Archive for the 'Taxes' Category
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.
How Do I Calculate My West Hartford Property Taxes?
Now that the West Hartford budget has been amended and the mill rate has been set at 38.63, many are wondering how they will calculate their property taxes. One thing to keep in mind is that they will be based on a 5 year phase in if your assessment from 2005 to 2006 increased by more than 25%. Let’s do a quick example and hopefully this will help…
Let’s say your 2005 property assessment was $100,000 and your 2006 property assessment was $200,000, so a 100% increase. Your taxes for this year will be based on 1.25 times your 2005 assessment. So,
$100,000 x 1.25 = $125,000
then multiply this by the mill rate to get your taxes
$125,000 x .03863 = $4,828.75 = your tax bill for this year
But what happens in the next 4 years? Well, the difference between your 2006 assessment and the 1.25 amount you’re using this year will be dispersed over the next 4 years. So,
$200,000 – $125,000 = $75,000 / 4 = $18,750
In this example, your taxes for 2007 will be based on the assessment amount of
$125,000 + $18,750 = $143,750
Your taxes for 2008 will be based on the assessment amount of
$143,750 + $18,750 = $162,500
Your taxes for 2009 will be based on the assessment amount of
$162,500 + $18,750 = $181,250 and finally
Your taxes for 2010 will be based on the assessment amount of
$181,250 + $18,750 = $200,000
Presumably the mill rate will go DOWN over the next 4 years, so that as your assessment value rises, your taxes don’t go through the roof. Because no one wants to see a mass exodus out of West Hartford.
If you have questions on any of this, please call or email me, I’d be happy to help explain it more thoroughly, (860) 655-2125 or bergquista@raveisre.com.
West Hartford Budget Referendum Vote TODAY
Please remember that today is the Budget Referendum vote in West Hartford. Make it to the polls if you can…