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Monday, November 16, 2009

Fair market value and school taxes

Question: (1) Who decides what the “fair market value” of district resident properties will be? (2) I understand that this may have been the reason many of us saw our school taxes rise 22% instead of the 12% that was voted for. (3) As a follow-up, why are residents not advised that their fair market value has been increased before they receive their tax bill? (4) Also, how do you account for an increase in fair market value when property values in Fulton County have dropped as well as home sales?

Answer: These are very good questions, which I’ll answer, in detail, one at a time. But first I want to point out that parts of the questions relate to things (land assessments, equalization rates, STAR exemptions) that the school district has no control over. That said, I’ll try to answer each question to the best of my ability.

(1) Broadalbin-Perth serves part of nine towns (Broadalbin, Perth, Mayfield, Providence, Northampton, Edinburg, Amsterdam, Johnstown, Galway – in order of in-district property value), each of which has an assessor who determines the assessed value of homes in a particular town. These assessments are sent to the New York State Office of Real Property Services (ORPS), which determines the town’s equalization rate. This equalization rate is then applied to the assessed value of a property in the town to determine that property’s fair market value. The school district has no input in determining fair market value of any parcel in the district.

(2) Changes in fair market value of properties are part of the reason why some district residents saw a greater increase in their school taxes than was originally projected in the spring. It is also why towns like Amsterdam and Perth saw tax increases significantly smaller than what was anticipated. But let’s take a step back before we go further. An important item I need to point out is that when voting to approve or reject a school budget, district residents DO NOT vote on a tax rate or a specific tax rate increase. At the annual school budget vote in May, district residents vote on a General Fund budget expenditure plan, which is the amount of money the school district is allowed to spend out of the General Fund in the upcoming school year. The Board of Education provides pre-vote estimations to the community as to how the budget may affect tax levy and tax rate changes, but these estimations are educated guesses as to what the final assessed values and equalization rates will be when the district receives official numbers from ORPS over the summer. Unspent money from the current year (known as “fund balance”), may be appropriated as a whole or in part to offset some of the anticipated tax levy increases as well.

Here’s how the tax rate is determined. Town assessors submit the assessed values of properties within their towns to ORPS in April (official values reach the school districts in July). The Board of Education determines the tax levy in July, and ORPS provides updated equalization rates to school districts in August. Then, school districts set the tax rates in August based on the assessed values, equalization rates, and the tax levy determined by the Board of Education. This year, the actual true value tax rate increase was 13.7 percent. This number is higher than the one originally projected prior to the budget vote in part because the Board of Education decided not to use the maximum amount of the district’s available fund balance to off-set the tax levy increase, in an effort to provide some additional fiscal stability to the district for the 2009-2010 school year.

Another reason some residents might have seen their school tax rates increase above the projected amount is because of the New York State School Tax Relief program, better known as STAR. Over the past few years, the Basic and Enhanced STAR Exemptions have decreased by about 10 percent per year. STAR works by exempting a set amount of the fair market value of a home (for instance, $30,000) from school taxes. All owner-occupied, primary residences are eligible for Basic STAR; owner-occupied, primary residences owned by senior citizens are eligible for Enhanced STAR. With STAR exemptions decreasing, the percentage of the fair market value of a property that is taxed increases, and taxpayers are left to make up the difference.

A third, and most unpredictable, factor that affects the difference in school tax rates seen by our residents is changes in equalization rates. Equalization rates for each town are set by ORPS every year. The total true value of properties in a town is determined by dividing the town’s total assessed value by its equalization rate. Each town’s percentage of responsibility for the district’s school tax levy is based on the total fair market value of properties in the town. The tax rate for each town is calculated by dividing the percentage of the levy that the town owes to the school district into the total assessed value of properties in that town. That’s why each town has a different tax rate – and a different percent change in the tax rate from one year to the next. In general, if a town’s equalization rate goes up, its tax rate will go down; if the equalization rate goes down, its tax rate will go up, relative to the true value rate of the school district as a whole.

(3) The school district knows about changes in fair market value about three weeks before residents receive their school tax bills. The school district can post the percent changes in assessed value and fair market value for each town on the district Web site, but we don’t have the capacity to post this information for each home in the district. We can also let residents know about changes in STAR. Right now, a safe assumption would be that the STAR exemption will go down another 10 percent next year. Both of these factors should help people estimate their tax bill based on the district’s true value tax rate.

(4) This is a question that would be better answered by the New York State Office of Real Property Services. According to ORPS, property values in our area have NOT dropped (except in the towns of Amsterdam and Perth, where equalization rates increased this year). It’s true that home sales in the area have dropped, and people who do sell their homes aren’t getting as much for them. However, ORPS tends to lower the equalization rate in a town where home sales stall. As I said before, this will, in turn, increase the town’s fair market value and, subsequently, the proportion of tax levy the town is responsible for, which will likely have an effect on tax rate.

Anyone who would like clarification on these points or a more detailed explanation is welcome to ask a follow up question here on Patriot Plain Talk, or call the district office at 954-2500 to make an appointment with me. I’d be happy to sit down and explain the property tax process, as well as review your school tax bills with you.

- answered by Marco Zumbolo, Assistant Superintendent for Business and Operations

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