Lowering Your Property Taxes: The Ripple Effect
Much is being bantered about the reduction of property taxes, due to the tank in the market. Larry Ellison’s recent request for a $100 million dollar tax break garnered a firestorm, with mentions in newspapers and blogs around the country. But what about the average joe?
Generally, a tax break will only be afforded to those whose home value is less than they paid. This means that if you have a recent purchase, say the last 3 years or so, that you may be eligible. But for most homeowners, this will not be an issue, as your assessed value is lower than the value in today’s market. The San Francisco Chronicle ran an article in Thursday’s paper about just this topic, along with a whole county-by-county sidebar detailing how things are being handled. Kathleen Pender did a good job explaining the situation, so I suggest you start there if you are considering such a request of your county.
One concern I have over the lowering of taxes, is that while justified, it will impact the funding of our schools. Property taxes, levied by counties, provide a substantial amount of funds to schools. During the 2003-4 tax year, $31.8 billion was raised for local governments through property taxes alone. Funds were allocated to 4 areas:
18% to Counties
11% to Cities
53% to Schools (School districts and community colleges)
18% to Special Districts
Prior to Prop 13 (1978), real property was reviewed and re-appraised at least every 5 years. These updates resulted in higher assessed value, meaning more money for the counties on a regular basis. Following the change in law due to Prop 13, assessed values could increase no more than 2% per year, unless a property is sold or undergoes new or reconstruction. This meant that some big deficits occurred in the first few years after Prop 13.
Thirty years later, there has been stability with this system for a good long time, and counties, cities, and schools base budgets around funds from property taxes. They are, of course, negatively impacted by any downward adjustments. Case in point is the aforementioned Larry Ellison request. The Wall Street Journal reports that the Portola Valley School District will lose $250-300,000 per year (equal to 6 teachers). While this is only one property in an already affluent city, the San Mateo County schools stand to lose a total of nearly $1.5 million, a rather sizeable impact. Add to that the scores of homeowners requesting re-assessment, and you’ve got a problem.
As you can see, what started with inflated property prices, spread to the mortgage meltdown, to a credit crisis…and the ripple effect continues right on into our schools. What will be next?