Property Assessment and Property Taxes:  Understanding the Relationship

Most, if not all, homeowners have experienced a decline in the assessed value of their property in each of the past two years. For many of these property owners the initial thought may be that a lower assessed value will translate to lower property taxes. Unfortunately, lower assessments do not necessarily mean lower property taxes. In fact, property assessments only affect how the tax bill is divided; the City budget, as well as those of other taxing jurisdictions, determines the amount of taxes to be levied. To illustrate, please consider the following hypothetical scenario. Assume that the 2009 tax levy totaled $2,500,000 and that the City-wide property valuation was $750,000,000. In this instance, the levy rate would be $3.34, which equates to a tax bill of $501.00 on a home valued at $150,000. Now assume that for the following year the tax levy remained unchanged but the assessed value of properties declined 5% to $712,500,000. In this case the levy rate would increase to $3.51. However, since the “average” assessed value of a home would have also declined by 5%, the home previously assessed at $150,000 would now be valued at $142,500. Applying the new levy rate of $3.51 to the reassessed value, the resulting property tax payment remained relatively unchanged at $500. On the other hand, had property values increased 5% and the total levy remained unchanged, the resulting tax payment would still be $501. Hopefully this illustration will serve to dispel the idea that assessed value is the “driver” when property taxes are calculated.