Assessing the Fallout from Lower Assessments
April 21, 2009 4:46 PM
Every April the City Assessor announces the new assessments that will be used as we put together next year's budget. For the first four years I was mayor those numbers kept going up at the rate of around 10%. Then last year the growth slowed dramatically, and this year we barely kept our heads above water with overall assessed values creeping up by not quite one percent. Home values actually went down just a little, but commercial values were up 3.7%.
So what does that all mean for our 2010 budget? Well, it's not good news but it's also too early to say that the sky is falling. Here's why. About $165 million of our $238 million city budget comes from property taxes. We'll need to levy that amount plus a little more to keep up with inflation and a growing city next year. The tax levy is arrived at through multiplying two numbers: the value of all the property in the city times the mill rate. When values go up by a lot, we can lower the mill rate as I did for four straight budgets. But when values don't go up much or actually decline, then we have to increase the mill rate to get to the levy we need. That's what we did for 2009 and it's almost certainly what we'll have to do for 2010.
My point is that assessments don't tell us much about what will actually happen with taxes on the average house, which is what most people really care about. Even though the city mill rate went up last year, overall taxes actually declined a little for many residents. Assessments are really about tax fairness; about apportioning the overall property tax among properties based on their relative values.
What does matter, however, is new construction and here there is some cause for concern. New construction in Madison was up $378 million, which is good but not nearly as good as recent years. In fact, it's the lowest increase in a decade. New construction is important because it means we're sharing the overall tax levy among more properties.
So, the news we got the other day on assessments was not unexpected, and it doesn't necessarily mean things will be worse next year. But it is another indication that Madison is not shielded from the national recession and that continued cautiousness about our city budget is warranted.