Taxing seesaw perplexes
Owners vexed by high taxes, low home prices
January 26, 2007
BY JOHN GALLAGHER
FREE PRESS BUSINESS WRITER
Back when Mark Avery was a bullpen warm-up catcher for the Detroit Tigers, he could always spot a curveball. Today, he says he's getting thrown a curve on his property tax bill.
Avery of Rochester Hills is one of many local homeowners who wonder why their property taxes keep going up even as home values in metro Detroit and Michigan as a whole have been going down.
"I got my tax bill in November, and I looked at it and saw my assessment, and I said, 'Wait a second, they think my house is worth a lot more than it is,' " he said earlier this week. "So I started to look into it. I'm like, 'You know what? This doesn't make any sense.' "
Avery, who worked in the Tigers' bullpen in 1993 and now runs a baseball camp as well as his own real estate business, isn't alone in wondering why tax bills and assessments seem to be going in opposite directions.
The National Association of Realtors reported in November that prices of existing houses in metro Detroit had dropped more dramatically -- 10.5% during the third quarter of 2006 alone -- than in any other big urban market in the nation.
At the same time, the state gave local taxing authorities permission last November to raise property taxes 3.7% to reflect a rise in inflation. That was the highest annual increase since Michigan's current property tax system took shape in 1994.
As annual notices of assessment changes get mailed out to homeowners in mid-February, more residents may question what they're paying.
Despite the complaints, though, under the logic of the state's Proposal A reforms enacted in 1994, rising property taxes in a time of falling home values do, in fact, make sense, as difficult as that may be for homeowners to understand.
The key is that under Proposal A, there is a difference between a home's assessment, which is supposed to indicate what a house would be worth on the open market, and its taxable value, which is the figure that property taxes are calculated on.
Annual tax increases were capped under Proposal A at no more than 5% or the rate of inflation, whichever is less. So ever since Prop A took effect in 1995, assessed values have been rising rapidly in what has been, until recently, a housing boom, even as taxable values rose at a much slower rate.
In effect, homeowners have enjoyed a break under Prop A because of this gap between taxable value and their homes' true worth. As of 2005, state equalized values, an indicator of market worth, were nearly 24% higher than taxable values -- a huge amount of tax relief thanks to the Prop A caps on taxable value.
That cushion is now eroding with today's declining home values, but not by much yet, says Kurt Dawson, the city assessor in Rochester Hills.
"It's worth less, but still you've got to think of what they've gained over the years because of Proposal A," Dawson said this week. "They haven't been taxed at the rate that property values have been going up."
In fact, some analysts who worry about the strain on local municipal budgets say a narrowing gap between taxable and assessed values is not such a bad thing.
"When you have the two values begin to separate, it kind of creates a pool of untapped taxable base that accumulates during the good times and that local governments can tap into during the bad times," said Eric Lupher, director of local affairs for the Citizens Research Council of Michigan, a nonprofit policy group.
Yet there's no question that as Michigan's home values erode, more homeowners will, like Avery, question their rising property taxes. Those complaints may grow as other bad economic news, from Michigan's December unemployment rate of 7.1% -- the second worst in the nation -- to continuing layoffs like those announced this week by Pfizer Inc., continues to pummel the state's real estate market.
Avery said he has analyzed real estate sales data for 2006 that show that 68% of houses that sold in Rochester Hills last year sold for less money than their assessed values would indicate they were worth.
Dawson, though, said that given the gap between taxable and assessed values, home prices would have to decline a lot more before taxable values also would come down.
"I would say it would take half a dozen years of declining prices before we'd really see an impact" on taxes, he said.
Timing is another reason why property tax bills may not reflect the recent price drop. Most assessors use a two-year average of values to determine local assessments. The most recent two-year period ended in March 2006, just before home prices in Michigan began to drop dramatically.
That means taxpayers may see greater relief in their 2008 assessments than they will this year, but, that doesn't mean taxes will come down.
Some local assessors, like Dawson in Rochester Hills, say they're switching to an optional one-year review of local prices to more quickly reflect the change in home values.
Finally, David Petrak, the city assessor in Ann Arbor, cautioned that property taxes also are determined by the local millage rate, a figure that, when multiplied by a property's taxable value, determines the actual tax bill.
"So even if you were successful in getting your taxable value lowered by some percentage, if your taxing authority increases your millage, you're going to pay more property taxes," Petrak said.
