The Very Short Story on Property Taxes (May 2012)

Confused about how property taxes work? No worries, here’s a short primer. Many people misunderstand property taxes because the property tax system is a bit counterintuitive, at least compared to the way most other taxes work. Complicating the matter further is the fact that most times we just see the total amount although there are multiple taxing entities that make up the total. Regardless of what actions Cedar Hills takes, your property taxes may still change based on these other entities, such as the school district. 

Unlike most taxes that have a set rate (like income tax, sales tax, etc.), property taxes work on a set collection system. Because property tax is a chief source of revenue for many governmental organizations (such as the school district), it is important that income from these taxes are highly predictable. Property tax is levied as a percentage of your home’s value. Since property values vary dramatically over time, how do we address fluctuating property values? If you think about it, this would be a major concern. The answer is simple: It is called the Calculated Tax Rate. The concept is that the county assessor does an assessment of property values each year, and then along with adjusting that assessment, the actual percentage tax rate is adjusted to fix the dollars and change the rate, rather than to fix the rate and see wide swings in the dollar amounts actually collected. If the City Council adopts this Calculated Tax Rate as the city’s certified rate, it ensures that if you paid $200 last year, and there is no vote to change taxes, you will still pay $200 this year no matter what has happened to property values. In the “default system,” even as property values change, tax revenues stay constant. The pro of certifying the Calculated Tax Rate is that collections do not change with property values. The con is that by so doing, cities do not collect more taxes as values go up, and there is no adjustment for inflation. 

Alternatively, Cedar Hills can adopt the same rate each year regardless of changes in property values. This means as your property values go down you pay less in taxes and as your property values go up you pay more in taxes. Cedar Hills has used this approach in certifying the city portion of property tax for the past several years. The benefit to this is that you have paid less to the City as your property values decreased, such as during the recent recession. When your property values increase, the City can use that additional revenue to offset inflation and to pay for necessary maintenance or services. This helps avoid significant tax increases, which you may have noticed in neighboring cities. 

The City Council and Mayor would like your feedback of whether to keep the same system that enabled the recent decreases, or to change to the system that most other cities use. You may find contact information at https://www.cedarhills.org/mayor-city-council.