Amsterdam’s taxes are not the real problem (and here’s the numbers to prove it)

Posted: August 5, 2013 in Economic Development
Tags: , , ,

It has always bothered me when I hear people complaining about the taxes in Amsterdam. It’s not that I don’t know NY State is one of the highest taxed states in the nation, which causes most large businesses to avoid us like the plague.  It’s also not that I like paying taxes or that I don’t wish my taxes were lower. It’s just that I’ve always understood Amsterdam to be a very affordable place to live in comparison to surrounding areas, considering both property taxes and home prices combined.

So I decided to do a little more research to see if my hunches were correct. I took data on median home prices and median property taxes in various localities (and one from Texas just for good measure) from city-data.com. I calculated monthly mortgages using the same interest rates and down payment values (based on a typical FHA mortgage, less PMI.)  Take a look at the chart below and tell me what you think…

Selected home ownership costs
(Click to enlarge)

Area_Home_Ownership_Prices Source: city-data.com
(Click to enlarge)

What really baffles me is how much people talk about how high our tax rate is. But it’s easy to see on the chart that a lower tax rate doesn’t necessarily mean you will pay less taxes and it almost always means you will pay more to purchase your home.

If you are in Amsterdam and move to Saratoga, an area which boasts one of the lowest tax rates in the state, you will still end up paying more in taxes each month.  If you move to Broadalbin, which certainly has lower monthly taxes, you will still probably pay more for your house, which overall will still make it slightly more expensive to live there than in Amsterdam.  If you move to the Town of Amsterdam (ie Fort Johnson) you will save money, but only about $80/month.  I think it’s worth noting, however, that there are trade-offs in rural areas (such as having to take care of your own water well and septic tank. )

So here’s my take: even with a high tax rate, Amsterdam is actually a very reasonable place to buy a home in comparison to other local areas. For me, a low tax rate doesn’t do me any good if I can’t afford the mortgage or the higher tax payments. When someone says they are moving out of Amsterdam because of the taxes, they are either woefully misinformed, or there’s really another reason. I believe that when a person with an unsatisfactory view of Amsterdam moves to another local area, it’s probably because they are looking for what they consider a better quality of life – a better looking neighborhood, higher ranked schools, etc, and they are usually ready to pay more for it.

If monthly out-of-pocket home ownership expenses were really the most important factor for people, then why wouldn’t Gloversville be a booming economic center rather than Saratoga Springs?

And that’s why it bothers me when some politicians say their most important goal is lowering taxes. Sure  – lower my taxes by $50 to $100 per month – that would make me happy! But given what we now know, do you really think that is going to attract more people to our city? Lowering taxes will not improve our blight situation; it will not improve our schools. In fact, drastic cuts could actually worsen the situation.

If we are serious about our city’s revitalization, yes we need to keep taxes in check, but our efforts should be squarely focused on improving our neighborhoods and schools and attracting new businesses. Concentrating on these aspects will ensure that Amsterdam is economically viable in the years to come, and is really the only long-term strategy that will keep taxes stable.

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Comments
  1. diane says:

    Do you figures include the three city fees, which are really taxes, they just cannot be deducted? And would you run a comparison against Charlotte NC instead of Texas, since we have more people moving to the Carolinas and Florida ?

    Thank you,
    Diane

    • Tim Becker says:

      I’m pretty sure the Amsterdam figures do include the fees. For a double check on city-data.com’s numbers, I went to realtyusa.com which a couple years ago correctly listed my own home’s taxes and fees combined, so I know is fairly accurate. I checked the taxes on several houses that are for sale close to the median home price, and most houses have taxes close to the median tax rate ($3384) that city-data.com listed.

      According to city-data.com, Charlotte NC has a median home price of $175,600, and a median yearly property tax of $1,942. So on my graph, it would come in at a total of $932/month, just below Glenville and above Schenectady.

