Tuesday, December 20, 2011

AJC reboots misleading "Your taxes are too high" series

Posted By on Tue, Dec 20, 2011 at 4:09 PM

First off, I don't have a problem with the daily paper taking on the subject of property taxes. It's an issue that really affects people where they live, pun intended. But I believe the AJC's approach to the subject is sensationalistic and overly simplistic. Sensationalistic in that the paper essentially duplicates the same story for each metro county, stretching a single idea over an entire week. I understand they want to boost readership — we all do — but it seems like overkill.

The biggest problem, though, is that the articles strike an alarmist note without providing the proper context about a complex subject. Put simply, the AJC's series suggests — assumes, really — that if your property is overvalued by the county, then your taxes are too high. But it ain't necessarily so.

Remember, all you homeowners out there, the years before the bubble burst, when your tax assessment reliably undervalued your property? Did that mean you were paying too little in taxes? Of course not. That's because everyone else's house was undervalued, too.

Wonk alert: As you probably already know, your home valuation is one of two variables that determine your tax bill. The second is the millage rate, which, in turn, is a product of the budget of the local municipality. The amount you end up paying in taxes is, ideally, reached through the following process:

1. County assessors appraise everyone's property and each local municipality comes up with its "tax digest," the total value of all taxable property within its jurisdiction

2. Your local elected officials — city, county, school board — develop their respective next year's budgets to reflect anticipated revenue and costs

3. Using those two factors — the tax digest and the budget — officials extrapolate their jurisdiction's respective millage rate

4. Those millage rates are applied to your individual tax assessment to determine how much poorer you will become

Now, in a perfect world, the fair market value of everyone's property would be accurately reflected on his or her tax bill. But just because the county overvalues your house doesn't mean you're paying too much, any more than your house being undervalued in the past meant you got a break. Rather, the important question is whether your house is overvalued relative to other homes (and to commercial property).

For instance, the AJC series says the typical Douglas County home has been appraised by county assessors at 37 percent more than it's actually worth on the open market. Ignoring commercial property for a moment, that suggests that the county digest is inflated by 37 percent. Now, let's say the county budget is $50 million. If the county were to update its assessments and somehow figure out the fair market value of everyone's home, the residential portion of the tax digest would suddenly drop by 37 percent. Which means the county would be forced to hike up the tax rate if it still aimed to collect enough revenue to support a $50 million budget.

So, even if the county had a real-time, real-world valuation for your house, the higher millage rate might mean you wouldn't pay any less in taxes.

In fact, I think the AJC's whole question of whether homeowners are "paying too much in taxes" is somewhat misleading. The proper question should be, "Are you paying more than your fair share?" This is because, if every property is overvalued by 37 percent, it's all a wash. Same with everyone being undervalued the same amount. It's only when some people's houses are overvalued and others undervalued that taxpayers get screwed. Or if some neighborhoods are overvalued by a wider margin than others. Or if residential properties are overvalued relative to commercial properties.

Actually, that last scenario is the likeliest one, because commercial property owners have the resources needed to go to the mat with county assessors in appealing their valuations. And I suspect that homeowners who don't appeal their valuations will end up subsidizing some of the tax burden of those who do appeal their valuations.

Or perhaps it's people with big homes getting the shaft. Or people in new homes. Or people on one end of the county — or maybe it's the other end. I don't know who's getting shafted. And, more to the point, neither do the AJC's readers. Because the issue is far more complicated than simply whether your home is worth less than the county thinks it is.

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