Our town is all abuzz after learning assessments for most Janesville properties will increase by about 30 percent on average.
At first blush, this is good news. The city is finally getting around to recognizing the fair market value of our property. If property values are increasing, the assessed value should reflect that.
Some people I talked with, however, jumped to the conclusion that if their assessments increase 30 percent, their property taxes will increase 30 percent. Who wants to see a 30 percent increase in their property taxes?
That’s a fair question, and the answer is nobody.
Here’s where there is some relief to those who fear massive increases in property taxes because of a big jump in assessments.
To illustrate my point, let’s use a home assessed at $150,000 and the city tax rate is $10 per $1,000 of assessed value. In that case, the city property taxes are $1,500. If the city reassesses the property and finds the fair market value is $195,000 (a 30 percent increase), then the city property tax bill would increase from $1,500 a year to $1,950 if the tax rate remained at $10 per $1,000 of assessed value.
If that formula is applied citywide to all property, the city would see revenue from property taxes skyrocket by 30 percent. If that happened, I predict we would see a property tax revolt resulting in the recall of all city council members who voted for the increase and a demand to replace key city administrators.
The bottom line is that is unlikely to happen. What usually happens when a reassessment results in large increases is that the tax rate is lowered to reflect a reasonable and inevitable increase in the city budget. In other words, your city property taxes should not go up 30 percent.
Your tax bill can go up, go down or stay the same depending on whether your assessment increase is above, below or at the average.
I have observed over the years that we are intentionally misled when it comes to understanding property taxes. Here are a couple of things to remember.
In terms of what you pay each year in property taxes, the tax rate means little. What we care about is the bill we receive, and that bill is based on what the city spends. In most cases, that amount increases every year; therefore, the city needs more revenue and most of that revenue comes from the property tax.
Some years, municipalities rave that the tax rate has fallen. Don’t be fooled. Even with a decrease in the tax rate, property values can go up and the city can generate additional revenue. Eventually, as the city increases spending, it will come from increases in property taxes unless phenomenal growth occurs and continues.
Assessments should not be viewed as a negative in terms of property taxes. If you live in a $150,000 home that you can sell for that amount on the free market, then you should pay property taxes on a $150,000 home.
Property taxes are driven by spending. If you think property taxes are too high, demand cost controls, but be ready to identify which service or programs you would slow down or cut.