Property Tax Assessments vs Property Taxes

Recently, property tax assessments were mailed to property owners in Madison. I thought it would be useful to share some information about the relationship between assessments, taxes, and the City’s budget.

Assessments of a property are based on what similar properties are selling for – so they are heavily influenced by demand. Generally, if the assessed value of a property increases, the taxes for that property do not increase at the same rate or percentage. Assessments are supposed to be revenue neutral, so an increase in assessment does not necessarily correspond to an increase in taxes.

The growth in tax collections for local taxing jurisdictions is expected to be much lower than the increase in property values. Overall, higher values will result in a lower tax rate. Because of this, the City tax rate has actually decreased over the past few years. So if a taxpayer’s property tax has increased, it is likely because that property’s value has increased relative to those of other local property owners.

As an example of how value and taxes differ, the value of the average home increased by 6.4% in 2021 over 2020 (from $315,200 to $335,200), while taxes on the average home (before state tax credits are applied) increased by 1.9% (from $7,641 to $7,817). After applying state tax credits, the change was just 0.12% (the lottery credit increased by 57% between 2020 and 2021).

The levy (municipal budgetary authority) is generally only increased via net new construction and/or a referendum. Increased assessments do not increase budgetary authority. Assessments do determine the tax rate and what proportion of the levy a property pays.

Each year the governing bodies of the various taxing entities, including the City, look at how much property tax the state will allow them to collect (which is much less than the growth in service expenses), and propose budgets for the next year. The total amount to be collected through property taxes, which is called the "tax levy" is determined by the state via the net new construction formula. 

The tax rate is calculated by simply dividing the amount of taxes allowed by the total assessed value of all taxable property in the City. The levy is then raised by multiplying the value of all the property in the City by the tax rate. The rate is the same for all property owners. When this tax rate is applied to the value of all the taxable property in the City, it will total the exact amount of money the state levy limits will allow the City to spend on services.

Keep in mind, when taxpayers receive their property tax bill in the mail, the City’s portion of the tax bill is only around 35%. The rest of the bill goes to other taxing jurisdictions including the Madison Public Schools, Dane County, and the Madison Area Technical College.

In summary, the amount of property taxes the City can collect is set by the state, and assessments determine what share of that amount will be paid by each individual property. You can learn more and watch a video about the assessment process at the City Assessor's Office page.