Tax Rate Equalization

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Tax rate equalization was a controversial component of Albemarle County Executive Thomas C. Foley’s proposed budget for the 2013 Albemarle County budget. The plan was intended to increase county revenues by adjusting the property tax rate to compensate for falling housing value. On April 4th 2012, the Board of Supervisors voted to finalize the tax rate at 76.2 cents per $100—a compromise rate that was increased from previous years, but still slightly less than equalized. According to Supervisor Christopher J. Dumler (D-Scottsville), the issue is likely to come up again in future years.

As real estate values in Albemarle County continue to decline in 2012, the amount of revenue the county is able to bring in through property taxes will necessarily also decline. The county anticipates a $1.5 million decrease in revenues for the 2012-2013 fiscal year: the greatest loss will come from real estate taxes (roughly 45% of the county's revenue), which are expected to fall by about 3.5% in FY 12-13 based on the current tax rate. In order to mitigate this loss, County Executive Thomas Foley proposed a budget plan based on an equalized property tax rate of about 76.4 cents per $100—about 2.2 cents higher—which would have compensated for housing depreciation. In mid-March, as motioned by Supervisor Duane E. Snow (R-Samuel Miller) the Board of Supervisors voted to advertise the tax rate for FY13 at 76.2 cents per $100--slightly less than equalized, but still an increase from previous years.

The amount a homeowner pays each year in property taxes is based on the assessed value of his or her property. Each year, the taxpayer’s property is assessed to determine its market value, and the assessed value is a percentage of the market value. The property tax, in turn, is a percentage of the assessed value.[1] Therefore, a decrease in market value ultimately means a decrease in the amount paid on the property tax. This may be a boon to the average taxpayer—indeed, according to the Daily Progress the majority of citizens seem to favor maintaining the current rate, which would allow them to pay less each year—but, as stated above, it causes a major loss of revenue for the local government, and herein lies the fundamental nature of the present (and probably future) tax adjustment controversy in Albemarle County.

The equalization plan would have raised the tax rate enough that the average homeowner would be paying the same amount on his or her property as they did this year: the percentage of market value would be larger, but the dollar amount would be the same. Following years of budget reductions, equalization would have helped to facilitate a roughly 4% budget increase to $311,677,759; Foley's proposal included $1.5 million in unallocated funds which he hoped would be devoted to the school system and to county operations. However, many believed that these unallocated funds ought to have been devoted instead to keeping the tax rate below the 76.4 rate, allowing most to pay less on property taxes next year. Those who favored the tax argued that this revenue was essential to sufficiently fund various county programs, in particular the school system (boasting a deficit of about $2.6 million).

Advocates of equalization have questioned the logic of those who oppose unfair tax increases, based on the argument that under an equalized rate, most homeowners would see little or no increase in the amount paid in taxes, and furthermore, under a less-than-equalized rate they would in fact pay less than in previous years. [2] Meanwhile, those who opposed the equalized rate have called on the county to keep taxes as low as possible. They have argued that increasing taxes places an unfair burden on citizens who are already under pressure in tough economic times, expressing concerns that allowing a tax increase now will just open the floodgates to further increases down the road. According to many who oppose the tax, government is like any individual citizen in that it must live within its means. They have questioned whether increasing funding to key budget areas is really the way to improve their operations. Further, they have pointed out that while a rate at or below equalization would not warrant an increase in payments for most taxpayers, those whose home values did not fall as sharply as most would see an increase in payments as a result of an increase in the rate.

In response to allegations that the school system and other key budget components would suffer as a result of falling property tax revenues, some (including Supervisor Snow) have claimed that a bill recently passed in the General Assembly would free up funds normally devoted to employee pensions which could be devoted to these areas. SB-497 essentially states that state and school employees will be required to put 5% of their salaries toward their pension plans with the Virginia Retirement System.[3] Because the county would no longer be required to cover this 5%, more money would be available to devote to the school system. However, since the bill was further amended to include a 5% mandatory pay hike to school and county employees as a means to compensate their extra expenses, any fiscal savings the county might have seen have been effectively negated.[4] In fact, the bill may actually cause extra expense to the government, and local governments are currently petitioning for an amendment that would allow each individual locality to choose whether or not to require employees to make the 5% contribution.

The equalization controversy reflects a fundamental difference in views on taxation in general. Although the tax rate was formally set at an increased, but not quite equalized rate of 76.2 cents per $100 for FY 12-13, most agree that the issue is likely to come up again in future years. Setting the budget is always a complicated and controversial issue, with some seeking ways to increase county income and spending, and others seeking to limit it as much as possible, and the issue of whether taxes should be raised inevitably always comes up. Is equalization anything more than another way for the government to sneakily raise taxes on its citizens? As property values continue to fluctuate, is it ever right to adjust tax rates to keep pace with these changes, or should taxes be allowed to fluctuate naturally along with them?


References

  1. Web. "Albemarle County Real Estate Taxes.", County of Albemarle., retrieved 15 March 2012.
  2. Web. "Proposal Increases Albemarle Spending, Tax Rate.", Richardson, Aaron, Daily Progress, World Media Enterprises, 24 February 2012, retrieved 13 March 201September 13, 2011.
  3. Web. "SB 497 Virginia Retirement System.", Legislative Information System., retrieved 27 March 2012.
  4. Web. "Localities Ask McDonnell to Block Pension Changes.", Martz, Michael., Richmond Times-Dispatch., 22 March 2012, retrieved 27 March 2012.