Explain differences in property taxes

[WiseOne]

My uncle in Colorado mentioned yesterday that he pays about $2,000 a year in property taxes for his house in a Denver suburb.  If I remember right, Mr. Money Mustache reports a similar property tax rate.

This absolutely astounds me.  For a 500 square foot apartment in a 17 floor building I was paying about $4,000/year after rebates.  My mother pays about $8,000/year for her suburban home, and that's cheap because the town has a very large commercial area.  Most people in the NYC suburbs pay on the order of $15-20K per year in property taxes.  That's on top of income taxes that are a bit higher than Colorado's (or a lot higher when you add in NYC tax).

So what's the difference??  There doesn't seem to be anything that special about NY/NJ/CT's schools, roads, garbage collection, police, fire, ambulance, court system, and street lights, compared to Colorado's.  Mass transit is certainly far, far better here, and I assume the NYPD and FDNY require extra care and feeding.  I figure that justifies at least part of NYC's high taxes, but it certainly doesn't explain those in the other two states.

There might be small differences like slightly lower civil service job salaries and health insurance costs in Colorado, but these differences in property taxes are way, WAY out of proportion to small potatoes effects like that.  There must be big ticket items.  The only one that comes to mind is pensions for those civil service jobs.  Could that be enough to explain a 10-fold difference in property taxes though?

I wish I had more time to look into this, but out of sheer laziness I am tossing this question out to the forum to see what you all think.  I'd really like to know.

[Tyler]

Well one big ticket item is the simple real estate prices.  NYC real estate is insane, and a small percentage of a huge amount of money is still a very large amount of money.

That said, Colorado property taxes are still very low compared to most places, and I believe they're even cheaper outside of Denver.  I believe the rate in Colorado Springs works out to only 0.6% of the appraised value.  Combine that with very reasonable home values, and you can live in a nice place paying only $100/month in property tax.  If you ever need to immediately trim expenses, the cool mountain air is a great place to save money. 

I'm not an expert on Colorado or NY so I can't claim to know the full answer as to how they do it.  All I can say is that once you get away from the coasts and the Midwest, there's a whole 'nother country out there!

[Xan]

Well one big ticket item is the simple real estate prices.  NYC real estate is insane, and a small percentage of a huge amount of money is still a very large amount of money.

Perhaps, but assuming the services were the same, then the NYC tax rate should be super low until the actual amount paid in taxes is the same as in Colorado.

[Reub]

It's simply liberal /progressive bloat.

[Pointedstick]

Reub is right, for the most part. Excluding locations like Texas that have moderately high property taxes because they lack another major kind of tax (state income tax in that case), it's simply typical liberal overspending, waste, and bloat, and usually you don't even see the result of the services that you might expect such high rates of taxation to fund.

[moda0306]

Reub is right, for the most part. Excluding locations like Texas that have moderately high property taxes because they lack another major kind of tax (state income tax in that case), it's simply typical liberal overspending, waste, and bloat, and usually you don't even see the result of the services that you might expect such high rates of taxation to fund.

I'd really like to see all these economic assertions laid out more specifically. It seems to me that it's natural that your property taxes have to be higher in very densely populated areas that require more infrastructural coordination than rural Mississipp.

WiseOne,

What are the respective home values?  From what I've seen, there's just a naturally higher cost of living in these areas, and therefore you have to spend more to get stuff done, including government services. This usually puts property taxes at somewhere between 1% and 1.5% of the value of someone's home. Since housing is one of the largest expenses on someone's budget, it should come to no surprise that an area with property values that high sports some pretty high cost of anything else that involves paying someone nearby a salary.

I'm willing to bet if you wanted to hire a plumber, there would be a shocking price tag to someone from a place with low cost of living. I live in Minnesota, a fairly liberal state to say the least.  We pay far less in property taxes than you do out east. I really doubt it has much to do with you having a uniquely bloated government, but more-so simply very high cost of living in genera that reflect all prices, not just the private sector.  And let's not forget that this is a cost driven not only by government, but by people actually WANTING to live out there at such an exorbitant cost.

We should compare state and local budgets of MN vs NY to test my theory.

[barrett]

Just rough figures here but on our place in CT, we pay roughly 3% of the value of our home (land included) for real estate taxes. On our little pied–à–terre in NYC it's about .6%. So five times higher here in CT on a dollar for dollar basis. In terms of progressive vs. conservative here in CT, we are somewhere in the middle.

