“Nothing in life is certain except death, taxes and the second law of thermodynamics.”
— Seth Lloyd
“The best measure of a man’s honesty isn’t his income tax return. It’s the zero adjust on his bathroom scale.”
— Arthur C. Clarke
Delaware City voters will decide a school levy issue next month, and all Delaware County voters will pass judgment on continued funding for Preservation Parks of Delaware County (full disclosure: as Judge of the Probate Court I appoint the members of the Preservation Parks board). All of this comes on the heels of the triennial property value reassessments conducted by the Delaware County Auditor’s Office.
With all the talk of mills (inside and out), reduction factors, renewals, replacements and permanent improvements, the tax talk can make your head spin. So, just how do property taxes work, and how does the property tax reassessment affect them?
County Auditors are required by Ohio law to reappraise the value of property every six years. They don’t all do it in the same year, but Delaware, Licking, Franklin and Pickaway counties were all conducting reappraisals this year. The last cycle, in 2011, occurred during the early stages of recovery from a major recession and a collapse in the real estate market. That market is currently very, very healthy in Delaware County, as reflected by the recent sales prices of residential properties across the board.
So does that mean that schools, parks, senior services and other levy funded programs will see a huge increase in funding? In a word: NO. Absolutely not. So, why not?
There are two kinds of property tax in Ohio. There is a base rate of up to 10 mills that eligible political subdivisions can collect without the need for voter approval. That’s called “inside millage.” (10 mills mean $10 per $1,000 of taxable value.) Any property tax beyond that has to be approved by a vote- those are voted tax levies, and they are also collected in mills.
These voted tax levies do not increase because of increases in property value. They can go up because of new construction that increases the overall tax pool. So when reappraisals happen, there is a “reduction factor” applied to the levy.
This reduces the effective tax rate so that the voted levy collects the same amount of tax revenue as was collected in the prior year. That amount of tax revenue is collected from the entire tax base, not just a single property. So if the average reappraisal value goes up by 10 percent and your value goes up 30 percent, then you’re still going to pay more because your value has increased by more in proportion to the average increase. If your value goes up 5 percent and the average goes up 10 percent, then you’re going to pay slightly less. But in either case, the levy is only going to collect the amount from the entire tax base that it collected in the prior year. For example, it is estimated that the Emergency Operating levy for the Delaware City Schools, listed on the ballot at 8.35 mills, would actually be collected at only 7.6 mills in the first year of collection since that reduced rate is what would actually be needed to bring in the dollar amount authorized in the measure.
The only place voted levies can collect more money is on new construction — the new housing development that got built down the street that wasn’t there at all when the levy was passed. The levy is applied to those new houses and that “new” tax value gets collected too. Of course, those new houses are also sending new kids into the school district.
But the bottom line is that if the voted levy was collecting $5 million on $5 billion of taxable property value, it’s still going to collect the same $5 million in tax revenue from the houses and businesses that made up the initial $5 billion of property value even though the values have increased, because the effective tax rate would be reduced proportionately. The voted levy will only collect more tax revenue if new construction has been added to the tax base.
The reassessment does nothing to change the overall collection amount.
The next question is whether the levy you are voting on is a renewal levy or a replacement levy. If a taxing entity comes back for a “renewal” levy, that levy collects at the original tax rate with the reduction factors in place. If a taxing entity asks for a “replacement” levy, the new levy collects at the new tax value. Taxing entities can also ask for a combined levy, as Preservation Parks is doing this year. 0.6 mills of the Preservation Parks levy this year is a renewal and 0.3 mills of the levy are new. The renewal levy of 0.6 mills will be collected at the same rate as last year, with all of the reduction factors in place, thus reducing the effective rate of the renewal levy for residential properties to 0.57 mills.
Thus, in order to assess the effect of a levy on your property taxes, you have to know what kind of levy it is and what your new taxable value is. But know that the reassessment is not an automatic windfall for existing levies. Election Day is Nov. 7. You can view a sample ballot and check your voting location online at www.delawareboe.org.
David Hejmanowski is Judge of the Probate/Juvenile Division of the Delaware County Delaware County Court of Common Pleas.