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School superintendent: City may have to lay off teachers, close schools, reduce school choice
By adamg on Wed, 02/04/2009 - 10:52pm
The Globe reports that School Superintendent Carol Johnson said tonight she is looking at dealing with shrinking revenue by cutting 400 teaching positions - and 500 other jobs - possibly close more schools and increase the number of school-assignment zones from three to five, which would cut busing costs but reduce the range of schools parents of elementary students could pick from.
Among those at the School Committee budget hearing tonight was mayoral candidate Kevin McCrea, who explains why he thinks the whole thing is a sham and describes the scene:
... It was a madhouse at Court Street tonight, with hundreds of teachers and parents and students there to protest the school cuts. I won't go into detail about how ridiculous the numbers are in the report, which I assume the City will put online(???) for all to see. It is pretty detailed, but the only number that is really important is the proposed budget of $786 million. Dr. Reilinger started to immediately see some of the inconsistency, as the report on one hand says that the city will eliminate 699 full time equivalent employees, but on the other hand has a higher number for health care costs for those (now nonexistent) employees.
The bottom line is that Mayor Menino is trying to drum up support for his meals tax by scaring the heck out of students and teachers and parents. Doing his best Bush/Cheney/Rove tactics to get more money to build his power base. What he is going to do is try and look like a hero, by coming in and 'responding' to the crisis by miraculously finding the money to restore to the budget. ...
Parents will get to question officials at a hearing Thursday, Feb. 5, starting at 6 p.m. at the Blackstone Elementary School, 380 Shawmut Ave. in the South End, and Tuesday, Feb. 10, at 6 p.m. at the McCormack Middle School, 315 Mt. Vernon St. in Dorchester.
There will be additional hearings in March in JP and downtown. The School Committee is scheduled to vote on its budget for the fiscal year that begins July 1 on March 25.
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Comments
Budget Cuts - gimme a break!
Let's see - City's CFO says revenues will actually go up next year - then why are we cutting the budget - can see it being flat - but not cut - especially when we're talking education and public safety.
And by the way - anybody else look at page 19 of the city's annual audit - probably not - but if you did you'd notice the city is sitting on about $1 billion in cash.
So let's see - bring the budget back up to the same as last year because we still have the money, spend a few bucks as needed of our savings since we have hit the proverbial rainy day - school budget problem solved - next.
And no Tommy, the legislature knows you have $1 billion in your piggy bank - so to paraphrase Seinfeld - NO SOUP TAX FOR YOU (Unless of course you use it as a permanent offset to property taxes so we can all afford to still live here 10 years from now).
Sorry - this annual charade of we're poor - the sky is falling we need a meals tax (and any other tax that involves tipping us upside down and shaking out the loose change) has got to end. And stop using the schools and kids for your stupid political games-the voters are onto that riding in on a white horse to save the day thing!
I think you live in your own world
Steve, you rant a lot, you know?
But, while I have your attention, can I bring up a somewhat unrelated topic?
Residential exemptions.
Using what calculation do you conclude that the average resident of Boston isn't getting $1,325 (or so) off his/her property tax, but instead, only around $500 - $600?
Thanks.
Answer
John
And if I didn't rant - nobody would pay attention or follow up with good questions like yours (how many other threads do you recall and comment on from a month or two ago?):
First on the bottom there's a minimum calculation - I believe it's the greater of 10% of what a homeowner would otherwise pay or $500 - not very relevant these days - used to be but they haven't changed the $500 limit (I think ever). There are probably a few hundred mainly small condos in the city that this applies to.
Second and much more importantly - the residential exemption phases out for a home at about $800k - essentially if your home is worth more than $800k you would pay lower property taxes without the exemption because when you net out the calculations the residential tax rate would be about $9.00 instead of $10.63(?) if we had no exemption - thus the AVERAGE homeowner's benefit is only about half the residential exemption or $665. Plus - for most taxpayers - if they simply paid the $665 they would get a tax deduction of say 25% - thus the net average benefit is about $500-ran this by the head of assessing and he confirmed that this analysis is essentially correct give or take a few dollars.