Owners vexed by high taxes, low home prices
January 26, 2007
BY JOHN GALLAGHER
FREE PRESS BUSINESS WRITER
Back when Mark Avery was a bullpen warm-up catcher for the Detroit Tigers, he could always spot a curveball. Today, he says he's getting thrown a curve on his property tax bill.
Avery of Rochester Hills is one of many local homeowners who wonder why their property taxes keep going up even as home values in metro Detroit and Michigan as a whole have been going down.
"I got my tax bill in November, and I looked at it and saw my assessment, and I said, 'Wait a second, they think my house is worth a lot more than it is,' " he said earlier this week. "So I started to look into it. I'm like, 'You know what? This doesn't make any sense.' "
Avery, who worked in the Tigers' bullpen in 1993 and now runs a baseball camp as well as his own real estate business, isn't alone in wondering why tax bills and assessments seem to be going in opposite directions.
The National Association of Realtors reported in November that prices of existing houses in metro Detroit had dropped more dramatically -- 10.5% during the third quarter of 2006 alone -- than in any other big urban market in the nation.
At the same time, the state gave local taxing authorities permission last November to raise property taxes 3.7% to reflect a rise in inflation. That was the highest annual increase since Michigan's current property tax system took shape in 1994.
As annual notices of assessment changes get mailed out to homeowners in mid-February, more residents may question what they're paying.
Despite the complaints, though, under the logic of the state's Proposal A reforms enacted in 1994, rising property taxes in a time of falling home values do, in fact, make sense, as difficult as that may be for homeowners to understand.
The key is that under Proposal A, there is a difference between a home's assessment, which is supposed to indicate what a house would be worth on the open market, and its taxable value, which is the figure that property taxes are calculated on.
Annual tax increases were capped under Proposal A at no more than 5% or the rate of inflation, whichever is less. So ever since Prop A took effect in 1995, assessed values have been rising rapidly in what has been, until recently, a housing boom, even as taxable values rose at a much slower rate.
In effect, homeowners have enjoyed a break under Prop A because of this gap between taxable value and their homes' true worth. As of 2005, state equalized values, an indicator of market worth, were nearly 24% higher than taxable values -- a huge amount of tax relief thanks to the Prop A caps on taxable value.
That cushion is now eroding with today's declining home values, but not by much yet, says Kurt Dawson, the city assessor in Rochester Hills.
"It's worth less, but still you've got to think of what they've gained over the years because of Proposal A," Dawson said this week. "They haven't been taxed at the rate that property values have been going up."
In fact, some analysts who worry about the strain on local municipal budgets say a narrowing gap between taxable and assessed values is not such a bad thing.
"When you have the two values begin to separate, it kind of creates a pool of untapped taxable base that accumulates during the good times and that local governments can tap into during the bad times," said Eric Lupher, director of local affairs for the Citizens Research Council of Michigan, a nonprofit policy group.
Yet there's no question that as Michigan's home values erode, more homeowners will, like Avery, question their rising property taxes. Those complaints may grow as other bad economic news, from Michigan's December unemployment rate of 7.1% -- the second worst in the nation -- to continuing layoffs like those announced this week by Pfizer Inc., continues to pummel the state's real estate market.
Avery said he has analyzed real estate sales data for 2006 that show that 68% of houses that sold in Rochester Hills last year sold for less money than their assessed values would indicate they were worth.
Dawson, though, said that given the gap between taxable and assessed values, home prices would have to decline a lot more before taxable values also would come down.
"I would say it would take half a dozen years of declining prices before we'd really see an impact" on taxes, he said.
Timing is another reason why property tax bills may not reflect the recent price drop. Most assessors use a two-year average of values to determine local assessments. The most recent two-year period ended in March 2006, just before home prices in Michigan began to drop dramatically.
That means taxpayers may see greater relief in their 2008 assessments than they will this year, but, that doesn't mean taxes will come down.
Some local assessors, like Dawson in Rochester Hills, say they're switching to an optional one-year review of local prices to more quickly reflect the change in home values.
Finally, David Petrak, the city assessor in Ann Arbor, cautioned that property taxes also are determined by the local millage rate, a figure that, when multiplied by a property's taxable value, determines the actual tax bill.
"So even if you were successful in getting your taxable value lowered by some percentage, if your taxing authority increases your millage, you're going to pay more property taxes," Petrak said.
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