Online comments by local citizens in response to some recent guest columns about city and county budgets and taxes have revealed some mistaken notions about the way property tax rates are established in Tennessee cities and counties. I want to set the record straight regarding a couple of misconceptions about property tax that I see being spread in recent public discussions.
On the Oak Ridge Today website, citizen Andrew Howe posted a comment saying:
“The property tax rate should NEVER have to increase. It is basically a percentage of the value of the home, right? And if the value of the home rises (as it should, in line with the cost of living), then the taxes will also rise.”
I can’t quarrel with Mr. Howe’s logic, but his conclusions are wrong. This is because he makes an assumption that is valid in many states but isn’t valid in Tennessee.
Under Tennessee law, when properties are reappraised, state officials calculate—and publicize—the property tax rate that will give the local government the same total amount of property tax that it was getting from existing properties before the reappraisal. (This calculated rate is called the “certified tax rate.”) That’s the new baseline tax rate. If a local government in Tennessee wants to get more property tax revenue after a reappraisal, the governing body has to vote to increase the tax rate above the certified rate.
This means that property tax collections in Tennessee don’t automatically increase when property values go up (nor do they drop if property values go down, as happened in many areas a few years back when the bottom fell out of the real estate market). If the value of your home rises with the cost of living, your tax bill won’t automatically go up. (After any reappraisal, however, some people’s city tax bills do go up because their property values went up more than the city or county average.)
That law gives local officials an incentive to hold the line on property tax increases. Property tax revenues in Tennessee don’t rise along with property values—and probably don’t keep up with increases in the cost of living. In recent decades, property tax rates in Oak Ridge and across the state have generally trended downward—meaning that taxes are now a smaller fraction of property value than they used to be. After the last reappraisal in Anderson and Roane counties, in 2010, Oak Ridge’s certified property tax rate dropped from $2.77 to $2.39 (per $100 assessed value). Our city tax rate is still at $2.39, so the only increase in city property tax collections has been what came from new development. When you consider that the combined city-and-county property tax rate for the Anderson County part of Oak Ridge was $5.34 in 1997 but only $4.74 as of 2012—11 percent less than it was 15 years earlier, it should be clear that tax collections here don’t automatically track property values or the cost of living. (In a recent guest column, Myron Iwanski provided a graph showing how Oak Ridge and Anderson County property taxes have lagged the rise in the cost of living over the last decade.)
In another online comment, Mr. Howe put forth some more misconceptions about property taxation. He said:
“We also need to ensure that the appraisal values stay the same…If the city lowers the rate, but starts appraising higher, residents end up paying the same.”
Those statements may have had some validity in the past and they may still be true in other places, but they aren’t true in 21st-century Tennessee. As I explained above, because of the certified tax rate process in Tennessee, reappraisals don’t give the city more property tax. Furthermore, city government has no role in property reappraisals (appraisals are done by the counties, under the direction of the elected county property assessors) and nowadays the appraisal process is supposed to be done according to uniform statewide rules and procedures for evaluating fair market value. Any property assessor who tried to “ensure that the appraised values stay the same” would be violating state law!
The property tax appraisal process isn’t perfect (that’s one reason why appraisals can be appealed to a board of equalization that’s made up of citizens who own property in the county), but it isn’t arbitrary either, and there’s no call for blaming its imperfections on local city politics.
You can read Ellen Smith’s blog here.