[moda0306]

Woah 3%?  That's high.

Overall it's hard to tell until you look at respective government budgets and funding sources. To the degree that budgets are made up by things like wages that are bound to be higher in higher-income/expense areas, it should come as no surprise that government costs so much in some areas. I bet if you went to some third world country even with a corrupt government, you would see very low relative government costs if we don't factor in any sort of adjustment for income and CoL levels.

[Libertarian666]

Corruption and waste.

we can add the effect of big powerful public unions to the list of reasons.... or maybe that would be counting corruption twice

[WiseOne]

Well one big ticket item is the simple real estate prices.  NYC real estate is insane, and a small percentage of a huge amount of money is still a very large amount of money.

Real estate prices should be irrelevant.  The bottom line is what each parcel of land is generating in income for the municipality, which they then are spending on...what?

I presumed that waste/corruption/bloat must be occurring, but where is it exactly?  And how much corruption could you possibly have in a small suburban town, compared to another small suburban town?  See these two towns, for example:

Oradell NJ (NYC suburb):  Population 7,978 in 2010, land area 2.6 square miles, demographics 85% white with 5% Latinos, 0.68% black/AA, 11% Asian.  Median age 44.1 years.  Median household income $123,750.  Property taxes for a modest 3 bedroom house is ~$15K.

Wheat Ridge CO (Denver suburb):  population 30,166, land area 9.55 square miles, demographics almost identical to Oradell except Hispanics are 21% of the population.  Median age 43.7 years.  Median household income $47,014 with 10% of the population below the poverty line.  Property tax for a house of about the same size as above is ~$2K.

If anything, the poverty level in Wheat Ridge should *increase* borough costs (due to crime, people needing extra services etc), although I expect the biggest costs (Medicaid, food stamps etc) are not covered by the town. 

What I can't figure out is what on earth Oradell is spending its money on.  I keep coming back to teacher/police/fireman etc pensions, benefits, and pay as being the biggest factors, but it would be nice to see an actual breakdown.

[Tyler]

Doing a little research, Colorado passed an amendment to the state constitution back in the early 80s called the Gallagher Amendment that requires 55% of state property tax to come from commercial property. Since then residential values have far outpaced commercial values, causing residential rates to drop. It sounds like they're making it up on the commercial side.

Where the money goes is anyone's guess. I know from my time in California that the biggest drain on the state coffers is often public sector pension liabilities. I imagine that's a problem in New York as well.

Regardless of the reason, the median property tax nation-wide is only $1800. Way closer to Colorado than to NYC. The northeast may simply be a bad deal when it comes to taxes.

[Tyler]

On where the money goes:  http://blog.timesunion.com/propertytaxe ... tmare/224/

Public schools account for almost two-thirds of local property tax burden outside New York City, and their annual costs per student now range from about $15,000 to $25,000 per year, far above the national norm

For reference, the national average is just over $10k. 

Property taxes also support county government, but that comprises just one-fifth, roughly, of the typical property tax bill. Even so, that is now 79 percent above the average nationally, with 90 percent of the dollars raised mandated by state law — mostly to support the Medicaid coverage that costs more than in any other state.

[Fred]

I have no data to back this up but I'm going to guess that state's which have no income tax probably have higher property taxes. They have to get the money from somewhere. I live in one of those states and my taxes were $4800/year on a a $285k home until the 2008 debacle came along and did a nice job of lowering my tax bill to around $2800 last year (and they are limited by law to only raising it back up 3%/year).

[Libertarian666]

I have no data to back this up but I'm going to guess that state's which have no income tax probably have higher property taxes. They have to get the money from somewhere. I live in one of those states and my taxes were $4800/year on a a $285k home until the 2008 debacle came along and did a nice job of lowering my tax bill to around $2800 last year (and they are limited by law to only raising it back up 3%/year).

I believe there is SOME negative correlation between property taxes and income taxes, but it is far from -1.0. Texas, for example, which has no state income tax, has property taxes in many localities amounting to about 3% of market value, which would be considered pretty high in most places. However, in my rural area we pay only about 1% for some reason, which is much better in my opinion.

[Stewardship]

Also Nevada has no income tax and below-average property tax.