Don't want to rehash the economics, but as noted in the thread I'm guessing you got your question from, in the end it serves only to drive up the cost of housing in Boston for renters and buyers, particularly for those on the low end of the totem pole, the exact opposite of the objective of the law.
As for my world - ask me again if you really want to know and I'll provide 3-4 examples. Promise not to rant - but if you and others knew half of what I know you'd probably start ranting too and you should!
Dream on, John
All you'll get from Steve M. is funny math, bragging, and ad hominem insults.
But more power to ya!
Gareth is back
Hi Gareth - I'll ignore the comments.
Here's the math straight out.
Case 1-Current system (taxes $10.63 per thousand, $1325 exemption)
$200k house gross taxes = $2126, net of 1325 exemption $801 tax owed
$800k house gross taxes = 8504, net of 1325 exemption $7179 tax owed
Case 2-No exemption (tax rate falls to about $9 per thousand as denominator, the total taxable assessed base, rises due to adding back in exempted valuation)
$200k house taxes owed = $1800
$800k house taxes owed = $7200
That's the pure math part and is indisputable. The other indisputable fact is that these taxes are shifted to landlords, who, in order to survive, ultimately must pass this on to tenants driving up the cost of housing in the city for 70% of Bostonians.
The theoretical argument - that Gareth disagrees with - is that if you give someone, especially at the entry home price level, a $1000 tax break, they don't put it in their pocket - they use it to bid up the cost of comparable entry level homes and thus must take out bigger, riskier mortgages and contribute to the unaffordability of houses in Boston. As a parallel real world example - when interest rates went down, people didn't pocket the savings, they levered up and bid up the price of homes.
Oops, slight correction
I messed up where I counted a $1,325 tax break as increasing the value of all property by %1,325. though 70% of property in Boston is rental. That's how I got my clients at Enron in trouble. Sorry!
Zing!
Ha, he just won't let it go.
I follow you on everything but the "$600 average savings".
First, here's what you're saying.
There are approximately 80,000 homeowners in Boston (US Census, 2007). If each of them took advantage of the resident exemption, this would "cost" the city $108,000,000 (using this fiscal year's exemption of $1,375). The city has it costing us $103,000,000, in fiscal 2009.
Now, let's take a hypothetical example.
$400,000 assessed home
@ current $10.63 - $1,375 = $2,877
What you're saying is, if you take out the $103,000,000 resident exemption from the city's residential property tax assessment, we'd need less from each homeowner; the tax rate might go from $10.63 to $8.84.
So,
$400,000 assessed home
@ estimated $8.84 = $3,532
I think that's where you're getting your "approximately $600 in savings". Well, if you do it that way, yes, but it's "either-or" - if my property is assessed at $400,000, I get the entire $1,325.
That's where his accusation of "fuzzy math" comes in.
What you say about the benefit "topping out" at $800,000 is true.
$800,000 assessed home
@current $10.63 - $1,375 = $7,129
$800,000 assessed home
@ estimated $8.84 = $7,072
Almost equal.
A million-dollar homeowner pays $415 more because of the residential exemption.
So, basically, we have a graduated property tax, no? Aren't graduated (progressive) taxes illegal in Massachusetts?
Obviously, they've vetted this, but it's interesting, nonetheless, to point it out. (I will do so, on my Boston Herald blog, btw.)
Your objection to the resident exemption doesn't seem to be out of any concern for renters or homeowners, but because you feel that landlords have to "unfairly" pay more than owner-occupants.
The rest of it, I can agree with.
Response
John
From the real Steve M - not Gareth (or some other clown) posting under my name above - very uncool and not funny.
Anyway - John - your math is spot on.
The main point is that if we did away with the residential exemption, we would help the ongoing problem of affordability in the city. With costs going down in a competitive marketplace due to landlords paying lower taxes, rents ultimately would go down. If people didn't have the tax break to bid up the cost of homes, home prices would moderate - especially for entry homes. Very important to do everything we can in a city that people don't stay in because housing is too expensive.
