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As property values decrease, tax questions surface

Jan. 21, 2009

Dan Walker, city assessor for South Milwaukee, gets a lot of angry phone calls.

Residents get their tax bills, see numbers they don’t quite understand and worry they are being ripped off.

NOW reporter Isral DeBruin asked Walker and Cudahy assessor Suzanne Plutschack a few questions about taxes, property values and the effects of a down economy.

Q. Will declines in the housing market affect the number of dollars residents pay in property taxes?

A. No, Walker and Plutschack said. This is because the economy is down as a whole, meaning the loss of value is spread almost equally across the entire housing market.

Property tax assessments are meant to provide an accurate comparison of the values of homes in the city. Assessments are used to fairly spread the tax burden — it’s all about making sure that owners of similar properties pay similar taxes.

Higher or lower assessments don’t earn the city more or less money, they decide who pays what share of a predetermined total.

In other words, if your assessment goes up or down, it might not mean you are paying more or less taxes. It all depends on how your assessment compares with those around you.

However, Plutschack said, because residents’ overall wealth likely will decrease when their home values do, they might be paying a larger percentage of their overall wealth than in other years.

“It’s still the same percentage that they’re paying in taxes,” Plutschack said, “it’s just more difficult to pay.”

Q. Will declining home values cause the city’s tax rate to increase?

A. In theory, yes, Walker said. When property values decline and the overall tax levy — the total amount to be raised in taxes — stays the same, the tax rate must increase to compensate.

When values increase across the board and the overall tax levy stays the same, the tax rate will decrease.

Q. So what makes taxes go up or down?

A. Decisions made by officials in the city, county, school district and other taxing entities cause taxes to go up or down, Walker said. Municipalities set their budget needs and determine the total amount needed to be raised through the property tax to pay the bills. This amount is the levy.

This total tax levy amount is then divided by the total value of property in the city (the tax base) to come up with the tax rate. This is the amount residents need to pay, represented as a price per $1,000 of assessed value.

When the value of homes collectively declines or increases, residents can expect to pay the same amount of tax, plus the cost of any increases in city services or fees. This increase is limited to 2 percent a year by state law.

Q. What’s the difference between the assessed value and fair market value?

A. Assessed value is the amount at which the city assessor has valued your home, thus determining your share in property taxes. Fair market value is a number computed by the state based on the selling prices of homes, Walker explained.

The fair market value on your tax bill is always 18 months behind present data because of the time it takes to compute it. This value is used to compare your municipality with other municipalities within a county or region.

Technically, neither number is inaccurate, they have just been figured at different times. Theoretically, if the value of your house does not change for 18 months, your assessed value and fair market value will be the same on your tax bill.

With current market conditions, Walker said fair market values on the most recent tax bills will in most cases be 7 or 8 percent higher than the actual value of a property.

Q. How often are homes revalued?

A. State law requires that home values be kept within 10 percent (above or below) their fair market value within a five-year period, Walker said.

Plutschack said for most small communities, this means homes are revalued every three or four years. Some larger communities revalue annually.

Walker said annual assessments in small cities don’t save anyone money, they just cause the tax rate to go up or down proportionally.

“We’d be like a dog chasing its tail around,” Walker said.

Isral DeBruin can be reached at (262) 446-6608.

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