Update - Sept 30, 2007

The article below is a very long. The point it was trying to make in 2005 was that spending not assessments is what makes taxes go up. To prove it we developed a computer program to simulate what would happen if you froze assessments and demonstated that taxes continued to climb at the same rate. Then the township did us one better. It actually froze taxes in 2006. And the proof was obvious. Despite a freeze on assessments, taxes continued to climb.

The bottom line is that to control taxes we need to control spending. To control spending we need to slow housing growth as much as possible because as shown as the population grows so do taxes. There are two ways to legally stop population growth. The first is to use open space funds to purchase as much property as possible so no one can build on it. The second is to stop granting builders zoning variances that allow them to build at unreasonable densities. Then and only then will we stop run away taxes.

Phil Kramer

This is a very long article and the reading can be dry. If you'd like the bottom line go to the bottom of this page and read the summary.

Original posting - Oct 23, 2005

During the Sept 13th 2005 Council meeting Councilwoman Danile made a 21 minute presentation entitled "In plain English Your real estate taxes" designed to explain why taxes are increasing in the Township. The essence of her presentation was that taxes are increasing because of yearly assessments, not increased spending. She started by taking a tax bill for a single property in both 2003 and 2005 and looked at what happened to the municipal portion of that tax bill stating that it showed that the property's municipal tax increased by 8%. Unfortunately by doing this Ms. Danile reinforced the source of many misconceptions about taxes specifically using taxes on a single property to attempt to understand the tax system. Fact - There is not enough information on any single tax bill to make conclusions about why taxes changed. Don't feel bad if you've done it, we all have because if we don't do research that is all the information that we see. The tax bill does however include your assessment and when you see your assessment and taxes go up it is only natural for you to conclude that the two are related. Ms. Danile's talk, intentionally or not, feeds on that impression.

In truth the increase in your assessment and the increase in your taxes are related, but only a little. Ms. Danile tries to show that the entire municipal increase is due to yearly assessments and that stopping those assessments would stop the increase. This document will attempt to show that the effect of yearly assessments is much smaller than she stated and will present the idea that while changing the system might reduce taxes slightly in the short run but in the long run it could be a very bad idea. More important than that however is that the basic premise of the presentation given by Ms. Danile is misleading and attempts to hide the fact that taxes go up because spending goes up.

By looking at a single tax bill she concludes (correction - Nov 20, 2005) that the municipal portion of that property's tax went up 8% from 2003 to 2005 when in fact using the information supplied to us by Township Manager Daly the municipal tax levy increased from $21.8M to $24.1M, a 10.6% increase. So why did the municipal tax of Ms. Danile's example increase by only 8%? Unfortunately there isn't enough information in her presentation to tell, but the most likely reason is because that property appreciated less than others over those two years and was responsible for a smaller portion of the tax. In short it appears that yearly assessments helped hold down the taxes on that property. To understand how that could happen we have to review how taxes are calculated.

The calculation of taxes starts by determining the budgets for all the taxing entities. Those entities are municipal, school, fire and county. It also includes a separate open space tax but that is small and calculated differently so it will be left out of this discussion. If we add all those together and subtract other revenue such as fees, fines, grants and state and federal funding we are left with the portion that the taxpayers must pay. We will call that amount the Total Tax Levy (TTL). The tax assessor then reports the total value of the assessments of all properties excluding properties that are exempt from taxes. We will call that the total property value (TPV). If you divide the TTL by the TPV and multiply by 100 you will get the tax rate (TR) (multiply by 100 is just to make the numbers easier to handle it goes away in the next step).

To figure out the tax on any one property take the TR and multiply it by the assessment of that property and divide by 100.

TUF reviewed the video of Ms. Danile's presentation. In it she gave an example of how taxes could decrease even if spending increased as long as spending increased commensurate with the growth of the community. One would have to review her talk to fully appreciate what we are about to say. Unfortunately TUF does not have the bandwidth to provide it on the web site, but ask a high school student and do some algebra on the equations above. Ms. Danile stated that if spending increased 10% and growth increased 10% then taxes would decrease. If your high school student is passing math she will tell you that is wrong. By listening to miss Danile's presentation several times we were able to reproduce her calculations. Unfortunately what she did had some math errors. She did in fact calculate a growth of 10% to the community and she applied a 10% growth in the budget but somehow she calculated an initial tax rate of $0.42 in the initial year and $0.40 in the following year. They should be the same and the difference is the basis of her argument. That 5% error would translate to a $60 increase rather than the decrease she predicted. We cannot determine how she calculated the $0.42 rate but if Ms. Danile contacts us and explains it to us we will make a correction. We believe that her conclusion is based on a math error. Addendum Nov 20, 2005

It would be unfair to Ms. Danile to end the story here; there is some truth to her proposal. The reason that the frequency of property assessment affects taxes is that properties appreciate at different rates. If Franklin were to assess less frequently then properties that appreciate more rapidly would have lower taxes. As an example, assume no increase in the tax levy. If in year 1 all properties are assessed at $100,000 and in year 2 a single property (property A) increased in value to $200,000 then taxes on the property A would double while all other taxes would go down very slightly. The slight decrease for the other properties is because the extra that property A is paying need not be paid by everyone else. So in this case, contrived to show a point, a yearly assessment is good for most and very bad for one. The basic rule is if a property is appreciating more quickly than average, thqan its appreciation is less noticeable tax-wise if it is assessed less frequently and vice versa. To repeat - if your property is appreciating more quickly than average then you would benefit from infrequent assessments. If your property is appreciating more slowly than average then you would benefit from yearly assessments. Since residential properties are currently appreciating more quickly than commercial, farm and vacant land properties - on average - homeowners suffer from yearly assessments. Ms. Danile made this point and she is correct. The problem is the term "on average" because all residential properties are not alike. Some appreciate faster than others and thus a change in the way Franklin performs tax assessments would affect everyone differently. To assess properly how yearly tax assessments vs. assessing every 3 years would affect taxpayers one would have to know the assessments of every property for every year considered and then going property-by-property and year-by-year recalculated the tax for every property. A calculation that lumps all properties together will not work. Sounds like a job for a computer program.