  2. diane says:

    Thank you Tim. I spoke with the Dep Controller after the CC meeting tonight, and he was saying the taxes in Troy are higher than Amsterdams, which is where he lives. Interesting……..I still believe that a bigger problem than the taxes is the school system and the sad results that are coming out of there in light of all those dollars 🙂

  3. Peter says:

    The logic in this article is horribly fallacious. People are not complaining about the “cost to live” here, in this article the cost of a home and taxes. People are complaining about the amount they pay to the government. If my home is really worth half what it is in Saratoga, yet my taxes in Saratoga would be half of what they are here, then I am paying slightly more to live in Saratoga, BUT my house is worth more and I’m acquiring more equity in my home. If I’m paying $1,000 a month into a mortgage (principal, interest, escrow) in Amsterdam, $400 of that is going to taxes and $600 is going to the home (principal/interest); whereas making that same payment in Saratoga sends $200 to the government coffers and $800 to the home. More equity means I am better off financially and have a higher net worth. How in the world does owning a home with less value mean that it is okay to pay more taxes because the costs cancel out? Let’s apply the numbers in the blog post: If I buy a home here worth $87, 647 and then sell it in 15 years, I will have paid $50,760 over the course of those 15 years and walk away with $87,647 in my pocket. However, if I were to buy a house in Fort Johnson for $92, 431, I will pay $32,940 in taxes, or $18,000 less than Amsterdam… AND when I sell my house, I get $5,000 than I would in Amsterdam. This is literally one of the most absurd things I have read all day and it is my job to read absurd things.

    Also, where did those numbers come from? My house’s FMV is close to that in the graph and I pay SUBSTANTIALLY more in taxes.

    • Tim Becker says:

      Hi Peter – the equity issue is a valid point and maybe I should have addressed it in this article.

      I think you are making a big assumption when you assert that people aren’t complaining about the “cost to live here”. I hear it all the time on Facebook, letters to the editors, in person, etc. I think it’s difficult to tell whether someone is talking about the tax rate or the total amount it costs to own property. I would venture to guess that many people don’t really know what the real numbers are, and that is one reason I wrote this article.

      You’ve made an error in your example of Saratoga. Check the chart again. A typical house in Saratoga will cost 3-4 times as much as a typical house in Amsterdam. You will *not* pay half the taxes, you will pay 18% *more* in taxes on your typical home in Saratoga.

      I understand the equity factor. Obviously it is a high priority for you and that’s fine. It isn’t so much for me. My first concern is if I can make the monthly payments. Saratoga is a great investment, but it’s way out of my budget and many others people’s as well. That is my first main point, that Amsterdam is an affordable option for people to live in comparison to other higher priced areas in the Capital District.

      In the case of Broadalbin or Fort Johnson, yes you will come out ahead equity wise for roughly the same amount of money spent. But my point here is that the numbers are close enough that it’s obvious no one is getting rich by moving from Amsterdam to either of those places. I find it hard to believe that this is the primary factor for people moving.

      That supports my next point which is that people move out of Amsterdam primarily because of quality of life issues, not because they are going to save gobs of money. Do you disagree with this? If we cut education funding, and our test scores went to dead last in the Capital District, but we cut taxes by $50/month, do you think that will increase demand for homes in Amsterdam? If we cut funding to maintain our roads, such that they deteriorated even worse than they are now, but we cut taxes by $50/month, do you think that will increase demand for homes in Amsterdam?

      That’s why any local politician who says cutting taxes is the most important thing has it completely wrong. Saratoga is proof of this. People will gladly pay more in taxes for better looking neighborhoods and higher ranked schools. So this is the challenge for Amsterdam – increase quality of life, increase test scores while keeping taxes under control.

      The source of my data (as I mentioned several times) – is city-data.com. The numbers are from 2009, but it is the only source of median property taxes that I could find and I think the numbers are fairly accurate. Like I mentioned in my previous comment to Diane – you can go to realtyusa.com *right now* and see several houses in Amsterdam close to the median value in the chart that have property taxes close to the median property tax in the chart. There is one listing that is substantially higher. I have no doubt that your taxes could be higher and others could be lower, we are dealing with median values here.

      Questions for you – why do you own a home in Amsterdam?

      Do you really get paid to read absurd things all day? How does one get a job like that? Hook me up 🙂

      • Peter says:

        I would submit that the tax rate has a large effect on home value. You also have to realize something about the Saratoga, or even Broadalbin numbers, those median home prices are being artificially inflated by expensive “McMansions,” something we do not have in Amsterdam. Whereas Amsterdam numbers are deflated by the $18,000 derelict properties bought up by out-of-town landlords hoping to make a quick buck. In fact, most new construction I see around here is in the town, outside of the city. The new condos sold for twice the figure in your chart. So my ranch might be worth $50,000 more in Saratoga, but my taxes would be less than I pay here. I know that to be true because I am the only attorney in my office who lives in Amsterdam. My bosses live in Saratoga, Galway, and Guilderland. All of their houses are more than twice the size of mine and worth well more than two times what mine is. Who pays the most property taxes? Me.