I believe you are correct - progressive property taxes are not permitted - but somehow they get around it with this structure. And while it may seem somewhat fair, slowly we are seeing long time residents get pushed out of their homes because they can't keep up with the property taxes. Keep in mind people of moderate means moved into the Back Bay and later the South End in the '70s and '80s which is why they are what they are today-they are not rich, but live in very valuable homes. Many of these people are finding that they can't afford even the taxes on homes they've lived in for decades.
As for your point on either/or - true - if the exemption is there take it. But from a policy standpoint I'd recommend the following:
1) Grandfather everyone with an exemption so we don't hurt current homeowners, especially older homeowners
2) Gradually reduce the exemption from 30 to zero - eg - if you buy in '09 you get the 30%, in '10 you get 28% and so on for 15 years until it's gone.
The real fix to housing costs is simply building a bigger supply of housing at a range of price points. But in the meantime we shouldn't be passing and maintaining laws that exacerbate one of the largest problems we face as a community.
Not Progressive
See, that's where you're wrong, Steve. It's not progressive at all. It actually ends up being regressive.
As you rightly say, the value of the exemption is priced back into the houses. It's a demand-side subsidy, which always raises prices. But a resident homeowner would get the subsidy year after year, so it's priced back in at a multiple of the single-year exemption.
Most real estate (68%) in Boston is rental, so since it all gets priced up for the subsidy, the total price-up is actually more than the total value of the subsidy to homeowning residents.
Because the more expensive houses get a lesser relative subsidy, their price readjustment is comparatively less. The price adjustment hits the cheaper houses harder.
In turn, the cheaper houses, which get priced up at a multiple of the subsidy, end up having higher assessments, and consequently higher taxes. That's why the long-term residents, as you rightly point out, are being forced out through the tax exemption. They bought in the 70s and have paid off their mortgages, but the price adjustment to their houses at a multiple of the subsidy raises their assessment to the point where they can't even pay the taxes.
That's why if you look closely enough at the subsidy, it's really regressive, not progressive.
I agree 100% - you just say it better than I do
You are right and in a far more elegant explanation than I can make - and this is the exact argument against the residential exemption that I made at a recent city council committee hearing (with grandfathering and a phaseout to minimize the impact) - we are hurting those we are trying to help. Sadly, politics as usual won over people.
My point about "progressive" was simply that on the surface the percentage discount in taxes is greater for those at the lower end than those at the upper end. But as you point out, the result backfires as the subsidy forces up lower priced homes more (relatively and absolutely).
Gareth - are you listening? Looks like there's one more in my camp.
Nop
That didn't make any sense to me.
Try again?
Another try
Getting caught in spam filter I think due to long response - will try cutting in half
1) The tax is "progressive" in the sense that the $1375 exemption (or whatever the number) is a larger percentage savings for someone with a lower priced home than someone with a higher priced home
- eg. -
An owner of a $1 million home pays 10.63*1000 less $1375 - works out to about a 13% discount on your gross taxes using the res exemption for the "rich guy"
An owner of a $300k home pays $10.63*300 less $1375 or about a 42% discount - thus it appears that the house 'poor' person gets a bigger benefit.
2) However, if you accept the argument that people use the savings just to bid up the price at time of purchase, the program backfires and becomes regressive as follows:
As discussed - the person with a $300k house gets a net tax discount of say $700 before the income tax deduction. Thus, with an extra $700 annually in his pocket he/she can bid the price up by say $10,000 or what that $700 can buy in mortgage for approximately a 3% increase in the purchase price of the home.
The owner of the $1 million home if people are still using leverage at that price point - as you mentioned in a previous post - actually pays more taxes than without the exemption and thus actually has LESS money to spend on a mortgage and the value of the home is reduced as buyers in that price range have less to spend on mortgage money and are disincented to bid the price of the home up.
that seemed to work
The technical point I believe Professor Friedman :-) is making is that the net present value of the discount gets built into the purchase price by the market - thus the buyer of a home at the low end of the scale who gets the bigger cash flow benefit has a higher NPV of the discount on a relatively low priced home whereas the buyer of a higher value home gets little or no benefit from the residential exemption on a very highly valued home. Bottom line the poor guy gets hit with high numerator over a small denominator. The rich guy gets a small numerator over a big denominator.