[barrett]

Also Nevada has no income tax and below-average property tax.

Nevada is also at the bottom in public education. See a link here:

http://www.reviewjournal.com/news/educa ... ast-nation

Just one data point here, but in my daughter's school district about $11,000 is spent per student, per year. And the results are.... outstandingly mediocre.

[Pointedstick]

Another data point: Chicago.


From http://www.cityofchicago.org/content/da ... lease).pdf

Currently, approximately 19.5 percent of a property taxpayer’s total bill is allocated to the City, and approximately 53.8 percent is allocated to the Chicago Public Schools.
[...]
The typical 2014 composite property tax rate for a taxpayer in Chicago was 6.808 percent.

For a property tax rate of 6%, with 58% going to Chicago Public schools, those schools had better be amazing. Are they?

Graduation rate: 64% (national average: 81%; Illinois average, 82%)
Average teacher salary: $74,839 (national average: around $43,000)
Per student spending: $13,078 (national average: $10,700)
Percentage of non-white students: 85% (national average: 49.5%)
Percentage of low-income students: 87% (national average: 21%)

Data from:
http://www.americashealthrankings.org/ALL/Graduation/
http://www.payscale.com/research/US/All ... ers/Salary
http://www.governing.com/gov-data/educa ... -data.html
http://www.data-first.org/data/what-is- ... r-schools/
http://www.data-first.org/data/what-is- ... r-schools/


It would be very difficult to do an exhaustive study, but I think a general preliminary conclusion is that high property tax revenues are driven by, in no particular order:

• Chronic financial mismanagement
• High-spending liberal governance
• Impoverished population receiving higher than average government spending
• Low or non-existent income or sales taxes

[WiseOne]

it doesn't represent the full picture but i just watched a documentary called "the cartel" that was about schools failing in America and it featured NJ schools heavily, and they spend more per classroom than just about anywhere else (and got worse results) the reason is bureaucratic bloat. two towns the same size and population one in NJ and one elsewhere the one in NJ will have 60+ school districts the other town may have 2 or three, and each district spends on equipment and infrastructure* and has a full complement of workers from supervisors and VPs and secretaries all the way down to janitors (including a full complement of NJ no show union crony jobs) and that is just the surface of how the education system is run... expand that level of gaming the system across all areas of public sector and then try out the math..

*not to mention Billions of dollars being "lost" and vanishing into the no bid building and construction of schools and offices..

This sounds like a must-watch.  Here's a wikipedia link:  https://en.wikipedia.org/wiki/The_Cartel

Crazy how we are all allowing unions and systematic corruption to drain family bank accounts to this extent.  Maybe the next anti-union infomercial should quote some of these differences in property taxes between states.  It's not just homeowners...it's even worse for renters, since they pay this expense for the landlord but don't get to deduct it from federal taxes.  Even better, total up the $$ each year and assume it gets put into a reasonable investment program instead.  Then report how much extra money the average family would have by retirement.  Oh, and they'd also get to stay in their house after retirement instead of being forced to move because of high taxes.

[Reub]

I was in a federal union. They collected gobs of money for their favorite Democrats who then gave them healthy pay raises when they got elected. Quid pro quo was never so obvious. Weren't many of them excused from participating in Obamacare too?

[rickb]

I was in a federal union. They collected gobs of money for their favorite Democrats who then gave them healthy pay raises when they got elected. Quid pro quo was never so obvious. Weren't many of them excused from participating in Obamacare too?

Seriously?  YOU are going to bitch about federal unions?

Correct me if I'm wrong, but weren't you a federal employee and aren't you now drawing a federal pension?

If you don't mind my asking, what percentage of your final pay is your pension?  And does it increase with inflation?

I worked for Bell Labs / AT&T (and various offshoots) for over 30 years.  My pension is fixed (no inflation adjustments) at about 15% of my final salary (long story, but this is the upshot).  I "retired" about 4 years ago and took another job.  And I'm still working.

Now you tell me about your life. 

I'm guessing your pension is more like 70% (or more) of your final salary - and I suspect there's a pretty good chance it has some inflation adjustment as well.

Your union made that happen.

[LC475]

Your union made that happen.

No, I did.

The union had no money of its own.

So, they just took mine.

(Not that I actually disagree, rickb.  Of course the union is the thing that negotiated these inflated benefits.  Just making a point.)

