Economy, revaluation create challenging budget season

Published 2:29 pm Monday, June 1, 2009

Local governments can make the revaluation &dquo;revenue neutral&dquo; by lowering the tax rate to offset the higher property values. However, that doesn&squo;t necessarily mean the revaluation will be tax neutral for property owners.

Owners of property that appreciates more than the average for their area, will see a tax increase. Owners of property that appreciates less than the average, will see a tax decrease.

Interim Tryon Town Manager Justin Hembree says the traditional calculation for a revenue neutral tax rate has been to lower the tax rate so the government receives the same property tax revenue in the new fiscal year as it did in the most recent one.

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However, he notes some local governments are using new guidance that allows them to increase the rate to account for growth in the tax base for improvements.

The new guidance for revenue neutral, he says, was developed&bsp; after the state mandated local governments to report a revenue neutral rate in revaluation years so taxpayers can more clearly determine if the tax rate was raised or not.

In Polk County, the tax base, or value of all property in the county, rose $663,060,451, or 37 percent, in the 2009 revaluation.

To offset that increase, the county could reduce its current tax rate of 68 cents per $100 of property valuation to 52 cents (see story on page 14).

That would give the county the same property tax revenue as last year, but would give it less revenue on personal property and wouldn&squo;t account for tax value growth from new buildings, lots and improvements in the past year.

To account for those improvements, the Institute of Government suggests calculating a revenue neutral tax rate and then adding a percentage equal to the average annual rate of tax base growth since the last revaluation. The resulting figure is referred to as &dquo;revenue neutral plus growth.&dquo;

The Institute explains the calculation as follows:

1) Determine a rate that would produce revenues equal to those produced for the current fiscal year.

2) Increase the rate by a growth factor equal to the average annual percentage increase in the tax base due to improvements since the last general reappraisal.

3) Adjust the rate to account for any annexation, deannexation, merger, or similar events.

Using that calculation, Polk County has determined its &dquo;revenue neutral plus growth&dquo; rate is 55 cents, based on an average annual growth rate of 5.93 percent since the last revaluation.

What that tax rate means to taxpayers depends on the rate of appreciation for individual properties.

At the 55-cent rate the owner of a $200,000 property that appreciates 37 percent to $274,000, a rate about equal to the tax base increase for the county, would pay $1,507 in annual taxes. That&squo;s up from $1,360 in the current year.

If the same property increased in value 50 percent, the tax bill climbs to $1,650, but if it increases just 20 percent, the bill is $1,320.

Some local government officials have said they prefer to use the traditional revenue neutral calculation to minimize the impact of the revaluation this year.

&bsp;Budget writers also have to factor in appeals of the new property values, which likely will result in some reduction of the new property tax base.

Local governments only have a few more weeks to decide on a tax rate for the new fiscal year since it begins July 1 and they will have to approve a new budget plan in June.

Editor&squo;s note: Over the next several days the Bulletin will preview budget plans for the county, Polk County Schools, Tryon, Saluda and Columbus. The series of budget articles begins today with articles on the budget for the county government and Polk County Schools. More articles will follow as the budgeting process proceeds in June.