Georgia Legislative Watch

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With Assessment Cap, Pols Treat Symptom but Ignore the Cause
by Bob Griggs

With HR 1 and HB 233, Republican legislators hope to address a very real “sickness”– rising property tax bills resulting from increasing assessments when local politicians maintain a steady millage (tax) rate. The practice creates an “off the books” revenue windfall for the cities, counties and school boards that do it… it is known as the infamous “back door tax increase.”

In all-too-familiar fashion, however, the proponents of assessment caps have focused on a SYMPTOM of the sickness and not the problem itself. And just like the story line of every episode of the popular medical show, “House,” the patient– the property tax system and Georgia taxpayers– will certainly take a turn for the worse before the “sickness” is finally cured.

AN ASSESSMENT CAP DOES NOT ELIMINATE “BACK DOOR TAX INCREASES”

Rep. Edward Lindsey, Sen. Chip Rogers and others argue that an assessment cap will ELIMINATE the “back door tax increase. On this point, they are utterly wrong and it is easy to understand why a cap will fail.

There are THREE major variables in the mathematical equation to determine a property owner’s tax liability. TWO of the three variables are under the control of local politicians, and therein lies the problem.

The first, the Tax Digest, is the total value of all taxable property within the jurisdiction. The value of each individual property that makes up the Tax Digest is determined by each county’s appraisal staff under the guidance of the Board of Assessors. “Assessed Value” is a representation of “Fair Market Value” and is determined according to standard public appraisal guidelines.

In other words, the Tax Digest (Assessed Value) is not “pulled out of thin air” nor is it influenced or controlled by those who adopt the millage rate.

The remaining two variables ARE within the control of the local pols. They are the millage rate and the budget or “the cost of government.”

MILLAGE RATE 101

Knowing the Tax Digest and the cost of government, officials can calculate the correct millage rate. The rate is SUPPOSED to be nothing more than answer to a simple math problem– the budget line item representing the amount of revenue from property taxes required to balance the budget DIVIDED BY the Net Tax Digest.

Multiply that number by 1,000 and you have the millage rate, which is the amount of tax, in dollars, on every thousand dollars of taxable value that is required to fund the requirements of the levying authority’s budget.

By doing this simple calculation, you spread the “cost of government” fairly across every dollar of taxable value. The millage rate is applied by the Tax Commissioner to the value of every taxable property to generate the revenue required to balance the budget– no more and no less.

THE SICKNESS

Unbelievably, there is no law requiring levying authorities to “do the math” described above which, incidentally, is nothing more than the calculation that has been recommended and taught by the Department of Revenue for decades. As a consequence, elected officials can adopt any millage rate they choose (and their constituents will swallow).

Very often, the politicians adopt the same rate as the previous year even as the Net Tax Digest increases. They can claim that they didn’t “raise taxes” when, in fact, individual tax bills have indeed increased.

Again… under current law assessments are calculated according to established appraisal standards. The millage rate, on the other hand, is very often an arbitrary number, influenced by politics and ignorance, that has no mathematical connection to the cost of government.

(A 2005 survey of Georgia cities, counties and school boards showed that fewer than one out of 10 adopted the correct millage rate.)

AN INEFFECTIVE TREATMENT

Thinking taxpayers should ask this question of the proponents of assessment caps: how could an appropriate solution to the problem of “back door tax increases” and lack of accountability be to artificially regulate a variable in the tax process (assessed value) over which local elected officials don’t even exercise any control?

Even if either HR 1 or HB 233 were enacted, levying authorities could STILL adopt the previous year’s inflated tax rate. With growth in the tax digest resulting from new construction, rezonings, change of ownership AND the 3% increase that is allowed by the legislation, there will STILL be the potential for windfall tax revenue.

A rising tax bill because of a higher assessment is just the SYMPTOM. The CAUSE is an arbitrary and inflated millage rate.

(An assessment cap is not only ineffective but would cause great harm to certain taxpayers. For an article on the dangers of assessment caps, read this.

THE CURE

The cure for “back door tax increases” is simple– require cities, counties and school boards to DO THE MATH. Doing so would remove a variable– the millage rate– from the control of local officials. No longer could they hide increases in the cost of government by maintaining an already inflated millage rate from year to year. No longer could they benefit from the windfall generated by rising assessments even when they don’t “raise taxes.”

The millage rate becomes nothing more than what it should have been all along– the answer to a simple math problem. By requiring a mathematical millage, only ONE variable would be left in the hands of the politicians… the cost of government.

THE BENEFITS

If, then, a City Council wants to avoid a millage rate increase, it must hold any increase in the cost of government (at least, the portion to be funded by property tax dollars) below the rate of increase in the Net Tax Digest. If the Tax Digest increases, for example, by 3% and yet the revenue required from property taxes increases by 5%, the millage rate will increase simply as an OPERATION OF THE MATH.

You have INSTANT ACCOUNTABILITY…. the politicians must justify the higher tax rate to their constituents and the constituents will have the ability to approve or disapprove, either during the budget process or at the ballot box.

Conversely, if the cost of government is held in check or increases at a lower percentage rate than growth in the Tax Digest, a TAX CUT occurs automatically. As assessed values rise, the millage rate goes down… as long as the politicians are ACCOUNTABLE to the people and control the cost of government.

In other words, the taxpayer actually receives a BENEFIT from growth in the Tax Digest in the form of a tax CUT! Rising values are now a good thing!

In fact, our 2005 study revealed that if levying authorities were required to “do the math,” an overwhelming majority of Georgia property owners would receive an instant TAX CUT.

Further, a mathematical millage imposes no artificial or unreasonable restriction on local governments’ ability to generate needed revenue.

A mathematical millage produces NO MORE and NO LESS than is required (by the budget) to fully fund the cost of government. A mathematical millage imposes true accountability without hampering local government’s ability to raise funds.

No longer able to manipulate the millage, the politicians have only the budget to control. Suddenly, the required public hearings become more meaningful. In order to be funded by the adopted millage rate, proposed expenditures MUST be in the budget! No longer could a city or county use the “back door tax increase” surplus to fund expenditures essentially “off the books.”

A mathematical millage would encourage innovative governance. Because the only way for a local government to give its constituents a “tax cut” would be to reduce the revenue required from property taxes in relation to the Net Tax Digest, politicians will be forced to become much more creative in identifying non-tax revenue sources. Suddenly, impact fees and user fees and local option sales taxes and the like look much more attractive.

CONSERVATIVE IDEALS ADVANCED

Finally, a mathematical millage requirement would satisfy Republican ideals in a way that few laws have in recent years.

Transparency in taxation is promoted… the millage rate becomes a more accurate representation of the cost of government; the budget process becomes more meaningful in terms of its value to the taxpayer because there would be an actual MATHEMATICAL connection between what their government costs and what they pay.

The size of government would be reduced; if not in dollars and cents, at least in the size of the tax code. A mathematical millage eliminates, for example, the “Taxpayers’ Bill of Rights” millage rollback which was the first legislative attempt to eliminate the “back door tax increase.”

Likewise, there would be greater impetus to REDUCE the cost of government rather than grow it. That’s how the politicians dole out the “tax cut,” remember?

WHAT YOU CAN DO

You should contact your State Senator NOW and tell him to vote NO on
HB 233 and/or HR 1. Direct him or her to www.millagerate.com and tell him/her that you want local governments to simply “do the math.”

Draft legislation can be found here.

Bob Griggs is an Internet journalist and community activist in Gwinnett County. He has served as the Chairman of a county Board of Equalization and has received the state’s advanced training in property tax matters. He publishes the top-rated web site on the Georgia millage rate at www.millagerate.com.