Of Course Property Value Is Connected to Rate


Commenting to my property-tax-related post, this morning, Mike678 articulates a point that one hears from time to time, and being a sucker for discussions of political philosophy, I think it’s worth responding in a post, rather than another comment.  Here’s Mike’s comment:

No connection, Justin. If there was, would it be OK if the town’s taxes increased because my house was valued more this year than last?

The cost of Gov’t doesn’t go down because home values do. The cost of Gov’t should be based on the services provided–services that the majority want, not what the Gov’t bureaucrats think it should provide.

To respond, let me start with obvious propositions with which I’m sure Mike would agree.  There are all kinds of connections between the value of people’s property and the taxes they pay on it:

  • The taxes are based on the property value, after all.
  • If you improve your property, and its value goes up, your taxes go up.
  • If you let your house fall apart, and the value goes down, your taxes go down.
  • If your neighborhood holds its value while the value goes down elsewhere in town, your neighborhood’s taxes go up.
  • Generally speaking, if your taxes go up or down, the values will go down or up inversely because potential buyers will be able to spend less or more on a house and maintain the same monthly payment.

If we’re thinking more in practical terms, if there’s no connection, why tax property, rather than income or capitation? It seems to me that the property connection creates incentive for the local government to keep the values up.

So, in general, yes, I think a town’s expenses ought to go up and down with the values; the idea that the services voters want should be considered separately from the material wealth of people in the town introduces the very problem that Rhode Island faces so frustratingly.  We’re well — far, far — beyond governments’ maintaining the roads and ensuring some basic safety services, and the government should have to make some decisions about spending when the people in town are losing money. Otherwise, you get what we largely have, which is one group of people using institutional advantages to take money away from another group of people for its own use in a perpetual, self-reinforcing cycle.

Here’s my concise view of how this ought to work: We should concentrate on the rate, not the levy, and in general, year to year, the town should get what the property values produce. If the values skyrocket, then the political process should kick in to lower the rate. If shrinking values (and, therefore, shrinking taxes) really cut into services, then the political process should kick in to raise the rates.

The problem is that the system we’ve allowed to develop makes government the untouchable sector. That’s why so many people have abandoned private civic society and pushed to inject their priorities into government; it means such priorities are the very last things compromised in an economic downturn, no matter how superficial they are. Maybe this made sense when the government was limited to basics, like roads and police, but that’s clearly no longer the case. People in the state are struggling, and yet, we’ve tens of millions of dollars for politicians to blow on speculation, pet projects, and experiments.

In Rhode Island’s state of civic decay, we have to flip that. We have to add flexibility to government budgets, and the only way to do that at the local level is to get back to putting families, and their finances, first, not government. We do that by linking government’s welfare to taxpayers’ welfare, not the other way around.

Sure that can go too far, but we’re not even moving in the right direction.

  • Rhett Hardwick

    It is not for no reason that the tax bill on a property is referred to as the “tax burden”

    ” why tax property, rather than income or capitation? ” Probably because we started that way a few hundred years ago, and other schemes were of dubious legality. Hard to remember that the income tax is just barely 100 years old. We existed as a country for 150 years, and fought a civil war without it. At it”s inception it was thought to be of dubious constitutionality. Some legal scholars are still of that opinion.

  • Guest

    The problem in Rhode Island is with the state constitution which allows for government to make a profit off the taxpayers for a fiscal budget year and carry it forward into the next fiscal budget year. Rhode Island is over burden and government heavy plus state general assembly has been funding too many city and local school budgets this blurring the funding streams costing taxpayers far too much money to live in the state. As more people leave the state your costs to live there will rise.

    Our state constitution says in writing it is illegal for the government to make a profit off the taxpayers and must end up with a breakeven fiscal budget at end of budget year. Any excess funds must be returned to the taxpayers. In over 10 years I’ve received one rebate excess funds check from the state.

    This state is ten times the landmass size of Rhode Island but yet we only have 4-municipalities, 1-state-wide unified school district operated by state government and no state police department. Stream lined government at its finest in action doing more with less and almost 99.9998% transparent accountability.

    In my state, state income tax, fuel/gasoline tax, sales tax, other taxes, parking fees and miscellaneous state license and service fees fund the state government and unified educational school system. Municipal property tax, water, sewer fees, license fees, camping permits, mass transit fees, parking fees and service fees fund each municipality.

    The municipalities here provide far more services and monthly events FREE or at extremely reduced price over what is offered in Rhode Island
    for a resident or out of state fee. The over 750 miles of shoreline and beaches are FREE access with state and city provided public rights-of-way with FREE paved parking, FREE bathhouses with showers, FREE life guards, FREE picnic grounds with tables and bbqs, FREE daily and weekly grounds keeping. We are the only 100% true Ocean State being the only state in the nation completely surrounded by ocean.