        Are people moving away from Amsterdam because of “quality of life” issues? Sure. But to say that high taxes are not contributing to their decision would be short sited. New York State as a whole is purging residents due to taxes. I talk to friends all over the country who are buying homes and making a living and the general consensus is that outside of California, NY is the most tax-oppressive state in the union.

        I’m not disagreeing with you that we have a relatively low cost of living in Amsterdam. However, my problem, and that of many others’ is that I pay an obscene amount of property taxes. That is not okay just because my home is cheaper.

        Also, I don’t want to get into a sociology discussion (a class in which I once had a professor red-faced and furious at me because I asked if he believed in personal responsibility), but the quality of life issue is directly correlated to the quality of the ever-dwindling tax base.

      • Tim Becker says:

        A couple points, trying not to re-hash our facebook conversation

        – Median values are less skewed than average values

        – If you have a 86K FMV house and are paying significantly more than the median – then I would suggest something is up with your assessment. Do you have a two family home by any chance? Because that would probably raise your tax by 1K or so. I don’t know too much about how assessments are made, but there must be something about the location or age of the house that is inflating the price. My own home buying/tax experience is roughly in line with the median values, and in line with prices and taxes I am seeing on other real estate sites.

        – Being that you are obviously well informed on the subject, I would ask the questions again – why did you choose to buy an 86K house in Amsterdam rather than a 172K house in Guilderland or Saratoga or Galway? I understand if it’s family-related or personal or something like that, but otherwise I would be very interested to know what influenced your decision.

      • flippinamsterdam says:

        Interesting exchange — I wanted to add a few thoughts :
        — The relative mix of tax versus equity does make a difference in the home buying decision– rational buyers would prefer to maximize the dollars going to equity/mortgage versus the amount to tax. So I’d argue that one reason home values in Amsterdam remain stuck/depressed is because of the higher proportion of taxes to equity — to offset the higher taxes you pay less for the home and also depresses home demand in Amsterdam.
        — The second depressor is the umbrella of quality of life issues: schools, culture, public services as you both discussed.
        — What I’d argue is the real problem is the dangerous feedback loop of the two depressors — as the tax to equity ratio goes higher, home values decline, which in turn puts pressure on investing in quality of life due to taxes. Quality of life then suffers pressing home values down which in turn drives tax rates to equity higher. Rinse . Repeat. It’s this vicious cycle of disinventives that hurts the city
        — To solve the vicious cycle, the city needs to drive investment and demand to the city versus thinking the solution lies in exclusively cutting taxes. Sure, everyone wants to pay as little tax as possible, but looking at TIm’s numbers , there is simply no way enough can be cut without decimating the already suffering servives. I won’t buy the argument that we can fix our troubling schools by taking resources away from them. We’ve been on that bandwagon for a long time and look where it has brought us. Somehow the city needs to change the mindet and risk landscape so it does make sense to invest in the city. Regrettably, policy deliberately ignores and refutes any effort to drive investment and demand to the city– taxes are symnptoms of the disease; the disease is lack of growth and investment. Until you fight the disease with the proper medicine, the symptoms will only worsen. Ironically, we don’t treat the symptoms properly nor the disease so it’s no wonder taxes fester on, year after year.
        — The city of Amsterdam cannot compete with Saratoga and Guilderland on a number of dimensions and it is foolish to try. What is not foolish is trying to carve out a niche for the city that makes it viable from a demand side versus always focusing on the supply (tax ) side. Not everyone can or desires to live in Saratoga or Guilderland (disclosure: I would not mind living in Saratoga) . however, it is not irrational that people may want to live in Amsterdam for a number of reasons. As TIm points out, from a cash flow perspective, Amsterdam makes some sense. From an investment side, that looks riskier as Peter points out. Still, a number of rational reasons do exist for chssoing to live here versus other areas– that’s what we need to build upon. Speaking for myself, we invested here thinking that the city might turn around and we would see some upside on the rebound. In other words, we took a risk, speculating that the city might rebound and still believe in an eventual rebound. But it won’t be soon. It has not quite worked out that way for us– indeed quite the opposite– and it appears that polciies are put in place to punish those investing and believing in the city’s turnaround. I believe the GASD is an essential part of any turnaround but from an economic policy side, no one ever discusses the role of the GASD.
        — While I don’t know the answer to changing the mindset on demand side on investment and changing economic policy, I do know that trying to fix taxes as an end-all-and-be-all ignores the larger issue. I think the point of Tim’s analysis is not so much the absolute precision of the numbers, but benchmarking the city against other communities on a dimension that no one really pays attention to — home values and quality of life– and letting that analysis drive some thinking and policy. Let’s hope that happens , it can’t be soon enough.

