Property Tax Confusion

Scott has this comment on the last post regarding property taxes:

Taking into account 'constant yield' - does that make any sense in the real world? I am over-simplifying, but tell me if I am way off in my argument.

I think the revenue HAS to go up. Firemen and Policemen are paid via property taxes. If the yield is constant, than there will never be an increase in pay for these people, nor will they be able to buy new equipment, because the amount the city takes in never increases. In theory the city takes a little extra to cover growth in expenses, and floats bonds to purchase new firetrucks, etc. But things get more expensive over time, so in theory the amount of money the city has to spend on those things has to grow concurrently, or you get deficits. Bear in mind, I only took the 2 required Econ. classes (and no Public policy was offered) when I was in school, so I admit my argument may be full of holes.

His point is absolutely correct.

Property tax revenue must go up over time. Even if we pay for new fire trucks, etc. with bonds, we still will need more property taxes to service the bonds (which means making monthly payments to 'pay back' the bond holders).

And the nature of prices is to go up--nobody would make the point that taxes should remain at a constant level.

The purpose of the constant yield tax rate is entirely informational--to let the public know how much their taxes are being increased. The value of your house goes up over time, so over time the city's taxable base also increases, as the taxable base is comprised of the total value of everybody's houses (and the total value of all business properties). So, if the taxable base grows, and the property tax rate stays the same, the total property taxes collected increases.

Going a step further, if the taxable base increases by a lot, then the city could actually collect more property taxes even with a lower property tax rate. The constant yield rate will tell us the rate that will give us the same taxes as last year, so that we can see by how much our property taxes are going up.

In other words, if last year the rate was $.50 per $1000 in value, and this year's rate is $.45, a politician could make the claim that they lowered rates. But, if the constant yield rate is $.40, they actually raised rates by $.05 more than last year's equivalent.

Again, the constant yield rate is for informational purposes.

The point that I tried to make was that capping increases in assessed value at a very high 10% per year creates unnecessary confusion, and we could be better served by a lower cap, say 2% or 4%.