    My municipal property tax rate in the last 10 years has risen 10 cents to $3.50/$1,000 at 100% evaluation but my senior citizen (age 50 and above) property tax homestead exemption has raised from $80,000 to $120,000
    which means my property tax remains at the minimum municipal property tax of $300 per year (100% property evaluation minus tax homestead exemption times tax rate/$1,000; if results are less than $300 you must pay at least minimum tax). I could move to one of the other three municipalities where the minimum property taxes are respectfully $150, $100 or $75 per year. The property tax is such a “Burden” here we are allowed to make multiple payments spread over the year.

    In my city the median price of a single family house over the last five years has risen to $770,000 and the median price for a condominium has risen to $425,000.

    • Rhett Hardwick

      The hotel tax is one of the state’s largest sources of revenue, after the excise tax and personal and corporate income taxes. And because leftover TAT money is mingled into general state operating expenses, it’s next to impossible to know exactly where those dollars go.
      Last year the TAT brought in $452 Million.

  • Mike678

    Your inference in the previous post was it isn’t ‘fair’ that taxes increase if home values decreased. That, IMHO, is a fallacious argument–thus my “no link” statement. Of course assessed home value and tax rates are linked.

    The cost of services don’t go down just because my home is valued less. For example, I’m paying my garbage service 8% more this year based on his costs (landfill, fuel etc.) yet my home value has remained constant. I value the service, understand his costs have increased, and pay the bill. If we, the voters, want to maintain a certain level of service and home values (assessments) decrease, then tax rates will go up to maintain a constant revenue stream. It’s up to the voters to determine what those services are and what they can afford–not local bureaucrats. This is the point you could have argued more clearly–and do better in this post.

    It’s the public sector unions and their captive local leadership that often determine what we must pay in taxes. The voters in Tiverton have kept the rate increases at a better level than most in RI for the last few years, but do you think that you have kept the unions and their supporters in check? Or are your ‘leaders’ shorting preventative maintenance and cutting services while fully funding their pet programs?

    • Justin Katz

      Well, if I’m being clear, it’s unfair for taxes to increase at all, particularly in a town that’s seen its property devaluing. It would be more fair if tax bills were increasing alongside increases in residents’ demonstrable wealth, as evidenced by the value of their property.
      And you can’t disconnect my reliance on “fairness” from the politician’s declaration that the increase was “only” a certain amount. What’s the context for “only”? Try going to a roomful of unemployed people whose welfare has run out and telling them the government “only” wants another $40. Absent some other marker, property values are the only context, and, indeed, it was the reference point that Edwards V used.
      As I know you know, the key problem, here, is that the municipal Venn diagram increasingly separates the people voting for more taxes from the people paying them.

      • Guest

        In Rhode Island, there is a federal grant the state applies for each year to the federal government for tax equalization which is used for each city and town based on their property taxes. I know this because my father managed the program from his RI state department. One of the problems he and his planners had was RI cities and towns were not updating their property tax rolls except only when the property sold to a new buyer.

        In other words Mr. Smith lived in his house for 40 years and
        paid a property tax based on 40 years old tax records and next door Mr. John lived in a same style house built same year as Mr. Smith by same contractor but was sold once at a higher updated price and Mr. William lived next door to Mr. Smith in same style house built same year as Mr. Smith but had been resold three times for higher prices each time. All three houses were the same not remodeled or expanded but paint and wall paper fresh. Each owner paid different property taxes based on the sale price of the house and Mr. Smith paying the lowest property tax of all three but when he would sell his house he would reap the windfall benefits of Mr. William house who had been paying the highest property tax which had sold three times each time at a higher price. Thus Mr. William paid highest tax, Mr. John paid middle tax and Mr. Smith paid lowest tax all for same house.

        This presented a problem to my father in fair and equal distribution of the federal grant funds to RI’s 39 cities and towns due to some RI municipalities being wealthy, some being above average, some being average, some being below average and some being poor and a lot being in between due to no municipal tracking of housing costs.

        What he did was have his grant writers and planers create a proposal to RI General Assembly to require each RI city and town to reevaluate all residential properties within municipal boundaries every five-year for property tax equalization so proper distribution of federal grant funds could be distributed to each of RI 39 cities and towns on equality bases.

        In between the annual five-year property tax reevaluation if
        there is a property tax hike or property tax reduction in any RI city or town that would be due to local municipal operational or service requirements needing more or less local tax funding or on RI Smith Hill cutting funding to cities and towns.