The mill rate is too damn high!

November 18, 2018

I've reached the age where many of my friends are getting married, and looking to leave Manhattan for the greener pastures of Connecticut's suburbs.  However, they are finding that, like New York City rents, the mill rate is too damn high.

 

One such friend is a 28-year-old Westhill High School graduate, and is looking with his fiance at homes in Fairfield County.  They've narrowed their decision down to Shippan and Westport, CT.

 

These are exactly the sort of people who should be moving into Stamford.  But even the homefield advantage may not be enough in the face of such a large property tax disparity.  As my friend laments, mill rates here in Stamford are more than 50% higher than those in Westport (approximately 26 to 17, respectively).

 

One mill is equal to one dollar of tax per $1,000 of assessed property value.  Accordingly, a Stamford home with an assessed value of $500,000 (i.e. a fair market value of about $714,000, as Connecticut municipalities assess property at 70 percent of its fair market value) comes with a $13,000 annual tax bill, while the same house in Westport carries only an $8,500 tax bill).  To be sure, you get more "house" for your money in Stamford, but the difference at these home prices is real money:  $129,000 in net present value terms in after-tax dollars.  Therefore, a $714,000 home in Stamford "costs" approximately the same as a $843,00 home in Westport.  

 

[I derived this number ($129,000) by using the formula for valuing perpetuities:  net present value = dividend per period / discount rate, where dividend is the difference in the tax bills ($4,500), and I assume a discount rate (i.e. assumed rate of return on investments) of 5%), which equals $90,000.  I then divided $90,000 by 0.7 to get from assessed value back to fair market value.]

 

I think we all agree everyone wants the mill rate to be lower.  What's important to remember is that it's not merely an academic question:  property taxes can and do drive decision-making on where people choose to buy their home, start their families, and send their children to school.  Further, the larger the tax base, the lower rates can be for everyone.

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