Archive for the 'Taxes' Category
Regionalism in CT
This Sunday’s Courant contained an excellent editorial about regionalism as a possible strategy for addressing the financial challenges our numerous local governments face. It is a very helpful piece because it not only introduces & defines the idea, but also looks at pros & cons. Finally, the article cites other US metropolitan regions that are already making strides with this strategy and articulates first steps for Greater Hartford.
Town finances impact all of us (even renters) through property taxes. They are a hot button issue for the traditional pro-school and anti-tax groups that emerge every time a budget comes up for debate. There is always lots of rhetoric, and there is sometimes cooperation and compromise, but there are rarely constructive suggestions or discussions that address the underlying issues. Which is not surprising because the established rules of the game are that everything is local.
The Greater Hartford Real Estate Blog has written about the financial stresses that local governments face on a couple of occasions. One post focused on West Hartford’s ongoing budget situation, while the other was more general and looked at the difficult economics of running a town. We see financial trouble on the horizon at all levels of government. And like many others have not been sure how best to work within the rules.
Rather than continuing to beat each other up at a local level, another way to address the challenges is to team up at a state and/or regional level and try to work together. The Courant has stepped to the front by making an initial proposal that includes the following:
1. Launch a study at the state level to identify whether or not core services can be more efficiently delivered on a regional basis (with the focus on federal metropolitan areas rather than counties).
2. Begin dialogs about regionalism at the town level immediately, and launch a major education campaign if the state study shows meaningful savings are possible.
3. Create incentives at the state level to encourage towns to participate.
4. Consider enhancing the existing entities that already think on a regional level so they can play more of a leadership role.
Regionalism is a new arrow in our quiver as we all go through the local budget balancing process. It joins tax hikes, reduced services, begging for more state money, and increased efficiency as the primary tools for making sure that town revenue matches town expenses. And of the five, it seems most likely to make a meaningful long-term impact.
So give the editorial a quick read. Talk about it with your friends, neighbors and coworkers. And if it seems as promising to you as it does to us, tell your elected officials to reach out to their counterparts in other towns.
Similar House, Higher Taxes. What Gives?
I recently received an email from a reader interested in the West Hartford market. Because their question was related to property taxes, something people are fixated on most of the time, I thought I would share the conversation with the masses…
When looking online, every once in a while I am thrown off when i see two similar houses that have two totally different “estimated tax” amounts. A good example i found this morning is:
Property A (Est. Taxes: $7,641)
Property B (Est. Taxes: $4,112)
Both have similar square footage, same bedrooms, similar size lot, but two totally different estimated tax amounts.
Any idea why that is?
Here’s most of the reason why the estimated tax amounts are so different in this case:
The local Multiple Listing Service automatically calculates taxes for the agent when they enter the listing into the MLS database. The system does not appear to do the calculations correctly if the town is doing some type of phase-in, or if the mill rate recently changed. In this case, West Hartford is doing a phase-in and the mill rate recently changed.
What agents should do to properly calculate the taxes is manually calculate them on their own or call the town tax department and ask for the current year’s property taxes for the parcel excluding any special adjustments for veteran status, senior citizen discount, etc. Agents really need to be more diligent about tax amounts because it’s something that buyers look at closely. The local MLS also needs to fix the program for automatically calculating taxes, but those requests seem to fall on deaf ears.
These are the most common reasons why you will see estimated tax amounts vary widely on seemingly similar properties, user and system error.
So, the correct taxes for Property A (based on the new mill rate of 37.09) is $5,698 and the correct taxes for Property B is $4,448, a difference of $1,250 this year.
And why the actual $1,250 difference in this case? There are a few reasons to explain that as well.
The assessment which drives the taxes is based off of some of the things the reader mentioned like square footage, lot size, # beds, # baths, etc. It’s also driven by what the Assessor sees as external and internal condition and the improvements the owners have made. The one major difference that I see between Property A and Property B is that on the Assessor’s website, Property A is called out as having an updated kitchen. That means when the owners of Property A improved their kitchen, they pulled town permits. That then alerts the town to place more value on the assessment for that property. Often we’ll see homeowners make improvements without notifying the town because they may get “penalized†with higher taxes. This type of system deters people from pulling town permits when they have improvements done on their home and creates a whole separate host of issues.
Additionally, when the town did its revaluation in October 2006, residents had the opportunity to challenge their assessment. Some homeowners choose to challenge, while others do not. So the homeowner on Property B may have challenged and received a modified lower assessment, while the owner on Property A did not.
Finally, the location may make somewhat of a difference. Property A is in a neighborhood that would have slightly higher home prices, so the Assessor probably has some way to factor that into their analysis.
In order to be perfectly clear on the tax amount for a property, call the town hall’s tax collection office and ask for the property taxes with no exemptions. Just don’t call on a Friday because they’re closed. 
Property Taxes – Troubling Economics
Property taxes are a sensitive subject in Greater Hartford. Just about every year there is a budget referendum in at least one local town as angry residents fight yet another property tax increase. The debate in some towns is more heated than in others (but we won’t mention any names).
