NOTE: I wrote the outline for this piece aboout 9:00 a.m. Monday morning, about 5 hours before Brandon hijacked BFD and posted this interesting bit. We must be on the same wavelength or something. So here’s another look at the same issue through a similar lens: home ownership.
Methinks something is rotten in the State of Denmark.
Hamlet: Act I, Scene IV
William Shakespeare
Home ownership has some interesting perks: you can decorate your home as you wish; you can upgrade your home and not have to answer to anybody (within reason); you have more room and better appliances; you have a stake in the community; and there are certain tax benefits to owning a home that generally make it cheaper, in the long run, to renting an apartment.
There is, however, a dark side: you bear the maintenance costs; the initial cost is higher, either by a down payment, or your monthly mortgage payments are higher (which will actually get to be less than an apartment rental, over time); and, of course, there’s your property taxes.
The advantages generally outweigh the disadvantages, and you usually get your property taxes credited by the IRS, so it should all lean in your favor, eventually. And, of course, instead of frittering your hard-earned money away every month on rental, with a house you are actually paying that money back to yourself, making you wealthier.
It’s generally a pretty sound investment.
In Euclid, however, the taxes actually tip the scale into the negative.
Home values are substantially lower in Euclid than, say, Parma, which is a relatively equal suburb (also inner-ring). You can purchase a 1,500 square foot home in Euclid for as little as $110,000, sometimes even less if you want to add some sweat equity to your purchase. Not bad for the frugal home shopper.
The property taxes are a bear, however. On that same $110,000 house, after this last reappraisal by the county, you can expect to pay at least $3,600 in property taxes (before the reappraisal, you would expect to see a $3,000 annual bill). With your mortgage (and let’s use a 5.25% interest rate — just for giggles), no money down (let your money work for you), that Euclid home would come with about a $550 monthly principal/interest payment, plus about $120 monthly insurance bill.
Property taxes would boost your monthly payment to about $880. With last year’s school levy and this year’s reappraisal, you can now expect your monthly total nut to be about $980, or just about a 22% increase in the taxes you actually pay. In short order, we’ll soon see monthly taxes equal — or even exceed — your monthly PMI.
Now let’s look at the demographics: Euclid is a city of about 26,200 housing units, of which 36% (2000 census) were rental units. On the average, 25% of the housing units in the city had school-age children, not all of which go to Euclid schools.
With the Euclid City Schools currently ranking in the lower 20% of the schools in the state, and with Ohio ranking 49th overall in education, it’s a safe bet that a good number of Euclid home owners that have schoolage children send their kids to private or parochial schools, leaving the majority of the students in the ECSS to be living in rentals. Not entirely accurate, I’ll admit, but probably a pretty fair statement.
And I’m not writing to pick on the Euclid City Schools; they certainly have their challenges ahead of them, and they have shown some excellent improvement over the last couple of years. I have no bone with them at all. Rather, look at the taxes: Euclid voters, led largely by renters brought out to vote for the issue, approved a large tax levy last year which raised taxes about $35 per month per $100,000 household.
Now, it turns out that ECSS will be placing another hefty tax levy on the ballot as soon as this coming May. I will be voting against the levy. Again, I’m not picking on ECSS: they certainly need the money, and what money they do have they are putting to good use. And I have no complaints about the veracity of their need; it’s just that as far as monthly expenses go, we’re just about tapped out: we just can’t afford to absorb yet another tax increase for a failing school funding system.
In 1997 and again in 2002, the Ohio Supreme Court declared that Ohio’s public school funding was unconstitutional, relying too much on property taxes.
Now, four years later, we’re still trying to raise money through property taxes. It is painfully evident that we need to find a new way to fund our schools, especially in areas like Euclid where the majority of students are renters and an undue burden is placed on homeowners to foot the bill.
No one seems to be looking at the issue, either. Well, almost no one. I’m not saying that I’m for Issue 3 — I’m not — but not for the reasons everyone else is against the issue: I don’t like the way it has been presented.
I also don’t like the way the issue is being argued on the large: it reminds me of the great abortion debate of the 1980s: the same, old, tiring, divide and conquer tactics, more emotional statements than facts, and two minority groups (in terms of size, not ethnicity) of people trying to legislate morality for a majority of the residents (proving once again that we never learned Prohibition’s greatest lesson: you can’t legislate morality).
While casinos would certainly help the situation, they couldn’t bear the entire burden, either.
In Colorado, for instance, at least as far as I understand the issue, they have instituted a luxury tax on items with a suggested retail of over $1,000. The money collected goes straight to the schools. I’m not sure how well it works, but their property taxes are sure lower, and their schools rank far higher compared to Ohio’s. Something’s sure working out there.
Ohio’s Issue 18 proposes taxing smokers for funding the arts. I have issues with this as well, and not because I smoke: a half-century ago, just aboout 45% of the American population smoked. Today, that number is down to about 20%. Why would you tax something that is clearly going to disappear? Your funding will dry up like an overused well. This is not to mention the fact that every time they create a new sin tax, people quit smoking.
Consider: studies show, generally, that lowering taxes stimulates the economy and generates greater tax revenues; hiking taxes stifles the economy and tax revenues actually drop — just the opposite of what people tend to think. Jeff Hess talks about “the uber wealthy who have been sucking at the public teat for 50 years,” and he is not too far off at all — just about every politician that proposes new taxes as a solution to everything is guilty of the very offense Jeff describes.
It’s time to kick the bums out and start electing people to think creatively and solve this thorny problem. There are solutions: we just need to find them.
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