51- Second Letter - Property Tax Assessment

Here is a letter I wrote to the Planning Board on March 1, 2010.

Re: Property Tax Valuation’s Lack of Transparency

Dear Planning Board Members:

I have learned some alarming information about RUPCO’s proposed Woodstock Commons development and want to share it with all of you since of course you are in the process of deliberating the question of whether to approve the project.

The issue I am writing about in this letter is the estimated property taxes levied by Woodstock Town, Onteora School District, and Ulster County.

In the DEIS, RUPCO estimates their combined property tax payment for the 53 rental units at $18,853, which, at 2.06% means that the property is valued at $915,194. (Dividing this assessed value by the number of units yields an assessed value of $17,268 per unit.)

RUPCO writes that assessed values are approximately 0.87 of market values, so the market value of the total development should be figured to 915,194/0.87 = $1,051,947.

RUPCO has derived their estimated tax levy using the method described in RPTL Section 581-A, which is the tax law enabling affordable housing owners to use the net income of an affordable housing development to determine the basis of property tax payments. I include RUPCO’s quotation of this law, which appears on p. 418 of the DEIS, and which I attach to this letter.

We should take a look at how this “net operating income” is derived, and project whether or not we think RUPCO’s estimates are realistic.

Multiplied out, the first year, the average unit will rent for $512. At twelve months per year and 52 rental units, the income to the project will be $320,000. But that does not mean that this is the figure used to derive the assessed value of the property. This is just the gross income.

Let us come back to this gross income of $320,000 a bit later. For now, we will focus on RUPCO’s estimated tax payment:

Using the 10% capitalization rate stated on p. 420 of the DEIS, RUPCO has multiplied the capitalized value of the project by the tax rate, to arrive at the estimated tax payment.

assessed value x tax rate = tax payment

or:

tax payment / tax rate = assessed value

We know RUPCO’s estimated tax payment is $18,853. We know that the tax rate they use in the DEIS is 2.06%.

$18,853 / 0.0206 = 915,194.

The capitalization rate RUPCO uses is 10%, which means that the net income after operating expenses, according to RUPCO, will be $91,514.

Coming back to RUPCO’s gross income of $320,000, and net income projected to be $91,514, this means that RUPCO estimates expenses, at least in the first year, to be $320,000 - $91,514 = $228,486.

Has anybody asked RUPCO for details of this $228,486 estimated expense figure? After all, it is absolutely integral to the tax payment estimate put forth by RUPCO. Is this number supported anywhere in the documentation? Has anybody really understood that the more RUPCO spends on maintaining Woodstock Commons, the less RUPCO will pay in taxes? The closest thing that I have found to any accounting of operating cost estimates is RUPCO’s “Maintenance Operations, Preventive Maintenance, Utilities and Energy Plan” which is DEIS Exhibit 27B and which I include with this letter. You may appreciate its vagueness with regard to costs.

I think this estimate of $228,486 is very low. I think that if you take the caretaker’s salary and benefits, the water bill which will be borne entirely by RUPCO, the electricity cost of lighting the whole place every night, the cost to run and heat the community building, and the elevator, and all the communal spaces, and maintain the nature trails, and clear the private road, you are looking at much more than $228,486.

In fact, the geothermal power technology itself will be a big drain on electricity because of the way in which it works. Geothermal power is a “slow” heating technology. What that means is that when you have a thermostat set at a certain temperature, and somebody opens a door and walks out, (or a highway garage door and drives out,) the temperature falls and the auxiliary electric heat coils bring the temperature back up quickly while the geothermal power is slowly coming online. In terms of speed, geothermal power works slowly, like a battery, but instead with a heat exchanger. You can only get so much energy out of the system per minute, unlike a boiler, which cycles on and off and delivers heat quickly since combustion is a very quick way to generate energy. Since RUPCO claims that its power use will come exclusively from geothermal energy, there will be no other backup system, except for the built-in electric resistance heating in the geothermal power units. And using this technology in a building’s common areas, where there will be a lot of in and out traffic, implies a very high rate of temperature variation, and thus, a high drain on the electric load.

Aside from the drain on electricity that the geothermal power will have, about which I would bet that RUPCO is entirely unaware, there will be the usual initial things that go wrong in new construction, and those things will be fixed using the operating budget.

It is very likely that RUPCO’s Woodstock Commons will experience operating costs exceeding their revenues from rent. Due to the method by which RUPCO’s wholly owned subsidiary and its partners, who will own Woodstock Commons, are allowed to calculate property tax payments, this means that property taxes paid could be zero, or close to it. In any event, It is likely that RUPCO will end up paying the same or possibly even lower taxes on the property than are being generated now from this vacant land.

What would be ideal is for the town to compare RUPCO’s proposal to another affordable housing model. I am sure that doing that would be an enlightening exercise for all involved.

No matter whether the Planning Board entertains any other affordable housing proposals or models, it is still important that the Planning Board be made aware of RUPCO’s lack of transparency in the way they have figured their estimated tax payments, and, at the very least, study the details of RUPCO’s estimated operating budget. The town’s income relies on it.


Thank you for your most serious consideration in this matter.

Yours truly,

Robin Segal

Enc: - DEIS p. 418
- DEIS Exhibit 27B