typo). This does not translate into low taxes－Nassau homeowners pay the third-highest property tax in the nation (and second-highest statewide), as reported by the Census Bureau. Some Nassau County municipalities prepare individual assessments but the county’s assessment is used to apportion tax levies across jurisdictions, as needed.
Jay Franklin, Tompkins County Director of Assessment, contacted me after the original posting to report on Tompkins’ experience. The county took over assessment in 1970, replacing 15 part-time assessors with 5 full time staff. A 2017 study found annual savings of $600,000. With only two exceptions, regular adjustments to the assessment rolls have kept values at 100% of full value since 1999.
Once again, fractional assessment doesn’t make the property tax unfair, provided that all your neighbors’ properties are assessed at the same fraction of market value as yours. It’s a “zero sum” proposition. Assessed values simply determine your share of the tax levy “pie.” Ridiculously low equalization rates make it hard for the average property owner to make sense out of his or her tax bill, however, fueling suspicion about the whole process and making it harder for property owners to hold assessors accountable.
In Nassau County, fear of the political repercussions from reassessment led to a decade-long freeze of the assessment roll. County Executive Laura Curran broke the logjam, pushing through a reassessment that adjusted the 2021-22 tax rolls. She then froze assessments twice during the pandemic. Her successor, Bruce Blakeman, has now followed suit, leaving the 2021-22 assessments in place for an additional two years. Inequities in the roll have now been allowed to fester for four years, forcing the county to grant assessment appeals freely, further eroding citizens’ already-low regard for the process.
Reassessment
Diligent work of assessors can maintain fair assessments among properties that are within close proximity and in the same assessment class. Over time, however, property values shift by neighborhood and by type of property and demand communitywide reassessment. Let’s consider some examples of changes in property values that would be addressed by communitywide reassessment.
As employment centers expand or contract, property values in adjacent neighborhoods can rise or fall. In 1991, our family purchased a home in a location that was an easy commute to Kodak Park, blissfully unaware of the decline in Kodak employment that was coming like a tsunami. Properties near Kodak likely lost value relative to those further from Kodak and assessments had to be adjusted to reflect the change.
Businesses also pay property taxes. The property needs of business can change as industries expand or contract, or technology changes how buildings are used. COVID-19 spurred a shift away from central city office towers. Owners experienced a loss in value as vacancies rose and rents fell. They have or will seek a reduction in their assessments, cutting revenue for many cities.
Demographic changes in the population can shift the demand for certain types of housing. The retirement of the Baby Boom has shifted demand for particular types of housing. Many Boomers are swapping the old family homestead for a condo or townhouse－or becoming tenants instead of owners.
Preferences for particular housing styles and settings shift over time as residential preferences evolve. Downtown residential housing has increased in value in recent decades as the appeal of urban living has encouraged migration into central cities.
Inevitably, as these shifts in market value occur, some owners will be paying more than their fair share of the tax levy and others will be paying less. A reassessment addresses inequities by readjusting property values among neighborhoods, housing types, and property classifications.
Reassessment is never popular. Owners who see their assessment fall might infer that they’ve been overassessed for years－and be resentful, even if their tax bill has gone down. Owners whose assessments rise are sure to be unhappy and are unlikely to be consoled by saying, “Wow! I’ve been getting a deal. Shame the deal has ended.”
Rochester’s reassessment process
The city of Rochester is just completing a reassessment of all city properties, prompting a call from Council members Willie Lightfoot, Mary Lupien, Stanley Martin and Kim Smith for a two-year delay, effectively a Nassau County-like freeze. Wisely, Mayor Malik Evans has held his ground. Nassau County’s example is not one to follow. The Council members’ desire for assessments that are “fair, honest and correct” is best met by regular reassessment, not by freezing current inequities.
The city has announced a series of “Get the Facts” meetings to help property owners understand the assessment process and the implications of changes in the assessed value of their property. Five sessions have been scheduled.
In summary, assessments simply determine the share of the levy paid by individual property owners. The purpose of a reassessment is to address inequity among property owners, not increase the levy. The levy is set by an entirely separate process. Assessment simply distributes the burden of the levy set by City Council. Rochester and its leadership should be commended for assuming the political risk of reassessment.
Kent Gardner is Rochester Beacon opinion editor. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].
Thanks, Alan. I think that the property tax is an important tool in our public finance toolkit. But it is particularly messy. There are many changes we could make that would make the tax more transparent. Despite many well-intentioned and designed proposals by state legislators, we seem to prefer the devil we know and the system hasn’t changed much over the years.
I’m OK with paying for my fair share of the tax levy. But as a senior citizen who never had any children in school, I think I should get a discount. Sadly, the societal benefit of all residents paying for a system that continuously fails to produce a quality product (educated children) should have taxpayers in an uproar. As one of the big five, we don’t get to vote on the school budget; we elect (sort of) School Commissioners who do not seem to embrace their fiduciary responsibility. Racial politics, supporting the teachers’ union, and political ambitions keep the school board members from focusing on managing costs and setting priorities. I wager that some minuscule fraction of city residents even know who the Commissioners are and what they prioritize in the very costly budget. For whatever reason, our schools haven’t received their fair share of State aid for some time, which should reduce taxation at the local level. There also seems to be a circular closed loop that distorts our per pupil cost. I don’t know how many city residents are renters. However, the landlords (most likely not city residents) charge exorbitant rent, which includes property taxes. Then, the county and other taxing entities pay the rent and utilities for some significant portion of people living in poverty, for which taxpayers are on the hook. Taxpayers need people like Kent to dig as deep and wide as feasible to provide as much detail as possible for what comes in and what goes out of the city, county, and state tax revenue from citizens. And ensure publishing that information might influence the taxing and spending dynamics.
