Assessments Down - Taxes Up.  How can this be?

April 5, 2011

For the first time in recent memory assessed values for most all properties have decreased, yet taxes are still going up.  How can this be true??  Taxes exist because taxing bodies require money to provide services.  If their spending increases from one year to the next then your taxes will increase regardless of the property’s assessment.

The Assessment Function

Contrary to popular belief, your assessment does not determine your taxes.  The main purpose of assessing property is to fairly distribute the tax burden according to your property’s value.  Your assessment determines your share of the tax burden.   Think of your assessment as slice of a giant tax pie.  Your portion of the tax burden, your slice, is based on the value of your home.  It is my job as Assessor to appraise properties in a uniform manner based on the median level of the past three years of sales data.

Current Market Values

As we all know, the current real estate market is in decline.  The decline in the market is the reason assessments are decreasing.  Because we use three years of sales, the trend both increasing and decreasing is dampened.  This is the reason assessment do not increase or decrease as fast as shown in the current market; there is an “assessment lag”.  It is expected that assessments will continue to decrease for the next several years because assessments follow the market trend albeit at a slower pace.  

Current Spending – Taxes

As we all know, governments are all trying to cut spending and find additional sources of revenue to provide their service.  Most local taxing bodies rely heavily on the revenue from property taxes to fund their services.  However the cost of these services keeps increasing requiring more money from property taxes.  When a taxing body asks for more money it means spending, the tax burden is increasing and property taxes will increase.

Spending Controls

In Illinois, funding for the property tax is controlled by PTELL legislation.  Enacted in 1992 PTELL is the Property Tax Extension Limitation Law.  It limits year to year spending increases by 5% or the consumer price index (CPI) which ever is less.  For this upcoming tax bill the CPI is 2.7%.  This means taxing bodies will be allowed to collect 2.7% more than they did last year.  This will have a direct impact of increasing your tax bill by at least 2.7%.

Conclusion

Spending by taxing bodies determines the amount of real estate taxes. Increases in spending by taxing bodies equals larger tax burden.  The tax burden is apportioned according to the assessed value of your home.  A decrease in assessed value does not mean the taxing bodies will get less money to spend.  For tax bills to decrease it will mean spending will have to decrease.