There is some good news for the region. The total State Equalized Value for the seven counties in the SEMCOG region is just a few million dollars shy of $200 billion. In the past year, property assessed values have increased by four percent. That is a healthy growth rate. Strong, but not exuberant.
The changes in the Taxable Values on property went up at a rate that was even greater than the SEV rate – 4.2 percent for the region. This must mean that local government revenues will get a nice shot in the arm this year. In some ways yes, but it won’t be 4.2 percent. This is where figures can lie. A 4.2 percent increase in Taxable Value does not equal 4.2 percent more in property taxes. In many cases, it means many local governments will be required to roll back their millage rates because of the Headlee amendment.
Property values have come a long way since the depths of the Great Recession. When property values crashed a decade ago it created a “reset” under Proposal A. Taxable Values and State Equalized Values were aligned on most properties in the region. As of this year, the total SEV for the region is now 25 percent greater than the Taxable Values. The good news is that property values have increased by about 25 percent above the rate of inflation since the end of the Great Recession. The bad news for local governments is that higher values, even in Taxable Values, don’t equate to the same increase in property tax revenues.
The first issue that must be addressed is where did the growth in Taxable Values come from? The housing market is hot, but as a region we are still constructing far fewer new homes than we were prior to the Great Recession. Many existing homes that are going up for sale are being snatched up before the ink is dry on the flyers. When that existing home is sold, the new owner will be paying more in property taxes than the previous owner – about 25 percent more on average according to these numbers. But our state constitution, under the Headlee provision, requires much of that additional property tax revenue to be returned to the neighbors of the new homeowners, by reducing the property tax rate in the community.
By simply tracking growth in Taxable Values, we are not being fully transparent. Growth in Taxable Value comes from three sources. Inflation accounts for part of the increase; in 2018, the inflation rate being used is 2.1 percent. Uncapping Taxable Values at the time of sale adds to the Taxable Value. Finally, new construction adds to Taxable Value. The Headlee amendment essentially does not allow local governments to keep the revenues associated with the sale of existing property.
Each year, every local government that levies a property tax must calculate a millage reduction factor. The assessors provide the information on how much new construction value has occurred in each taxing unit. This is the real indicator of how much revenue growth can occur which exceeds the rate of inflation. If no one has been constructing new homes or commercial buildings in your community, your property tax revenue may not increase by more than the rate of inflation, no matter how much your Taxable Value increases. This is how numbers need to be put into proper perspective.
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