I appreciate your sentiment, Frank. An educated populace is, I’d argue, a public good that all should value. If we were to tie school property taxes to the direct benefit to our families, we might as well stick with private schools. That’s an argument for reducing the dependence of public education on the property tax, however. Some states have moved to funding public schools through the state income tax instead, a change I could support. We’ve this long history of local control of education which is tied to dependence on the property tax–most days, I think that local control through locally-elected school boards is a mistake. As you point out, most voters have little knowledge of how school boards make decisions and the election of members calls out only a small share of potential voters. This is particularly true in a one party town like Rochester–the primary is the election and the number of individuals voting in the primary is very small. This opens the possibility that key stakeholders–i.e. school district employees/family/friends–have disproportionate influence on elections. A Rochester Board of Education member adopts policies that are strongly opposed by the three district unions would likely not survive reelection. Public school governance is a topic for another day!
I too appreciate Kent Gardner’s factual explanation on property taxes. However, that does not mean they should be based on the “market”. “The Market does not discriminate” is a fallacy because markets are manipulated by monopolistic behavior and passing regulation or deregulation that favors those lobbying and buying legislation. Whether working families or retirees on a fixed income, increases in my assessment/equity do not reflect any increase in income. The fact I may sell my modest home for more than I paid means little because to obtain equal living quarters to what I had will cost the increase received or more. Large real estate firms and equity firms now own about 15% of homes and apartment buildings and it’s growing. These are investments for profit and profits increase by raising prices and rents and cutting maintenance. According to my Town Supervisor assessments in Henrietta rose $100,000 in two years and we reassess every two years. Low end houses, because of demand, have risen the fastest putting the highest tax burden on those that can least afford it. Low end housing sells in hours with sale prices higher than the asking price. From Bankers to real estate brokers, keeping affordable housing out to discriminate against seniors, the disabled, and especially racist housing covenants, have a long history. Adding affordable housing expands the tax base to keep increases lower. In the past three years my school and property taxes each went up 25%. A check of the newspaper and one will find there are plenty of homes and town houses available for $300,000 and up. It is not a fair/progressive system and Albany has shown little interest in addressing it.
Thanks, Jim, for raising these issues. Let me make a few points. First, the property tax is our only tax on wealth. There’s a lot of interest in taxing wealth–Elizabeth Warren has been quite vocal about this, as have others. But currently there is no other tax that does this. You might think of the capital gains tax as a wealth tax, but this is still an income tax: “buy low,” pay tax on the income earned from “selling high”. Second, the property tax is the widely used vehicle by which local governments can tax business. Some municipalities have a payroll tax on business (Ohio cities come to mind) but that’s unusual in NYS. So the property tax is a key revenue source for municipalities seeking to support local government through business taxes. Third, you assert that landlords are pushing the burden of the property tax onto renters. That’s been a long-running debate among economists–my take on that literature is that it depends a lot on the rental housing market. In a tight rental market, you’re right. Where rental housing is more abundant, the landlord has to eat the tax. Affordable rental housing in Monroe County is concentrated in the city, so I believe that renters do bear the burden of the property tax in the city. Fourth, you’ve made an assertion that low end properties have increased in value faster than high end properties. That will be true in some jurisdictions and not in others. Finally, I’d not discount the tools available to reduce the burden of property taxes on owners of modest income. As an example, there are lots of people who are property rich but income poor. Farmers are often in this situation. But if a farmer is sitting on a $2 million piece of property, he/she shouldn’t be considered poverty stricken–we can defer the tax until the property is sold or the owner can take out a reverse mortgage to pay the tax. The owner shouldn’t be exempt from supporting local services because his/her income is low. Our tax system is a complicated mess, I’ll grant.
https://www.democratandchronicle.com/story/news/2024/02/15/property-reassessments-rochester-ny-homeowners-concerned-values-taxes/72607110007/
While I appreciate the clarity with which Kent Gardner describes the property tax structure, I do disagree with his premise: “taxes are a necessary evil.” Paying taxes in a civilized and democratic society is a privilege of citizenship. It is my contribution to the common good. As long as we call taxes a necessary evil, we will have a negative view of government. I happen to have a positive view of goverment – democratic government. I know economics is called the “dismal science,” but until economists help us in having a positive view of democratic government, we will continue to fight over a privilege to support the common good. Those individuals and corporations who seek to evade taxes are a sad commentary on their fundamental patriotism.
I accept your re-characterization–although I suspect that few of our fellow taxpayers would prefer to be more privileged than necessary!
Thank you so much can’t for this very thorough and clear explanation of what is generally a pretty confusing process. Hopefully, Mr. Lightfoot and his colleagues will read this and understand the actual impact and potential change (or not) of their tax bill. Hopefully they will also be dissuaded from “kicking the can down the road” as Nassau County, the poster child for incredibly poor management of the property tax, has done.
Belatedly, thanks too for your very thorough article on red light cameras. We absolutely need them and any inequities in costs and fines can be resolved a different way. I see way too many people running red and yellow lights.