Not Good Math
City finance director admits his calculation property tax rate's impact was way off, maximum increase is $310 not $10Local NewsFriday, February 5, 2016
No one in this newsroom became a journalist to do math, so when the question came up for the Feb. 3 cover story, “Something’s Gotta Give” about just what a possible property tax increase could do to homeowner’s tax bills, we took the question to someone for whom math is more important.
As part of the reporting, SFR picked a round number for a home that was near what US Census figures say is the median value for homes, $278,000 in the city and $160,000 in the county. Then, we emailed City Finance Director Oscar Rodriguez the question, “For a home valued at $200,000, what's the difference in annual taxes at a rate of 2.817 mills [the current imposed rate] versus 7.65 mills [the maximum rate]?”
“Nobody’s seriously considering raising the tax rate to the maximum,” he replied, but he ran the calculations using the numbers provided. It broke down like this:
$200,000 - $2,000 Head of Household Exemption (higher if also a veteran) = $198,000
$198,000/ $1,000 = $198
198 x .$02817 = $5.57
198 x $.0765 = $15.14
$15.14- $5.57 = $9.57 annual increase in property taxes if the city raises the rate to the maximum allowed by law
So that’s what we ran—about $10.
Former city councilor Karen Heldmeyer, who we also quoted in the story, quickly wrote in questioning that math, and connected us with Neva Van Peski, a former economist with the Federal Reserve. For a little insight into her eagle eyes for taxes, Van Peski spotted an error in her own tax bill that led to unearthing a mistake in Santa Fe Community College's calculation of property tax mill rates that cost the college $1.6 million over four years. People make mistakes, she says.
Here’s Van Peski:
If you are going to start the calculation by dividing the value of the house by 1,000, as he did in his calculations, then you should use the values 2.817 and 7.65 in your calculations, not, as [Rodriguez] did, .02817 and .0765. (To check the accuracy of this statement, just look at any residential property tax bill.)
The taxable value is one-third of that, so the proper thing to do is multiply the difference between the two rates we are talking about times $200,000/3 = $66,667 minus the head of household exemption, $64,667.
Assuming the full value of the house is $200,000, the correct calculations then become:
64.667 x 2.817 = $182.17
64.667 x 7.65 = $494.70
Increase is $494.70 - $182.17 = $312.53
No, taxes wouldn’t increase by $10 on that house, but by more than $300.
That’s a big difference.
So we went back to Rodriguez, whose first response was: “It’s not good math. It’s not good math, I’m sorry.”
He advised using a property tax revenue estimate form from the New Mexico Department of Finance & Administration.
“Don’t take it from me, take it from this tax calculation engine that the DFA has,” he says.
The numbers there did, indeed, match Van Peski’s math.
For some even deeper diving, Van Peski also points out that the percentage increase in revenue from an increase in the tax rate has to acknowledge that the rate imposed and the rate that appears on a residential tax bill differ. The “City of Santa Fe Operations” rate on residential tax bills for 2015 is 1.327 mills, reduced over the years from 2.817 by yield control, a state-dictated amount by which the property tax rate the city collects is ratcheted down to counteract increased house prices. Effectively, the city’s portion of the tax on a $200,000 home is $88.46 (without that head of household exemption).
So were the city to increase to 7.65 mills, the percentage increase in revenue would actually by 364 percent—not the 272 percent suggested by comparing 7.65 and 2.817. That comes out, according to the DFA calculator, as a jump to $510 (again, no head of household exemption).
There’s a chasm of difference between the city’s existing rate and its highest allowable, but it comes into perspective when you consider that the county, which built its budget on property tax instead of gross receipts, collects taxes at a rate of 6.064 mills.
An increase of 3 mills, Van Peski added, would not quadruple the city portion of taxes, as Mayor Javier Gonzales suggested when we met in the fall. It would take an increase of almost 3.981 mills for residential properties, and still more for commercial properties, which would only see payments double at an increase of 3 mills.
Rodriguez clarifies that there are multiple property tax rates the city works with, and on top of the city-issued property tax, there are taxes for general obligation bonds (GO bonds), and police and fire property tax rates.
“Were we to raise all of the property tax rates, potentially, we could almost quadruple the income that would come in—potentially,” he says. But that’s not really on the table for city councilors or the city manager, he says, “I’m not recommending it, and I don’t think anybody’s even considering it.”
The problem with leaning on property taxes to fix the $15 million shortfall is that it, relatively speaking, doesn’t amount to much money.
“It only brings in $3.5 million and so therefore to double that would only bring in another $3.5 million,” he says. “You can imagine the headlines, ‘City increases property taxes by 100 percent,’ which brings another $3.5 million, and that’s something like 9 percent of our total budget, so that’s not much of a solution.”
The proposed budget to start closing the gap is likely to include a bevy of tools, the most critical of which would be a new gross receipts tax, which the city will have to settle on and submit to the state by the end of March to see it take effect July 1.