Slow growth in property values could mean higher tax rates

After several successive years of property tax rate decreases and a slight increase in 2008, gross property tax rates in Southeastern Wisconsin increased 2.8% in 2009, according to the Public Policy Forum’s latest report on property taxes and values, which can be accessed here. A pull-out poster listing property values and tax rates for individual municipalities can be accessed here.


Not surprisingly, the increase in property tax rates coincides with slowing growth in property values in the region. After enjoying robust property value growth for the past several years, municipalities and counties saw a significant slowdown in 2008. Property values for 2009 are due to be released later this month.


The fact that property tax rates in the region already have begun to increase as the growth in property values simply has slowed does not bode well for 2010 budgets. Considering the high likelihood that property values in the region will decline in many Southeastern Wisconsin counties and municipalities in 2009, this finding illustrates the difficult challenge faced by local officials in controlling property tax rates, particularly when other negative factors produced by the economic downturn are factored into the equation.


The following are additional findings from our analysis of property taxes and values in Southeastern Wisconsin:

• Growth in property values in Southeastern Wisconsin has slowed dramatically, even prior to the onset of the economic downturn. The total equalized property value for Southeastern Wisconsin increased 2.2% from 2007 to 2008, the smallest increase in a decade. Meanwhile, 28 municipalities in Southeastern Wisconsin had a decrease in their total value from 2007 to 2008. In 2007, only three municipalities had a decrease, and in 2006 only one municipality lost value.

• The impact of this reduced growth on property tax rates has been significant. The gross tax rate for southeastern Wisconsin was $19.34 per $1,000 of property value in 2009, an increase of $0.53 over the 2008 rate of $18.81. This was the second year in row with an increase, though the 2008 increase was only $0.03, and was largely attributable to a significant increase in Milwaukee County. The region experienced a $1.11 decrease in 2007 and annual decreases in each additional prior year going back to at least 2001.

• In 2008, the average residential equalized value in the region increased only 0.9%. This reduced growth rate contributed to higher property tax rates in each county in 2009. The gross tax rate for Southeastern Wisconsin increased 2.8% in 2009, and the gross tax bill increased 3.8%. Put another way, the average property taxpayer in Southeastern Wisconsin is beginning to see his or her tax bill and rate increase steadily despite significantly reduced growth in the value of his or her property.

• To illustrate the potential 2010 impact of stagnant property values on property taxpayers, we developed projections for property tax rates in each Southeastern Wisconsin county assuming that 2009 equalized values will stay the same, and that the property tax levy in each county increases based on five-year averages. Our projections indicate that for the region as a whole, the gross tax rate would increase $0.92, which would amount to a $219 property tax increase for the average residential property in Southeastern Wisconsin.
  

By analyzing the strong linkage between property values and property tax rates, our report highlights the severe challenges that local elected officials will face in developing 2010 budgets that minimize property tax rate increases while providing the necessary resources to maintain existing levels of government services.

In a separate assessment of the fiscal condition of Milwaukee County government, and a similar soon-to-be-released analysis of the fiscal condition of the city of Milwaukee government, we note the problematic nature of over-reliance on one or two significant sources of revenue. This report amplifies that issue, and suggests the need for renewed debate and discussion regarding revenue diversification for counties, municipalities and school districts in Southeastern Wisconsin.