How Do Your Town’s Property Taxes Work?

Several readers have mentioned that a reason “we” need home prices to remain elevated is because property taxes depend on home values.  That’s true in some areas, and irrelevant in others.  In my town, for example, we don’t have a cap on property taxes as a % of home value.  In other words, the town needs X dollars to fund its budget. It needs these dollars regardless of what the property values of the town are.
I made the mistake, when I was looking at my home before I bought it, of assuming that since I was paying 15% below the assessed value, that when I bought my house and got it reassessed, my taxes would go down by 15% using a calculator of what was listed on the old sheet.  Instead, all the houses in town got reassessed at the same time as mine, with mine actually getting assessed correctly to the price I paid for it.  Hence, my taxes actually went up – because the town still needed to collect its X dollars.
If this doesn’t make sense to readers, think about it like this:  my house can be thought of as owing 10 tax units (I picked 10 as a random number)  in my town, where as other houses owe fewer tax units, and some houses own more tax units.  That number of “tax units” doesn’t change with home values – unless my home’s value changes out of proportion to the average home value in town, since the town still needs to collect the revenue to fund its budget.  (I keep saying this, but the bottom line is, even if home values went down 50%, as long as we don’t cut spending, we still have to fund our budget. The budget has nothing to do with property taxes.)
Now, in some towns, that’s not true – because they’ve instituted laws that make it so that the property taxes can’t be more than a certain % of the home’s value.  This may have seemed like a good idea at some point – with a desire to keep taxes low, but of course, as I’ve mentioned in previous posts, I feel that the better way to fix this equation is to work on the spending side.
Towns that have legislated max property tax ratios have now handcuffed themselves as home values fall, and they cannot collect enough property taxes to fund their budgets.
So – how does your town do it?  Do you live in a capped town?  Is it working?
Basically, I live in an “uncapped” town, and it actually makes sense to me.  We don’t slash the town budget in proportion to home valuations, so we shouldn’t expect property taxes to fall in proportion either.  Property taxes are (or at least, in aggregate, should be) a function of municipal spending – not home values.
-KD

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