In my years working for the county, I have often heard the phrase, “The county is just raising values so they can get more taxes.” This statement is false for two reasons. The first, the motivation of the county to increase values is based entirely on compliance with State law. It is not based on a desire for more taxes because of reason number two. Reason two, it’s not legal for a tax entity, such as a county, to increase the amount of taxes it plans to collect based on a reassessment or market value increase. Let’s talk about what that means.
Two types of Value Increases
There are two kinds of assessment value increases that happen. The first is growth. Growth is when there is something new to be valued. For example, someone builds a new house or adds an addition or a garage to their home. The second type of value increase is a reassessment or market value increase. An example of this is when you have a house that you could sell for $150,000 and it is assessed at that value. The next year the market increases. Now that home, even though it has not changed at all, would sell for $250,000 and its assessment increases to match the new market value. The increase from $150,000 to $250,000 is a reassessment or market increase.
Taxing entities can use growth values to increase the amount of tax they plan to collect but they cannot use market/reassessment increases.
Unless they want to ‘opt-out’ taxing entities only have two options for increasing the taxes they levy (plan to collect). They can use the growth values and the CPI (Consumer Pricing Index).
Growth Values work like this:
The county’s total value last year was $700 million dollars. A couple subdivisions and 50 new homes are built during the year. The value of these new structures is $25 million. $25 million divided by $700 million is 0.0357 or 3.5%. So the county grew by 3.5%.
The Consumer Pricing Index is calculated by the Department of Labor each year. For taxes payable in 2023 it has been set at 3%.
The county in this example can then increase the amount of taxes it levies by adding the growth to the CPI. So 3.5 % + 3.0% = 6.5% . The most the example county can increase it’s taxes levied is 6.5% If the taxes levied last year were $3 million, then the taxes levied this year cannot be more than $3.195 million.
Notice that the value increase caused by the market does not play into this calculation at all. In fact, the only place the market value increase will have effect is in the total value of the county next year. But in that case, larger means less tax increase because the prior year value is used as the denominator in the division.
Here’s an example
A county with a prior year value of $700 million and $25 million in growth
| Scenario 1
The county has only growth value and no market increase so its total value for this year will be $725 million |
Scenario 2
The county had a growth value of $25 million and a market increase of $175 million. Total value of this year will be $900 million |
The next year the county sees $20 million in growth
| Scenario 1
To find the percentage of growth: $20 million / $725 million = 0.027 The county grew by 2.7% so the county can increase its taxes levied by 2.7 % |
Scenario 2
To find the percentage of growth $20 million / $900 million = 0.0222 The county grew by 2.2% so the county can increase its taxes levied by 2.2 % |
Conclusion
The only tax entity that has the ability to use a market increase to raise the amount of tax they levy is the school general fund. All other entities, county, city, fire districts, etc are limited to the use of growth and CPI.
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