TUF then wrote a program that went year by year freezing property values, recalculating tax rates and then recalculating taxes on a 3 year assessment schedule. We recommend that you skip this chapter because it is included to be as open as possible but it is rather dry. It has all the assumptions we made in the program.

First we calculated taxes for every property by calculating a tax rate using the method in chapter 2. We did this for every year with yearly assessments and saved the total tax paid from 1999-2005 for each property. We then did the same calculation on a three year assessment schedule by freezing property values between the assessment years of 1999, 2002 and 2005. To do that we had to make a few assumptions and use a few protocols.

Assumption 1 - We had to account for major changes in properties that would trigger an off year assessment. Such triggering events might be a fire or an addition. To determine when this would happen from our data we chose to trigger a reassessment if the property value of that property changed by more (up or down) than 8% of the average change for all other properties of that class in that year. We then applied the amount of the change as if it had occurred in the last assessment year. This is the weakest assumption of our calculation, it is a guess and it will affect the numbers in our result but it does not significantly affect the final conclusion. The total property value affected by this calculation is small but until we did it we didn't know that.

Assumption 2 - A property changing class triggers an assessment. Example: vacant land becomes residential.

Assumption 3 - A property being created triggers an assessment. Example: one property is divided into two. The original Block and Lot number disappears and two new Lot numbers appear.

Assumption 4 - Exempt property is ignored.

Protocol 1 - For the graphs a property is excluded if it changed class or was not existent for the entire 7 years. The values of the properties were however used in calculations.

Protocol 2 - We have twice asked for the Total Tax Levy but have not received it. We are using the municipal tax levy instead but that better matches the work of Ms. Danile.

Protocol 3 - There is a property class called equipment. There are only 8 such properties (except in 2004 there are 12, go figure). They are rolled into the commercial properties for all calculations.

Table 1 is pure fact and may be useful to many people. It is just taking the assessment data organizing it into groups and then tallied. Feel free to use it in any way but please reference TUF if you do.

Figure 1 is the final result after going through all of the data. It is presented as 4 histograms on 2 graphs, one histogram for each of the 4 classes of property. It compares what happens to each property using either 3 year or 1 year assessments. Please note on the Y-axis (properties effected) up and down is irrelevant. We merely plotted the results for Commercial and Farm Land upside down to make it easier to compare. What these graphs are showing is the number of properties in each class that are effected and by what percent of their tax bill they are effected by going to a 3 year assessment.

For instance in the green graph of residential, there is a vertical spike at about +2%. This would indicate that the owners of about 110 residential properties would pay to about 2% more in municipal taxes if from 1999 until 2005 there had been a reassessment every 3 years instead of one every year. Another example is the tallest green spike. This would indicate that the owners of about 170 residential properties would pay 3% less in municipal taxes if from 1999 until 2005 there had been a reassessment every 3 years instead of one every year.

The three asterisks on each histogram indicates what the average change is for that group. The histograms show that most residential owners do better and most vacant land owners do worse. For farm and commercial the results are extreme. Virtually all do worse.

The bottom line however is that only 1.3% of the tax increase that residential homeowners have seen is due to the effect of yearly assessment. If your taxes are $7,000/year that's $91. We are not saying $91 isn't a lot but we are asking if $91 is worth what will happen. If other than yearly assessments are used then there would be added pressure on farmers and vacant land owners to sell. Their most likely buyers are developers who will build homes that will bring in more children which will drive up school costs (which represents 60% of our taxes). Shifting taxes to the commercial sector will also create a less favorable business environment putting pressure on them to move out.

Perhaps the most important numbers in table one are the number of commercial properties in Franklin. From 1999 to 2005 the number of commercial properties has only increased from 615 to 655. If Ms. Danile really wants to lower taxes she needs to work on things she can do because she has NO authority to change the assessment schedule. What she does have the power to do is to bring in more commercial properties to let then share in the taxes, not look for ways to raise their taxes to push them out. And if the Council is going to bring in more commercial properties TUF hopes that they do it without using eminent domain.

On sept 13th, 2005 Ms. Danile made a presentation that asserted that yearly tax assessment is what cause the rise in taxes. She asserted that even if spending goes up commensurate with an increase in the population taxes would go down were it not for year assessments. We have shown that she reached her conclusion due to a math error. Using her assumptions she should have shown that taxes would not change.

She did however correctly indicate that yearly assessments are an advantage for commercial properties that currently appreciate more slowly than residential properties. We showed that this effect is very small and accounts for about $90 a year on a typical $7000 a year tax bill. We did this by obtaining every assessment of every property in Franklin for ever year from 1999 until and including 2005 (over 130,000 values). Using that data we simulated the tax that property owners would pay on their municipal tax for both yearly tax assessments and for assessments at a 3-year schedule.

Finally we asserted that 3-year assessments would put added pressure on farmers and vacant landowners to sell. Their most likely buyers are developers who will build homes that will bring in more children which will drive up school costs (which represents 60% of our taxes). Shifting taxes to the commercial sector will also create a less favorable business environment putting pressure on them to move out again raising taxes for homeowners.

We found Ms. Danile's calculation erroneous and the direction they would lead Franklin would result in higher taxes for homeowners.

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