Property Tax Paradox: How Nebraska’s Increased Valuations Impact You
Many Nebraskans (this writer included) took big gulps when they opened their property valuation notices this past week. In Crete, our valuations went up 23%.
While we can understand the increase in valuations because property sales have risen, and property valuations are based on market value, these increased values also have the possibility to significantly impact the taxpayer if governing bodies don’t take assertive action. An example:
In Crete, where I live, my total mill levy rate is 2.0838. A “mill” is equal to one dollar per $1000 of assessed value. So, Crete residents will pay almost $2.10 for every one thousand dollars of value.
According to Realtor.com, the current median market price for a house in Crete is $280,000. If last year, the same median house price were 23% less, that would make the median market price out to be $215,600.
The math looks like this for taxes:
$215,600 x .020838 = $4492.67 property taxes owed for 2022
$280,000 x .020838 = $5834.64 property taxes owed (est.) for 2023
This little exercise demonstrates quite clearly how taxpayers end up footing larger and larger bills every year, even while public taxing bodies say “We haven’t raised taxes.” They don’t have to raise taxes (the mill levy) to bring a significant amount more revenue into the coffers.
Let’s take the exercise a little bit further, and say that we understand that the cost of “doing business” (providing services to taxpayers) goes up a little bit every year. Supplies, payroll—all of the things that individual businesses have to contend with as well–and let’s say that increase is equivalent to the current inflation rate—right around 5% this year.
In order for the Crete taxing entities to meet their baseline expenses, we’ll say that they need a 5% increase from every taxpayer.
For the median homeowner in Crete, a 5% increase in property taxes paid for 2022 taxes to 2023 taxes would mean an additional $224.63 (4492.67 x .05), or a total of $4717.30. That would amount to a tax bill that is $1341.97 less than the projected 2023 tax bill above.
Taxing subdivisions can do one of several things when these potential windfalls in revenue are going to come their way:
- They can maintain their levy rates, reap a financial windfall, and burn the taxpayers, while saying they “didn’t raise taxes.”
- They can decrease their levy rates modestly (in a recent tax year, my tax rate went from 2.0997 to the current 2.0837). Using the median prices above, if the local taxing entities reduced their levies (in total) down to 2.07, that would still mean that the taxpayer would be charged $5796 in property taxes—still significantly higher than the previous year—but they can say they CUT taxes.
- Be honest about spending, and slash levy rates. For the taxpayer in Crete, that 5% increase on the spending/revenue needs side would require a levy rate of 1.69 and would mean that the property owner is still paying more, but not the increase we’ve seen in recent years.
Most of us have no illusions about taxing entities slashing their levies. But that’s where “Truth in Taxation” comes in. The Platte Institute has been working to help hold governing bodies’ feet to the fire so that the revenue windfalls that they receive based on increased valuations are translated into their actual expenses fairly.
Platte has a resource page on Truth in Taxation, and will soon be publishing more to help Nebraskans know their rights and how to participate in the process come September.
In the meantime, though, the next few months of meetings for city councils and school boards will see the elected members having many conversations about budgeting. NOW is the time for taxpayers who are most likely to be impacted by higher taxes to visit with their representatives and let them know that it’s really not a tax cut if the amount you’re paying is 20% more than the previous year—no matter what the levy rate says.