You may be happy to know that rising property taxes are a hot topic in other cities and states as well. An editorial in this weekend’s Wall Street Journal highlights a number of areas that are experiencing increasing taxes at the same time as they see falling home prices. In Arizona, where there is a state property tax, property values have fallen 17% on average in the past year. But taxes are on the rise. Ouch!
Unfortunately the root cause of property tax tension throughout the US is likely to get worse. The economics of running a town are deteriorating. Let’s consider the revenue and expenses separately.
Nearly all of town revenue comes from property taxes. Although real estate has historically been an appreciating asset, that is perhaps not the case today. Let’s assume that property values have stagnated. Therefore town revenue has also stagnated.
Expenses, on the other hand, are rising even more quickly than their historical rates. Education (much of a town’s budget) is rising at 2.5x general inflation, healthcare (another significant piece) is rising at 2.0x general inflation. We all know about energy prices, which impact many of the services the town provides (police, fire, trash pickup, snow plowing, heating city buildings, …).
Revenue is stagnant while expenses are accelerating. We all better sharpen our pitchforks and ready our torches because in the current global economic environment, this dynamic looks like it will only get worse. Other than protest, is there anything we could or should do?  Or should we just ride it out? This is shaping up to be a big problem throughout the country.
Potential Property Tax Increases in West Hartford
Tax revenue funds the services that cities and towns provide to their citizens. I think we all get that.
Earlier this week, the Courant reported on West Hartford’s town budget proposal. The initial budget proposal is up 7% from the 2007-2008 budget, to $216 million. Click here for the proposed budget. Click here for the Town Manager’s presentation of the proposed budget.
A portion of the article addressed the property tax increases that West Hartford property owners will see in 2008. Unlike 2007, the first year of a 5-year tax phase-in, property owners will not see uniform increases of 4%. According to the article, “About 63 percent of West Hartford homeowners would see a tax increase of 10 percent or less, and 37 percent would see a tax increase greater than 10 percent, under Francis’ proposed budget.”
This morning I finally had time to sit down and see which bucket I would fall in with the property that I own in West Hartford. I pulled out my handy little phase-in tax spreadsheet and plugged in my assessment values.
Well, lo and behold, I fall into the group of tax payers that may see a property tax increase of greater than 10%. My taxes would actually increase 35% from 2007 to 2008 if the budget remains the same and the proposed mill rate of 38.11 holds.
How are people on fixed incomes supposed to deal with these increases? Particularly given the fact that the proposed budget doesn’t even expand town programs, it just maintains the status quo.
I’ve found that there is a lot of confusion about how taxes are calculated. If you’d like help calculating yours, feel free to get in touch. I can send you my spreadsheet, or I can calculate them for you.
Also, the West Hartford Town Council has scheduled public hearings on the proposed budget for March 27 at 2 p.m. and April 3 at 6 p.m. at the West Hartford Town Hall legislative chamber. You might want to stop by if you’re interested in participating in the budget process.
Will West Hartford's Property Tax Phase-In End?
There have been rumblings around the West Hartford community recently that the 5-year phase-in for property taxes may be phased-out for the 2008-2009 budget year. Two weeks ago I called the town’s Assessor’s office about this, but they claimed they had no indication that the 5 year phase-in would end.
Well, today the Hartford Courant published an article about the possibility that West Hartford would end the phase-in, accelerating the tax increase, which would presumably shift more of the tax burden from residential property owners to commercial property owners. But will this shift really happen? Much of it will depend on the town’s budget and how much, if any, increase occurs for the 2008-2009 budget year.
The article mentions that the town still needs to crunch the numbers to determine if the phase-in will stay or go. This uncertainty raises some significant questions for the local real estate market, as buyers and sellers are kept in the dark on the tax situation for the next month or so. My major questions/concerns are…
1. What do I tell buyers thinking about the West Hartford market when they ask me about taxes on a specific house? Will they go up? Will they go down? By how much? Are we talking another 4% increase that we saw last year? Or more? Or less? This is important information when considering a person’s monthly housing allowance. Believe it or not, this uncertainty will stall buyers from making a decision and may actually cause them to start looking at other towns.
2. For investment property owners, will their taxes increase? Will they be able to pass the increase on to the renter? If not, will the owner be able to afford this increase? Will maintenance be deferred because there is an unexpected tax burden? Is this going to make the rental market in West Hartford even less affordable?
3. What happens to the commercial property owners that forecasted leases based on the 5-year tax phase-in? If the leases are net leases (where the tenant pays expenses), will the tenant be able to handle a significant increase if the phase-in is abandoned? If the lease is a gross lease (the commercial property owner pays the expenses), have the property owners rented the space at high enough rates to cover unexpected increases in the tax burden?
Uncertainty regarding expenses is frustrating for just about everyone. The proposed town budget will be presented to the West Hartford Town Council on Tuesday, March 11. The Town Council must adopt the budget at their meeting on Tuesday, April 22.
Interested in learning more about West Hartford taxes and the budget? You might want to go to the next West Hartford Taxpayers Association meeting on February 27, which will be held at 7:00PM in Room 400 at the West Hartford Town Hall.