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Explain My Property Taxes, Part 1

·927 words·5 mins
Prescott Balch
Author
Prescott Balch
Disclaimer: the opinions expressed in these posts are my own and are not to be construed as official opinions of the village. Please see https://caledonia-wi.gov/ for official communications.

This may be my most futile exercise ever, but I’m going to try to explain your property tax bill. It is entirely possible I will confuse you even further, but heck, let’s give it a go.

Sisyphus

There are 4 major line items on your tax bill. They are also referred to as taxing authorities:

  • Village
  • County
  • School District
  • Community College District

I’m going to start with the village.

Guess what? It isn’t as easy as it might seem. But if you’re going to be mad about your property taxes, you should at least know who to be mad at.

Village property taxes
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There are five calculations that get you the total amount on the village property tax line item on your bill. Here they are:

(1) \begin{equation} tax\ levy=general\ fund+debt\ payments \nonumber \end{equation}

Then the state has a formula that defines how much the general fund part can grow.

(2) \begin{equation} allowable\ increase = \frac{value\ of\ new\ construction}{total\ village\ valuation} \nonumber \end{equation}

Then we pick a number equal to or less than the allowable increase to get next year’s general fund tax levy (GF levy). Adding next year’s forecasted debt payments gets us the total levy for next year.

(3) \begin{equation} total\ levy = GF\ levy + debt\ payments \nonumber \end{equation}

Then we calculate the tax rate:

(4) \begin{equation} tax\ rate = \frac{total\ levy}{total\ village\ valuation} \nonumber \end{equation}

Then we calculate your tax bill:

(5) \begin{equation} your\ village\ tax\ bill = your\ assessed\ value * tax\ rate \nonumber \end{equation}

What makes your bill go up?
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Holding all other variables constant, these things will cause a rise in your bill:

  • More spending, which can only happen if the village has an allowable increase from (2)
  • Increase in debt payments over last year
  • An increase in the value of your home relative to other homes.

What makes your bill go down?
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Holding all other variables constant, these things will lower your tax bill:

  • Lower spending
  • Reduction in debt payments vs last year
  • A relative decrease in the value of your home. Ok, don’t do this, but if you tear your home down, you’ll pay lower taxes next year. Also note, if your home appreciates but less than everyone else’s, you have a relative decrease in value and your taxes will drop.

And then there are trickier combinations of the categories above. You can mix and match any way you want. Two examples:

  • Village adds new construction of 2% (for example), but increases spending less than 2%.
  • Debt levels drop more than spending increases.

Of course, those combinations can work the other way too, where taxes go up, if the bad number is bigger than the good number.

Myth debunking
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  1. If my valuation increases, my taxes will increase. Reality: if everyone’s property rises the same percentage, your taxes will not change. If your house rises in value at a higher percentage than others, your taxes will increase. And here’s a mind-bender to gauge how much you like math: if your valuation drops and everyone else’s drops more than yours, your taxes will go up!

  2. Village elected officials and staff can just set the amount of tax collected at anything they want. Reality: the state imposes really tight constraints, limiting the increase to an amount equal to the percentage in calculation (2) above.

  3. TIDs help us broaden the tax base, sharing levy costs with more taxpayers. Reality: when the tax rate is calculated in (4) above, total valuation excludes TID valuation, so the levy is spread across existing taxpayers. The increase calculated in (2), however, includes TID new construction. TIDs eventually share the levy burden, but only when they close, typically 20 years after they open. Normie taxpayers get to pay extra while the TID is open.

Almost final thoughts
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Local government thinks tax levy. Individual taxpayers think tax bill.

The process, though, is levy-centric. The levy gets defined first. Then the tax rate. Then your tax bill is calculated. If you want to understand what’s going on with your tax bill, you need to understand what’s going on with the total levy. Is the general fund growth rate higher than inflation? Is debt increasing over last year?

But don’t take an increase in levy out of context. You need to understand it in the context of total valuation change.

And then of course you need to know how much of that valuation is inside TIDs…

…and so on, and so on.

So it’s complicated. Unfortunately, there isn’t one simple number to focus on.

Nerd math
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For the nerdiest among you, some definitions, and a formula:

  • LYGFL = last year’s general fund levy
  • LYNC = last year’s new construction
  • LYTV = last year’s total valuation
  • TYTV = this year total valuation
  • TYDS = this year’s debt service
  • AV = your assessed value
  • TB = your village tax bill

\begin{equation} TB = AV * \frac{(TYDS+(LYGFL+(1+\frac{LYNC}{LYTV})))}{TYTV} \nonumber \end{equation}

There you go. Your tax bill calculation in a single formula. Clear as mud, right?

Here’s what you should take away from that formula:

The best way to keep taxes under control is for the village to control spending and not take on too much debt.

Your assessed value change can move your bill a bit either way, but it’s village spending and debt that matter the most. If the village gets in the habit of spending as much as the levy calculation allows, plus loads up on debt to support additional spending, then you have a problem.

End of Part 1

Coming soon will be Part 2: County