To the editor:
We should all be paying careful attention when we’re being asked to vote for a school that will increase our property tax bills by nearly 20 percent. But paying careful attention means thinking through all the financial consequences, not just the most immediate impacts on our wallets.
I’m certainly concerned about my taxes going up. But I’m also concerned about the longer-term impact that turning down a school project for a second time in six years might have on housing prices in Lincoln. While there’s always room for more thorough financial analysis, some simple observations and arithmetic suggest the financial gains resulting from lower property taxes might quickly be negated by potentially much larger reductions in the value of our homes. Here’s why I worry that a focus only on property taxes could lead us to a bad financial decision:
- Lincoln’s high home prices mean that small percentage declines in home values compared to what they would otherwise have been—what I’ll refer to as the penalty for not investing in quality schools—could be fairly consequential. For Lincoln’s median home valued at around $1 million, a 2 percent penalty amounts to $20,000, a 5 percent penalty is $50,000 and a 10 percent penalty results in a $100,000 loss of value.
- It’s the implications of the investment in educational enhancements beyond the “repair only” scenario (i.e., beyond the $49 million option) that we need to focus on when considering the additional property tax costs of the decision about the new school. These enhancements represent only about 50 percent of the increase in the tax bill. Yet, they are what are most likely to be recognized by future home buyers as an indication that Lincoln is serious about investing in its schools—and thus generate the real benefit to property values. For the currently proposed $93.9 million project, the FinCom estimates the median tax bill in the more expensive bonding cost scenario would rise by a little over $2,700 per year; but the educational enhancement component of the cost accounts for only about $1,400 of this amount.
- In a highly simplified scenario (that is, with no time value of money, no inflation, and no other personal tax considerations), a family living in the median-value home for 10 years would save roughly $14,000 in taxes if Lincoln chose not to fund any educational enhancements (i.e., repair only), and a little over $42,000 in the same scenario if they stayed in their home for 30 years—this is just a straight adding-up of the $1,400 in annual taxes attributed to the educational enhancements.
- How do the tax savings in this scenario compare with the losses that might occur if the real estate market imposed a penalty of as little as 5 percent on home values for Lincoln’s perceived failure to support its schools? In other words, are you likely to be economically better off if you vote for the more expensive school or not? For the median million-dollar Lincoln home, a penalty of as little as 5 percent (roughly $50,000) would more than offset the expenditures on increased property taxes, even for homeowners who stay in their homes for as long as 30 years. So if you believe a penalty in the 5 percent range is plausible, the answer is yes—homeowners would be economically better off in the long run voting for the more expensive school. If the penalty for not investing in the schools were higher (say, 10 percent) homeowners would be much better off. A homeowner selling his or her house 10 years from now would have paid a little over $14,000 in cumulative taxes for the educational enhancements but would have realized $100,000 less than would otherwise have been the case.
- The numbers presented above are by design a simplification. They’re actually quite conservative in not taking into account the time value of money when looking at the value of the future tax savings, particularly if the penalty to home values is relatively immediate and long-lasting. My takeaway is that a vote against the current school project could well end up damaging the family finances more in the longer run than it helps. Given Lincoln’s high home values, even relatively small penalties—for example, less than 5 percent—imposed by the real estate market in response to a perception that we have not invested adequately in our schools would quickly negate the value of lower property taxes that Lincoln’s homeowners would enjoy if pursuit of a less expensive option, like “repair only,” leads to the defeat of the school project bonding votes in early December.
How likely is the real estate market to impose a significant “school” penalty if Lincoln doesn’t approve the proposed school building project? Without a doubt we could argue about this for the next 30 years. But looking at real estate appreciation in neighboring towns may provide some perspective. In Lexington, widely recognized for the quality of its educational system, the median home price rose by more than 50 percent between 2008 and 2017, compared with a rise over the same period of less than 10 percent in Lincoln. While this 40 percentage point difference certainly should not be attributed solely to schools, it’s also likely that perceptions about the quality of education in Lexington have had something to do with it. Avoiding a housing price penalty in the range of something like 3–5 percent certainly seems plausible and maybe even likely, in light of the large relative changes in home sale prices we’ve seen between Lexington and Lincoln over the past decade.
Given the risks of even larger potential penalties, I’m more worried about the property value impact of turning down the school than I am about the extra taxes I’ll have to pay. And for those who may need to rely on the town’s tax relief programs or a home equity line of credit to help with their property taxes, I think the same argument holds true—when you finally do sell your home, a vote for the school project reduces the risk that you’ll suffer a significant reduction in its value because young families are less interested in moving to Lincoln.
And last but certainly not least, all this ignores the perhaps more important, and less self-interested, reasons to vote for the school project. Many residents have spoken eloquently to these already.
Sincerely,
Tom Walker
12 Trapelo Road
Letters to the editor must be signed with the writer’s name and street address and sent via email to lincolnsquirrelnews@gmail.com. Letters will be edited for punctuation, spelling, style, etc., and will be published at the discretion of the editor. Letters containing personal attacks, errors of fact or other inappropriate material will not be published.