        Cheers

    • Tim Becker says:

      Flippin, I agree with most everything you’ve said here, so I’ll just say “ditto” to that and get right to where I have some contention 🙂

      Firstly, what’s all this talk about rational buying decisions? I mean that with absolutely no sarcasm. Wasn’t it you that said not too long ago that markets are irrational?

      I don’t doubt that the debt vs equity factors into some buyer’s decision making, especially those who are focused on the investment value. But I would still argue that it’s unlikely for your typical buyer, and I think the chart helps support that.

      It makes no rational sense to me for someone to say they want to pay $150/month more for a house in Broadalbin in order to save $90/month in taxes. I’m not saying that’s a bad decision, I’m just saying let’s be honest – you like it – you can afford it – you buy it.

      It makes even less sense to me that Peter (above) would be hopping mad because his coworkers are paying maybe $380 more per month for their home just because they are paying maybe $100 less per month in taxes. Again, let’s be honest, the opinions of one’s peers can be a powerful force, and one doesn’t impress anyone by telling them you own a home in Amsterdam.

      Where I do see a genuine problem is in the scenario where you have a new construction that is assessed at much higher value than most of your typical 100 year old homes, regardless of the FMV (see the other Pete’s post below). That’s where the tax rate truly becomes prohibitive. I think there should be some sort of tax break for that type of scenario to encourage new development.

      • flippinamsterdam says:

        Tim,

        I agree with you up to a point on your tax vs equity argument; I think people do look at the mix of tax to equity as well as the total amount paid. I do think you’re overemphasizing total cost however as the sole factor. I’m not saying markets or buyers are always perfectly rational but given the dynamics here, they seem to make sense.

        I agree on the problems with new construction at FMV — taxes make it prohibitive and that is why we have zero development or redevelopment in the city. However, we make the problem worse by failing to craft any policy that would catalyze development. What we do quite well is scare off any initial investors that could get the ball rolling on development and then starts to drive investment up and taxes lower. Instead, we keep hoping tax rates will drop with no underlying economic rationale or policy. And there you have why development stalls and taxes rise.

  4. Peter says:

    Not sure I’m ok with the logic here. I built a home in Amsterdam in the 1990’s….sold it 12 years later for very little more than what it cost me to build…not a great investment. In that same time my taxes ranged around a low of $4800 a year to a high of nearly $7500.
    Purchased a home in Saratoga approx. 8 years ago and sold it 4 years later and saw an increase in its market value of nearly 16% in those 4 years. My taxes on the house in Saratoga were $4000…the 100% assessed value at $325,000.
    I love Amsterdam and all that it once was…but all things considered – quality of life, job opportunities, culture, school district, and real cost of living, I think I made the right choice to relocate. The majority of the readers of this blog and others like truly are part of the spirit of Amsterdam. I enjoy reading your blog and appreciate the opportunity to respond. Onward!

    • Tim Becker says:

      Hi Peter, thanks for writing. If what you got out of my article was that I was saying it was somehow a mistake for anyone to leave Amsterdam for Saratoga – that was not my intent. Obviously buying a home in Saratoga is a great investment, as you’ve proven. I could not afford to buy a home in Saratoga though, it’s great that you were able to. I’m simply showing that Amsterdam is an affordable place to live in comparison to surrounding areas.

      I think your post actually proves what my real point was. It’s the culture, jobs, schools, quality of life, etc in Saratoga that makes it so attractive (Global Foundries moving in hasn’t hurt either). These things increase demand, which increases the property values. That is why you made out so well with your investment. People gladly pay more in taxes and in home prices to live there. That’s why I’m a making a case that we need to focus on quality of life issues while trying to keep taxes stable.

      You built a nice new home in Amsterdam that was assessed for much more than the average 50-100 year old homes around here. That bothers me because it’s a huge disincentive to build new homes in Amsterdam. At that level, the high tax rate really takes a tole.

      However, I still think the median figures used for this chart are accurate (your numbers for Saratoga match up almost perfectly), and I think they portray the typical situation.

      Thanks for reading and for your insight, I appreciate it!

  5. robertstern802450846 says:

    Excellent analysis. You should put out a press release.

  6. Trisha Naish says:

    Tim I will jump on any bandwagon with you! Quality of life, I LOVE that terminology! Very good points!

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