Does Madison Property Assessment Decline Affect Us?

The headline of today's Wisconsin State Journal rang loud and clear:
property assessments declined for the first time in 35 years . The average drop is 3.1%.

That's bad news for homeowners on two fronts:

1. If you're trying to sell your home, plan on getting less for it.

2. Also plan on paying higher property taxes.

What? Hold on a sec! If my property is assessed less, don't I PAY LESS property tax?
Wrong. Dead wrong.
Property taxes don't go down unless spending is increasing at a rate less than that of property assessments. This includes, of course, both existing properties and new (from the previous year) developments/construction. When that happens, the costs are spread over a larger tax base, meaning each individual property owner pays a smaller share.

New values don't directly bring higher taxes but shifts the burden among taxpayers, said Todd Berry, president of the Wisconsin Taxpayers Association. "Falling assessments don't mean falling tax bills," he said. "We're probably going to be paying more property taxes.

Because the recession deepened last year, assessed values for every type of real estate - homes, condos, apartments, commercial buildings - dropped for 2010. Only personal property assets, like business equipment, which account for a sliver of the city's value, rose slightly for 2010.

Mill Rate Review
The mill rate is calculated as: Tax Levy ÷ Equalized Value
Tax Levy (of the taxing authority)
divided by
Equalized value (of all real estate in the district)
...and remember, the units are dollar per dollar of assessed value.
You typically see the mill rate expressed in dollars per $1,000 of assessed value.
To get this figure, simply multiply the calculated mill rate by 1000.

All things being equal...
If the Tax Levy does not change
and the Equalized Value DROPS 1%
then the Mill Rate RISES 1%

so if we do not want a drop in equalized value to affect property taxes, the only solution is to REDUCE the Tax Levy by the same amount as the reduction in Equalized Value
...and that means the budget needs to be trimmed.

Simplified Property Tax Scenario
Imagine a fictional school district:
• 1000 houses each valued at 200,000; total property value = $ 200,000,000
• 25 businesses, total property value = $200,000,000
• Total Equalized Value=$400,000,000

• School district budget: $8,000,000
• State Aid (remains constant from last year) = 50%, $4,000,000
• Tax Levy= $4,000,000 (make up difference between budget and state aid).

• Mill rate = 4,000,000/400,000,000 = 0.01
• Mill rate = $10.00 per $1000 assessed value
• $200,000 home pays.........$ 2,000.00

If property values drop 2%
Now Equalized value= $ 392,000,000

…and school spending doesn't change…
• Tax levy (unchanged from proposal)= $ 4,000,000
• Mill rate is now $ 0.010204
• Mill rate (per $1,000 assess value) $ 10.20
• $200,000 home now pays $ 2,040.82
…which is 2% more than if Equalized Value stays flat

Does this affect Sun Prairie?
The school district budget --at least the "rough draft" we've seen to-date---is based on the assumption of a 1% rise in the "Equalized Value" (which is the total value of all property in the district). If Madison property assessments are dropping an average of 3.1%, what's the likelihood that Sun Prairie assessments (and Equalized Value) will RISE 1%?

Obviously, we don't know the total yet (although the individual cites and towns in the district could give us their projected totals--hint, hint).

BUT...what we CAN do is check the Sun Prairie city assessor's website and look at the property assessments which are now complete and on-line.. A cursory glance of a handful of properties seems to suggest a FLAT assessment....meaning a 0% increase.

That means that the school district "rough draft budget" (for lack of a better term) is planning on spreading the tax levy over 1% more value than will actually result. Since the denominator (equalized value) appears to be lower than expected (0% growth vs. 1% growth), that means the result of the mill rate equation will INCREASE. Begging 1000 pardons for forcin' y'all to remember your long division rules.