The Case for Development
A curious study is making the rounds of our communities, promoting the idea that large-scale residential development is actually a benefit to property taxpayers.
Authored by the Dutchess County Economic Development Corporation (EDC), and funded largely by county taxpayers, the study looks at six recent subdivisions in the Hudson Valley to reach this conclusion, which flies in the face of a large body of research showing that newly built houses require far more in costly public services than they provide in local tax revenues.
A growing number of politicians and citizens have criticized both the methods and the message of the study, which the EDC has presented to dozens of local officials as part of its stated mission “to facilitate and expedite the necessary (local government) approval procedures so that new (construction) projects can be developed.”
A close analysis of the EDC’s calculations, coupled with a bit of common sense, indeed shows that the study’s case for development, at least fiscally speaking, is full of holes.
“I’m skeptical about the findings as they pertain to the true cost to taxpayers of residential development,” said Dutchess Country Legislator and Tivoli Mayor Marc Molinaro. “But keeping the conversation about development front and center is important, even if the EDC findings are wrong.”
There are several ways to assess the validity of the study’s conclusion that, as described by EDC President Anne Conroy, “new housing, at or close to the median sales price, is probably a (net tax) benefit to the school district, town and county.”
For starters, a cursory look at the study’s basic numbers shows its revenue calculations are far overstated. In an early draft of the study, one that has been circulated to town officials, the EDC based its tax revenue estimate for a 147-unit subdivision in the Town of Poughkeepsie on the average purchase price of the homes ($192,000) multiplied by the tax rate. In response to a challenge from one astute town official, Robert McKeon of Red Hook, the EDC has revised its computation and is now using the more appropriate assessed values of the homes ($162,000) rather than the sales prices. But their assessment figure, as Mr. McKeon pointed out, still ignores state and local exemptions offered to most homeowners, which would reduce the $162,000 tax base by a further $35,000 at least.
“The numbers were so far off because of computation errors that all the conclusions were dead wrong as well,” said Mr. McKeon, chairman of Red Hook’s Agriculture and Open Space Committee.
On the cost side of the equation, the study’s calculations are equally misleading. The local tax levy raised to finance the Wappingers School District serving the 147-unit subdivision was $66 million in 2000 when the homes were built, or about $5,600 for each pupil in the district. The EDC study identifies the cost of the tax levy at only $45 million or $3,800 per pupil, arguing that the other $21 million of the school’s tax levy is picked up by commercial and industrial property tax payers rather than by homeowners.
By defining the cost of education as the school tax revenues generated only by residential properties, the study helps to invalidate its own conclusion. For the district as a whole, local costs of $66 million far outweigh the tax revenues received from homeowners. Likewise, the school taxes paid by the study’s 147 new homes fall short of covering the costs of educating the 109 new students they delivered to the district– by more than $210,000 per year, even when those revenues are based on assessed property values before any exemptions. About two-thirds of the annual deficit, which climbs to more than $300,000 per year if STAR and other typical exemptions are included, will be charged to the existing residential taxpayers in the school district with commercial and industrial properties picking up the rest.
Aside from its computational shortcomings, the study fails a couple of very basic tests of common sense. For one, the annual property taxes paid by each of the 147 homes come to more than $7,000, according to the EDC’s revised model. If the property tax bill were in fact so high, the average family in the subdivision– earning, the study says, an annual pre-tax income of $55,000– would not be able to afford the taxes on top of mortgage, insurance and maintenance payments.
A second common sense test: If new home building did create significant tax surpluses, then our property taxes would be declining, or at least rising more slowly in areas with rapid residential develpoment. Our taxes are certainly not falling, and several studies, including one conducted in 2000 for the mid-Dutchess town of Unionvale, offer ample evidence that towns in the Hudson Valley with the fastest population growth also suffer from the fastest increases in local property taxes.
There are thornier issues to be debated, such as how much of a new family’s retail spending finds its way into the county coffers through the sales tax and how to measure rising inflationary pressures on school and county budgets. But if the EDC truly wants, as its director, Ms. Conroy, says, “to encourage dialogue and discussions” on development then the study’s authors should first refine the basic financial principles and computations of their analysis.
Comments
One Response to “The Case for Development”
Please leave a comment...
I’m not from your area but find this column very interesting. Concerns about numbers used in the study seem valid. An interesting question is whether the calculus would change if a residential development, instead of single-family homes, included condos or apartments.
REPLY:
The important variable is how many bedrooms the housing unit has, not so much whether it is detached or multi-family, owned or rented. The more bedrooms, the more children likely to attend the local public schools, according to nationwide data.