Reducing Taxes. Holding Speculators Accountable.
We’ve been talking about Land Value Tax for several months now, and I’m excited to say that, for the first time in my lifetime, a mayoral race is centered around a detailed policy proposal that will make a real, positive difference in the lives of every member of our community.
I want to use this space to get into the math behind the Land Value Tax (LVT) and explain how it can create incentives for business development while still lowering taxes for homeowners. At times, Land Value Tax might sound too good to be true. But while it won’t solve all of our problems, it really does go a long way toward addressing several of them.
First, some vocabulary:
The “tax levy” is the total amount of money that will be collected as taxes in order to run the City in a given year.
The “tax rate” is the amount, usually expressed per $1,000 of property (or in the case of LVT, land) that each parcel of property needs to pay in order to collect the tax levy.
In our current system, you pay a tax on your property that is based on the value of your land plus the value of the building that sits on it. Unfortunately, the City of Niagara Falls utilizes a “two-tiered” tax system that pits businesses against homeowners every year at budget time, because homesteads are taxed at a different rate from non-homesteads. The homestead rate in 2019 is $18.19 per $1,000 of total property value, while the non-homestead rate is $36.98. (http://niagarafalls.oarsystem.com/AboutYourAssessment.aspx)
These rates are derived by taking the tax levy ($30,952,436 in 2019) and dividing it by the total amount of taxable property in the City ($1,283,750,014 in 2019, sum of the homestead and non-homestead tax bases). That figure is then multiplied by one thousand and divided between homesteads and non-homesteads, at the discretion of the Niagara Falls City Council. For decades, small businesses have lost the annual battle that our tax system forces them to fight. Under a land value tax, this issue is alleviated without anywhere near the pain that would be caused by an equalization of these two rates.
To determine the tax rate under a Land Value Tax, you simply take the tax levy and divide by the total value of all the taxable land (and not buildings) in the City. In Niagara Falls in 2019, that equation looks like this:
$30,952,436/$151,958,995 = .20369
Multiplying that product by $1,000 gives you the Land Value Tax rate per thousand: $203.69.
Now, to determine your property tax rate under a Land Value Tax, you would divide the value of the land your house sits on by 1,000 and multiply that figure by $203.69. In the vast majority of cases, this new tax rate will result in a lowering of taxes on single family homes. On average, the savings is about $160.00 per year, but some homeowners would save over a thousand dollars or more.
But what about my opponent’s plan?
In our June 5th debate before the Niagara USA Chamber, our local Chamber of Commerce, Robert Restaino argued for a reassessment of City tax values and an equalization of our Homestead and Non-Homestead rates.
The truth is, without a detailed and creative solution, this strategy is one of very few available to City leaders. However, this combination of policies would be devastating to homeowners. Let’s use some real numbers to demonstrate this.
Projecting the tax rate after a reassessment and the equalization of our tax rates is tricky, but not impossible if we make some reasonable assumptions.
First, why a reassessment?
The City of Niagara Falls has not conducted an assessment of its properties in over a decade. This means that the majority of properties are taxed as if they are worth what they were worth ten years ago. For the vast majority of properties, inflation alone would dictate that their values have gone up (this is why real estate is generally a good investment, and one reason why I’ve prioritized home ownership in my time as Community Development Director).
According to Trulia, the median home price in June 2009 was $59,325 (https://www.trulia.com/real_estate/Niagara_Falls-New_York/market-trends/). Today, the median home value is $89,000. This is an increase of $30,000 over ten years.
If the Council had equalized the homestead and non-homestead rates in 2019, they would have both paid $24.31 per $1,000 of property value (This is just the levy divided by the total taxable property in the city (including buildings), times 1,000). While we’ve seen that property values increased by $30,000 since 2009, let’s be extremely generous and say it only increased by $5,000 (which is far below inflation). If this is the case, then the total taxable property (including buildings) in the City would go up by $5,000 times the number of parcels in the City (21,656 in 2019).
21,656 Parcels * $5,000 = $108,280,000
$108,280,000+$1,273,379,134 = $1,381,659,134
Therefore, the total taxable property (including buildings) in Niagara Falls would be about $380,518,995.
Now my opponent has been very unclear on how he will fix our tax levy. He’s said, with no detail provided, that he would like to cut costs from our City’s budget. To be as generous as possible, let’s assume that in this hypothetical situation, he came up with a plan to cut the budget and decreased the tax levy by $500,000. Of course, this would mean some drastic cuts in services for taxpayers, but let’s be extra generous:
$30,956,436 - $500,000 = $30,456,436
Now let’s calculate the tax rate with Restaino’s imaginary figures:
$30,452,436 / $1,381,659,134= .02204
.02204 * 1,000 = $22.04
We can do better.
Even if we assume a huge, imaginary cost savings in Mr. Restaino’s hypothetical first year in office, the tax rate for homeowners went up!
Remember, this is the tax rate per thousand dollars of property value, including the value of buildings. And because Bob wants a reassessment, almost everyone is going to be taxed on a higher amount of property value. Our team pulled a sample of single family homes across the city and ran the numbers for each, taking the land value and total property value for each parcel and figuring out their 2019 taxes (you can do this for your own specific property if you go to the County’s OARS website). The results are exactly what we would expect from a poorly thought-out plan with no real substance behind it – the tax burden for every single household analyzed went up by anywhere from about $150 to $613 per year. Again, this is with all of the most charitable assumptions made for the Restaino Plan, no matter how unrealistic.
These are numbers related to real houses, but the house numbers have been removed from the link below. Again, you can check out the pages for any building in the city on the OARS website and run these numbers yourself. The calculations are:
Bob’s Plan: ((Total Value+5,000)/1,000)*22.04
Seth’s Plan: (Land Value/1,000)*203.69
Please click here to take a look.