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Thinking Outside the Box
Dr. Chuck Ormsby

It is easy to be cynical when it comes to politics. We have come to expect lies, distortions and outright misrepresentations.

Unfortunately, we now tend to view politics as a sport and, except for the most egregious violations, we accept whomever or whatever prevails as deserving of praise and congratulations despite the legitimacy of tactics, methods, or claims.

That is sad because truth does matter.

The recent override election in North Andover provides an excellent example.

A variety of claims were made by the override proponents – North Andover United (NAU) – during the recent campaign. One claim was the subject of a well-designed and widely-distributed postcard sent at the very end of the campaign, which left no time for rebuttal.

The claim, seemingly supported by legitimate data, was that North Andover’s lack of willingness to raise taxes and provide greater funding for its schools was responsible for a 17 percent loss of real estate value since 2002-03 when compared to Andover. The data reported on that postcard – plus two previous years conveniently NOT REPORTED by NAU – is provided nearby (years are mid-June to mid-June).

In reviewing the table, what “% Difference” value seems to be the most out of step? Could it be the –2 percent chosen by NAU as its “starting point”? ALL the other percentages, including the two preceding values, are between –9 and -16 percent. Was 2002-03 chosen as the baseline year to create a perception of a subsequent decline that didn’t really occur?

Given NAU’s analysis methodology and its claim that under-funding our schools is causing a decline in our real estate values, it is particularly odd that in the 12 months immediately following the voters rejection of the $4 million override in May 2002, we supposedly gained 8 percentage points (from –10% to –2%) in market value against Andover.

This is the same override campaign during which school accreditation loss was threatened, 42 teachers were to be fired, and AP Calculus was going to be eliminated. Now in 2006-07, after having doubled our AP enrollments, our real estate values plummet? Very odd!

A more realistic assessment of the data indicates that, over the seven years listed, North Andover property values have averaged approximately 10 percent below that of Andover. The variation (standard deviation) of the estimates of this shortfall, based on the data listed in the table, is about 4 percent. As we will see, the existence of any trend, regardless of possible causes, is not supported by the data.

Let’s determine if there been any change in relative real estate values between the two towns.

Each data point provided in the table is based on an average of roughly 5 percent of each town’s properties. For example, in 2003-04, only 309 single-family properties were sold in North Andover out of about 6000 on the assessor’s list. If this many sold properties were randomly selected, the statistical variation of the results would be about +/-3 percent.

When differencing two such sampled results (Andover and North Andover) the statistical fluctuation in the difference, purely due to random selection, would be approximately +/- 4 percent – almost precisely the variation actually observed! Thus, random sampling of the approximately 300 homes that just happen to be sold each year is sufficient to completely explain the fluctuations in average sales price, even without any other corrupting influences and without any underlying change in the relative property values between the two towns.

While the fluctuations due to random selection can, by themselves, explain the variations in the two towns’ property sales prices, there is another effect that can dramatically increase these statistical fluctuations and make NAU’s claim even more specious.

New housing developments come in lumps. If in one year several developments of high-priced homes are completed and sold, they will dramatically raise the average sales price. If during a subsequent year, fewer such developments are completed and an unusually large number of older/downtown homes are put on the market, the average sales price will plummet … all with NO change in your, or your neighbor’s, property values.

This effect explains the two largest excursions in North Andover sale prices.

Included in the 2002-03 sales data, when NAU is implying North Andover property values were healthy, are 38 expensive new-mansion sales. But in the 2006-07 period, when NAU is telling us our property values have deteriorated compared to Andover, only seven North Andover new-mansion sales are recorded! NAU’s claim of a 17 percent decline in our relative property values for all single-family residences in town is hollow.

So, is there a better way to determine if our real estate values are lagging?

Each year, our assessors update our property’s market values. Their assessments are validated by the Department of Revenue and double-checked multiple ways for accuracy and consistency with changes in market conditions.

Statistics derived using this data are not subject to the fluctuations noted above because they include every property in town … not just a random sample. New construction (new growth) is explicitly identified each year so its distortion of annual real estate appreciation can be eliminated.

A plot is provided nearby of the appreciation of a $100,000 investment in a single-family residence in North Andover starting in 2001. The appreciation each year is the average appreciation of single-family residences in North Andover NOT corrupted by any effects of new construction. As you can see, we have little to lose sleep over in North Andover.

A note about the large jump in value in 2004: Up until 2004, towns performed town-wide revaluations every three years. These were required in 2001 and 2004 in North Andover (the jump from 2000 to 2001 was 25 percent). It is this author’s understanding that partial adjustments were made in the intervening years and then fully brought up to date at each “revaluation” year.

Thus, the starting point of 2001 can be considered a fully updated valuation and the appreciation in 2002 and 2003 understated and then fully accounted for in 2004 (thus a 19 percent increase). Starting in 2004, the assessments in all towns are fully-valued every year.

Assessor’s data from Andover was also obtained. Andover’s “revaluation” years were 2000 and 2003, so there is no common year when both towns were fully valued until 2004. Using 2004 as a common starting point, the nearby chart plots the growth of a $100,000 investment in both towns (new construction effects have been eliminated).

As noted in the chart, North Andover’s single-family assessments out-performed Andover’s by almost 4 percent over these three years. For a $500,000 home, that extra appreciation is worth $20,000 … and we saved on taxes also!

How accurate is the estimate of this gain? I’m not certain, but there is clearly no indication of a relative loss of value and nothing can be attributed to our taxes being too low or our schools being under-supported.

North Andover United’s last-minute postcard was designed to mislead the voters. We were snookered.

Was it a lie? A white lie? A fib? Were their fingers crossed behind their backs? Or was it just a cynical political ploy to raise our taxes for their benefit?

Congratulations to proponents of the override. They published a last minute distortion and will, forever more, be able to confiscate $1,650,000 (plus a 3 percent CPA surcharge and additional 2 percent yearly increases thereafter) from our citizens.

Taking property based on purposeful misrepresentation, even with the owner’s consent (e.g., our vote on June 19th), is called fraud.

Advocates of higher taxes wonder why the town is so divided. Maybe the division is between honest citizens and those who just want to get what they want … by whatever means necessary.

Remember this every time you pay your North Andover real estate tax bill.

Dr. Ormsby is a member of the N. Andover School Committee. He’s a graduate of Cornell and has a doctorate from MIT. You can contact Dr. Ormsby via email: ccormsby@comcast.net

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The July 2007 Edition of the Valley Patriot
The Valley Patriot is a Monthly Publication.
All Contents (C) 2007
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