Vaughan Smith, owner of Westcote Bell Pottery, and his wife, Jackie Cohen, don't want to leave their home in High Falls. But unless they get some relief from skyrocketing property taxes, they may have to sell and relocate to North Carolina.

In 1994, when they purchased their eyebrow colonial for $205,000, the couple was paying $2,900 in taxes. But with a current assessment of $560,000, the taxes on their two-acre property are now $10,500, an increase of more than 350 percent.

Hoping to fight for change, Smith has joined a local group, the Property Tax Reform Task Force, as well as another task force examining the Rondout Valley Central school district's plans to build a new high school.

"A lot of people are leaving the area," Smith says. "Families are moving out. Houses are being bought up by people who are mostly weekenders with no school-age kids. They don't support the local businesses during the week. It takes the heart out of the community." Unless homeowners get some relief, Smith predicts, the area "will be developed uncontrollably, because people are forced to subdivide to pay their taxes."

Smith's high taxes are limiting the expansion of his business. He had planned to purchase a new kiln, which would require adding an extension to his studio, located in a barn on the property. But he decided against making the change because of fears he would be reassessed at a higher value and his taxes raised.

Unfortunately, Smith's predicament is typical of that of many homeowners in the Hudson Valley. A neighbor in Kingston is worried about a steep tax increase due to a citywide reassessment; a storekeeper from Woodstock is anxious about how the recent purchase of the house next door by a celebrity for more than $1 million will affect his taxes; a friend in Saugerties is contesting a steep reassessment that mysteriously values her property at significantly more than a neighbor's, even though her house is smaller, needs repairs, and is on less acreage, in a less desirable location. Tax-reform groups have sprung up all over Ulster County—not just in Stone Ridge, but also in Saugerties, Kingston, Gardiner, and Rochester.

There is a great deal of confusion about how houses are reassessed and how they impact property taxes. Contrary to popular opinion, and despite the fact that the trend of significantly higher taxes has mirrored the dramatic climb in real estate values, higher assessments in themselves don't cause taxes to go up, say assessors. The real culprit is increases in town, county, and school budgets, particularly the last.

On average, school budgets comprise 65 percent of the total tax bill in Ulster County. In some districts, budgets have doubled and quadrupled in the past five years. In 2002 (the most recent year for which figures are available), the average residential tax bill in Ulster County was $2,991, of which $1,911 was for schools, $628 was for town or city taxes, and $452 went to the county, according to New York State's Office of Real Property Services (ORPS).

Accounting for much of the increase are state and federal mandates aimed at raising graduation rates and learning standards, increases in teacher salaries, and, especially, the rising cost of health insurance and pension benefits. As the proportion of federal and state aid to schools has declined over the past two decades, municipalities are footing an ever-larger share of the bill. The citizen reform groups are looking for alternative ways to fund schools, and state bills have been introduced that propose solutions (see sidebar at left).

Counties are also experiencing shortfalls in their budgets, caused mainly by increases in the pension costs of government employees, which, according to Mark Lavigne, spokesperson at the New York State Association of Counties, were formerly covered by investments in the stock market. Meanwhile, counties are struggling with escalating Medicaid costs, which are forecast to rise at an average rate of 8.6 percent between 2006 and 2014, according to the Rockefeller Fiscal Studies (RFS), the website of the Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York. The RFS also noted that public welfare expenditures in New York, including Medicaid, were $1,735 per person in 2002—74.2 percent above the U.S. average. The upshot: Property taxes statewide have increased on average 29 percent over the past three years, says Lavigne.

Marc Plate, assessor for Rosendale and a member of the Property Tax Reform Task Force, says he's opposed to the current system and favors funding schools through a combination of income and property taxes. He also supports putting caps on property values. "People are at the breaking point," he says. "More people can't afford to pay the tax. We have multimillionaires in our villages paying the same as everyone else."

But in the meantime, the job of the assessor is "to make the system as fair as possible, given the framework."

Two factors determine the amount of tax on a property. The first is the taxable assessment, which for residences in New York State is required to be based on a percentage of its current market value. Municipalities can use whatever percentage they want, but they must apply the percentage uniformly to all properties within the community.

The second factor is the tax rate of the jurisdiction, which is determined by the amount that has to be raised to meet school, county, and town budgets. If everyone's property in a town increases significantly in value but budgets stay flat, the tax rate will go down and taxes will remain the same. For example, in 2003, when the town was assessed at 60 percent of market value, Woodstock property owners in the Onteora school district paid a school tax rate of $23.93 per $1,000 of assessed value. In 2004, after the town did a reevaluation in which properties were assessed at 100 percent of market value, the rate decreased to $11.15.