The net result is that the percentage premium paid for a home moves up as you move down the price scale making the seemingly progressive tax actually regressive. Everyone but Gareth seems to agree with the economics and the behavioral theory so far.
Didn't fully understand the point on the rental property comment- and would like some further clarification if Milton's still out there.
Maybe
Your argument may have more to it than what I choose to point out, but there's little benefit to any homeowner who can use an extra $700 per year toward a mortgage.
$10,000 here or there (the maximum benefit, with a 6% mortgage loan rate) may inflate housing prices, but that barely registers in the scheme of things.
Not saying it doesn't make a difference, just an infinitely small one.
I'm stuck on how to make the removal of the resident exemption appealing to those whose homes are assessed under $800,000.
Saying they are only really saving $600 versus $1,375 isn't going to make me any new friends.
Why remove the resident exemption?
Because we have to figure a way to save $140 million from the city's budget.
Choices are:
* Reduce / remove the residential exemption (cutting it in half may raise as much as $50 million; the entire amount, $100 million);
* Lower city spending (much of it is non-negotiable due to union guarantees, cost of living increases, healthcare & retiree costs, etc., etc., etc.);
* Raise property taxes (we raise them 2.5% each year; we would have to ask for an override);
* Add other taxes (1% sales tax increase, 1% meals tax increase, new taxes);
* Bill the 2,500 non-profit tax-exempt organizations in the city for increased PILOT payments (The Commonwealth might then step in and say, "Nope," if we do this.
Or, a mixture of all of these.
Doing the math
If you extend the math, the scope of the market distortion becomes clearer. The total amount that is given away in this exemption is approximately 103M per year. That all goes to the 32% of Boston owner-occupied residences. The other 68% get nothing (or we should say, they get a higher rate than they would otherwise).
To figure out the net market distortion, we should multiply the exemption by the number of years of mean residency. The mean owner residency in the US is around 7 years. That would put the increase at about $9,625, which of course would be applied to all properties (approx. 240K), regardless of whether they’re in the 32% or the 68%.
It’s easy to see that the tax on that increased property value (and hence assessment) increase alone will catch up to the exemption in short order, and will most greatly affect those who maintain residence in their houses longer. The people who really bear the brunt of it, of course, are the renters, who end up with the full multiple increase without any savings.
99% agreed
Milton - thanks for checking back in. If I understand all, I generally agree with one exception - that $103 million is actually about $50 million. As noted due to the phaseout those at the lower end of the price spectrum get the full "benefit" of the exemption. However, those with homes at the $800k point get zero benefit and those above actually receive a negative "benefit". Thus I calculate the exemption at (using John's 80,000 figure) 80,000 times say $650 or what the average person gets = $52 million. The net taxes picked up by the landlords is thus in the $45 million range and adding back in about $5 million from additional taxes on higher priced homes the total subsidy is about $50 million.
nominal amounts
The nominal amount is about 103 million, but of course this doesn't represent the actual net amount paid out by the city. As we've discussed, the 68% of properties in Boston that are not owner-occupied don't get the exemption but do pay higher taxes through inflated prices at a multiple of the exemption. We have to remember to remove the resultant tax increase (based on the 7-year multiple) on these properties from the net payout by the city, as the inflation results in greater pay-in. As you can see, that would make the net payout by the city far less than the nominal amount, almost a wash, really.
Never wrestle with a pig
You both git muddy, and only one of you enjoys it.
predictable, but...
The sky-is-falling tactic of painting an apocalytic budget picture, reducing citizen expectations, squeezing give-backs from unions, and then riding in with some measure to rescue everyone from The End is indeed a predictable tale.
Unfortunately, just like the story we learned as kids, it also makes the Powers that Be less-than-credible when the sky IS falling. Sadly, this is the case: This is no ordinary downturn.
When all else fails, try blackmail
Rumors in the Transcript state that the
escortspolice union has knuckled under to the city and accepted a wage freeze. Why? The city had the goods on them.Quod custodiet ipsos custodes? The all-seeing eye of Mumbles, beeyotches.