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Tax levies go down, tax rates go up. What gives?

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Jim Leute
November 8, 2013

JANESVILLE—While some local tax levies are going down, tax rates are going up because the equalized value of property in Rock County has dropped each of the last five years.

The primary culprit has been the value of residential real estate, which, according to the state Department of Revenue, has dropped 15 percent since 2008.

When real estate values drop significantly, it's almost a given that an area's total equalized value will drop because residential properties account for so much of the total equalized value.

According to preliminary estimates for 2013, nearly 69 percent of Rock County's equalized value of $9.3 billion rests in residential property.

Commercial property accounts for about 19 percent, while manufacturing, agriculture and personal property were 4 percent, 5 percent and 3 percent, respectively.

Since 2008, the county's aggregate equalized value has dropped 12.6 percent. Since last year, it dropped about 3 percent.

Rock County is not alone with its declining equalized values.

The same thing has happened statewide, said Dale Knapp, research director for the Wisconsin Taxpayers Alliance, a nonpartisan, nonprofit research organization dedicated to policy research and citizen education.

“Residential values have certainly been the problem for the last few years, but originally it was everything,” Knapp said. “Recently, manufacturing has surprisingly picked up and commercial has picked up quite a bit around the state.”

Knapp said the Great Recession and the overall crash of the housing market are the primary reasons for the decline in residential values. He also said new houses built in the mid 2000s weren't bought, and that created an inventory—along with large numbers of foreclosed properties—that need to be absorbed before the market could rebound.

In addition, Wisconsin typically has lagged the nation in job creation, he said.

“When that happens, people aren't looking to buy new homes,” he said.

The Janesville School District is an example of government bodies taxing on declining equalized values.

The school board recently approved a tax levy of $35.8 million, a 0.7 percent reduction from last year. Because the total value of properties in the district went down more than $121 million, there is less value to tax, meaning individual taxpayers will end up paying a higher tax rate--more tax for each unit of property value.

The tax rate will increase from $9.79 per $1,000 of equalized value to $10.06.

“We thought we were doing the right thing with the lower levy, but what everybody looks at is the tax rate,” said Keith Pennington, the district's chief financial officer. “Unfortunately, that's tied to equalized values, something we can't control.”

The same scenario is playing out in Walworth County, where the county lowered its tax levy but will increase tax rates because of declines in equalized value.

The result is a simple function of math, Knapp said.

“Municipalities, counties, school districts don't set a tax rate per se,” he said. “They set a levy and then hold that levy up to the property values.

“The tax rate then falls out of that.”

The alliance said it's important to understand a few concepts about the state's property tax system.

-- A municipality is responsible for determining the market value or assessment of each property within its boundaries, with the exception being manufacturing properties that are assessed by the state Department of Revenue.

-- Not all municipalities keep assessments current, and many only update them when state law requires it.

-- With sporadic revaluations, county and school tax levies can't be divided among underlying municipalities using assessed values. To ensure fair apportionment of taxes, the revenue department annually estimates the full market or equalized value of entire communities, not individual properties.

The result is that Wisconsin has two kinds of property values: assessed values for individual properties and equalized values for larger taxing areas such as towns, villages or school districts.

Knapp said the state determines residential equalized values by looking at sales and other housing activity in local markets and comparing them with previous years.

He said the state's housing market is on the rebound as housing starts grow and prices increase for sales of existing homes.

That assessment matches The Gazette's quarterly economic dashboard, which has shown an improving housing market for several quarters.

Knapp said the Multiple Listing Service data used in the dashboard reflects the average prices of a relatively small number of homes sold without any regard to their assessed values, which the state factors into its overall equalized value calculation.

He also noted that the 2013 data the revenue department released in August actually reflects what happened in 2012, so there is a lag in reporting. This year's improving housing market, he said, will be reflected in next year's numbers.

“Our best guess is that next year we're finally going to a see a positive number,” Knapp said. “It's not likely to be much, but at least it should be positive and end the series of declines.”



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