Tuesday, April 23, 2024

Your assessments are likely up, but your property taxes? It depends.

Given my geekdom on the subject, I’ve had a few friends and relatives ask me over the years about how property taxes get figured in Wisconsin for each parcel of property, and how it relates to their assessments. And given that you may have recently gotten a new property assessment for this year (as we did in Madison over the weekend), you might be especially intrigued right now.

Fortunately, Forward Analytics has put out a good explainer that lays out how a community’s total levy interacts with the assessments that individuals get.

To begin with, let’s go with this one-sentence summary from FA.
The key to understanding the property tax bill is this: Your share of total assessed property value equals your share of the property tax.
That’s because state law requires all properties that reside in a certain taxing area (school district, municipality, county, etc.) to have the same “base” tax rate, which calculates the total gross property tax. Forward Analytics uses a cute scenario to explain it further.
A simple three house example (base scenario) illustrates why revaluations are needed when assessed values are out of sync with market values. The village of Badgerville has three residents: Ashley, Ben, and Carol, who each own a house. Ashley’s house is assessed at $200,000, Ben’s at $300,000, and Carol’s at $500,000. There is no other taxable property in the village, so the total assessed value in Badgerville is $1 million with the three residents owning 20%, 30%, and 50% of the total, respectively.

The total property tax levy in the city is $10,000. Recall that the share of total assessed values is the same as the share of total property tax. Since Ashley’s property is 20% of assessed values, she pays 20% of the levy or $2,000. Ben pays $3,000 (30%) and Carol pays $5,000 (50%). The left side of Table 1 on page 7 displays this situation.

While this “share” method is critical to understanding revaluations, property owners are more familiar with property tax rates. In this case, the assessed tax rate (tax per $1,000 of assessed value) is $10. Applying that rate to each property yields the same tax liability.

And then when property is revalued, and communities change their total tax levies, the taxes change proportionally.

You can see where Ashley’s property went up by 20%, but her taxes went down by $214 in the first scenario, and even as the total levy went up by $1,000 in the second scenario, the taxes she pays to her community still went down.

Why? Because Carol’s property value assessment went up by a higher percentage, and now takes up a larger chunk of the community’s property value. Carol’s taxes go up by more than the 10% that the total levy is going up by as a result.

I’ll take this down to my personal example for the house my wife and I own here in Madison. Our property assessment went up a little over 9% for this year (uh oh!) and the total citywide assessment of property values went up …a little over 9%.
Locally assessed real estate increased 9.3% for 2024. Commercial assessments increased 10.5% ($15,584 to $17,223 million) and residential assessments increased 8.5% ($25,826 to $28,021 million). Steady growth and continued development contributed to the increase.
So in theory, if the total property tax levy for Madison stays the same for this year vs last year (HAH! I kid!) this would means our property taxes paid to the city would also stay the same. Or if the city’s property tax levy goes up by 2%, our taxes should also go up by 2%, and so forth. It also likely means that our property tax rate will continue to go down (unless we get an increase in the tax levy of 9%!).

The frustrating part to me is not that we are paying higher property taxes than we were a decade ago. Higher costs that the city needs to cover and a lack of increase in state funding means that property taxes take on some of those extra costs – it happens. But we have to pay almost all of these additional property taxes in full, with very little allowed to be written off.

The maximum state tax credit for homeowners and renters has been frozen at $300 for 24 years, and on the federal side, the SALT exemption (which includes state income taxes and local property taxes in Wisconsin) has been frozen at $10,000 for joint filers since the GOP Tax Scam was put in place in 2017.

About the only break we get is that our increased school taxes give us higher School Levy and Lottery Tax Credits – a credit that the Wisconsin Policy Forum notes is regressive in nature, as people that have higher property values end up being the ones with a higher write-off.
These provisions will help hold the statewide property tax increase much closer to those seen in the years preceding the pandemic – likely about 2% to 3% – while allowing a healthy increase in local revenues. The school levy credit is distributed based on how much in K-12 property taxes is paid in each community. As a result, the increase in the credit will deliver the most benefit to communities such as Brookfield or Madison with high property values, since they tend to pay more in property taxes for K-12 schools.

Lawmakers could have placed the money for the credits into state general school aids instead, and doing so would have produced a similar statewide benefit for property taxpayers as a whole. The school aids formula, however, distributes more of this type of funding to communities with low property values per pupil. So that alternate approach would have sent more of the benefit to communities with low property values such as Beloit and Milwaukee.
It wouldn’t help us as much in Madison, but I’d rather trade more state funding being distributed into the general aids, and not having property taxes be as much of a basis in funding for K-12 schools overall. Seems a lot easier vs having these extra kickbacks and credits that aren’t needed. But those are policy debates that won’t have any changes passed into law before the next property tax bills come out in 7 1/2 months.

In the short-term, what I’d tell you is to remember that when it comes to property taxes, it isn’t as much the increase in your assessment that matters as how much you’re going up compared to everyone else in your community. Given that increases in property tax levies are still severely limited at the local level (barring referenda or a lot of new construction going online in 2024), that big jump in property value isn’t likely to mean a bunch of sticker shock when your property tax bill comes.

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