[LC475]

So what's the difference?  There doesn't seem to be anything that special about NY/NJ/CT's schools, roads, garbage collection, police, fire, ambulance, court system, and street lights, compared to Colorado's.  Mass transit is certainly far, far better here, and I assume the NYPD and FDNY require extra care and feeding.  I figure that justifies at least part of NYC's high taxes, but it certainly doesn't explain those in the other two states.

I wish I had more time to look into this, but out of sheer laziness I am tossing this question out to the forum to see what you all think.  I'd really like to know.

There are very large differences between states in their property tax rates.  Very large.  This is because there's just very large differences in how the state's governments have structured themselves and their budgets and what methods they use to fund themselves.  It is not always that the actual per-capita cost of the government is lower, sometimes it's just that the government is being funded in different ways -- mineral royalties, high sales tax, an income tax, etc.  The intermountain west is generally much lower property taxes than the rest of the US.  Now, that said: high property taxes do seem to tend to go together (just not always) with "big government is awesome" kind of places, in my experience.

So essentially, WiseOne, it's just a difference between the state governments, and the local governments as well.  Trying to make the cost justified, trying to make it make sense, is probably a pointless exercise.  The property tax rate will be, again in my experience, unrelated to the level of service from government or the quality of life.

So accept it as an uncontrollable cost of living in New York.  And if you're feeling down and taken advantage of, stay positive: just remember and be glad that you don't live in Hawaii.

[Mountaineer]

So what's the difference?  There doesn't seem to be anything that special about NY/NJ/CT's schools, roads, garbage collection, police, fire, ambulance, court system, and street lights, compared to Colorado's.  Mass transit is certainly far, far better here, and I assume the NYPD and FDNY require extra care and feeding.  I figure that justifies at least part of NYC's high taxes, but it certainly doesn't explain those in the other two states.

I wish I had more time to look into this, but out of sheer laziness I am tossing this question out to the forum to see what you all think.  I'd really like to know.

There are very large differences between states in their property tax rates.  Very large.  This is because there's just very large differences in how the state's governments have structured themselves and their budgets and what methods they use to fund themselves.  It is not always that the actual per-capita cost of the government is lower, sometimes it's just that the government is being funded in different ways -- mineral royalties, high sales tax, an income tax, etc.  The intermountain west is generally much lower property taxes than the rest of the US.  Now, that said: high property taxes do seem to tend to go together (just not always) with "big government is awesome" kind of places, in my experience.

So essentially, WiseOne, it's just a difference between the state governments, and the local governments as well.  Trying to make the cost justified, trying to make it make sense, is probably a pointless exercise.  The property tax rate will be, again in my experience, unrelated to the level of service from government or the quality of life.

So accept it as an uncontrollable cost of living in New York.  And if you're feeling down and taken advantage of, stay positive: just remember and be glad that you don't live in Hawaii.

Excellent point.  The government is going to get its pound of flesh one way or another.  One should compare the total tax burden, or even better, ones net income and cost of living vs. the benefits one wants (convenience, climate, attitude of the populace, opportunites for education, arts, sports, friends, medicine, family, travel, etc.) when comparing various places to live in my humble opinion.  Looking primarily at one element of the overall tax burden is sub-optimizing.

... M

[WiseOne]

True.  However, I did compare the income tax rates and NJ/NY are both higher than CO.  I didn't consider corporate taxes nor yet all the various loopholes/deductions, though.

Not to mention that we are not talking $2,000 vs $4,000....it's a FACTOR OF 10 i.e. $2,000 vs $15-20K.  I can get how minor things like higher labor costs and such could increase property taxes, but the sheer scale of the difference is what shocked me.

What I was getting at is that it looks like there are two simple factors that are probably responsible for most of this rather shocking tax spread:  1) teachers & public employee unions and 2) out of control legal & illegal immigration which boosts the Medicaid rolls, plus more permissive standards for Medicaid coverage.  I was able to figure out that in NJ, towns pay a tax to the county, and the county pays for a large portion of Medicaid costs.

[Reub]

This is why the issue of immigration is so important. This country needs more immigrants. But ones who contribute to our society and to our financial coffers, not take from it. To allow/encourage hundreds of thousands of illegals to walk across our borders with no skills and then place them on our welfare roles is just suicide and will raise our tax burden even higher while killing our economy at the same time.