To help alleviate wild fluctuations both in Tempe’s property tax pool and its citizens’ annual property tax payments, the city council last year changed its policy and swapped its fixed property tax rate for a fixed property tax levy.
In other words, no matter the state of the economy and resulting assessed home values, the city will collect the same total amount of taxes each year plus inflation—established by the Western Region Consumer Price Index, but not ever to exceed 3.3 percent.
“For your property tax to go up just because your property value went up doesn’t make a lot of sense, but that’s what has happened for years and years and years,” said Tempe’s Finance and Technology Director Ken Jones.
“The fact is, when your property value goes up, you don’t have any more cash in your pocket.”
But now assessed home values are falling. Between 2011 and 2012 the median single-family home value in Tempe fell by 17 percent from $149,500 to $124,500, determined by the Maricopa County Assessor’s Office.
For the city therefore to be able to collect the same taxes this year as last, the rate must be increased from $1.79 to $2.14 per $100 of assessed valuation.
At an issue-review session on May 31, several Tempe residents voiced their concern about the proposed rate increase. “The rate is not what we talk about now,” said Tempe Mayor Hugh Hallman at the session. “We talk about the total property-tax bill to our residents, and we agreed that we would hold it constant except for the CPI inflation number.”
“When property values were going up and the rate was held constant, the city collected more and more property tax,” said Hallman.
“Under the new policy, when property valuations go up, residents will see their tax rate come down,” said Jones, “because even then, the city will not increase the levy except for inflation.”
The Maricopa County Assessor’s Office is projecting that the median home value will fall again in 2013 to $107,500.
However, Jones says he believes that the bottom is near. “The home valuation process is about 18 months behind actual market, and we’re already hearing that the Phoenix area is seeing on average a 10 percent increase in home values,” said Jones.
Former council candidate Dick Foreman, who has written editorials in favor of the policy change and also voiced support of it during his campaign, believes that the new policy favors taxpayers in the long run.
“One of the problems with the tax-rate discussion is that it’s only one part of the formula,” said Foreman. “It’s the combination of the tax rate and the valuation of your property. You put both of those variables into the formula, and you get the levy.”
Because of falling house valuations, some Tempe homeowners will actually see a decrease in their taxes despite the rate increase.
Last year the city property tax for the median-valued home ($149,000) was $267.05. This year the tax on the median-valued home ($124,500) under the new rate will be $266.60, a small decrease.
Whether or not a homeowner’s tax bill will go up or down this year depends on the change in that home’s assessed value. On average, though, homeowners will see a 2 percent increase in taxes, said Jones.
The total tax levy consists of primary property taxes, which constitute approximately one third of the total levy and help fund operations, and secondary property taxes, which make up the other two-thirds and help fund voter-approved bonds.
“All of the secondary debt is voter-approved debt,” said Foreman. “The voters have said we want these projects done. We want these parks built. We want the library. We want the multi-generation center. We want the fire stations. Most of these are passed by significant majority, so people clearly want them.”
By law the primary property tax can increase only by 2 percent per year for inflation. The secondary rate can fluctuate but can only be applied to voter-approved debt.
Although the CPI for this year allows the levy to be raised by up to 2.7 percent, Jones recommended the council go with a 2 percent increase, the minimum required to cover the proposed 5-year Capital Improvement Program.
“We’re actually collecting the same amount that we did in the prior year plus inflation, but we’re not even collecting the entire inflationary increase,” said Jones.
“What we’re saying now,” said Jones, “is let’s take that craziness out of the equation. Let’s collect the amount that we need to pay the bonds and no more, not stockpile taxpayers’ cash. When property values go up, we’ll still only collect that amount.”
Residents will be able to voice their opinion in a final property tax hearing to be held during the formal council meeting at 7:30 p.m. Thursday, June 28, in Tempe City Council Chambers, 31 E. Fifth St.