City Council explores property-tax rate

Published 8:46 pm Thursday, June 3, 2010

Contributing Editor

Washington officials are targeting 50 cents per $100 valuation as the city’s property-tax rate for the 2010-2011 fiscal year, which begins July 1.
That target was agreed on during the council’s budget meeting Tuesday.
The new property-tax rate is scheduled to be set later this month when the City Council adopts the 2010-2011 budget. With a 4-1 vote, the council set the 50 cents per $100 valuation as its preferred property-tax rate. The city’s current property-tax rate is 60 cents per $100 valuation.
The new property-tax rate, when adopted, will reflect the change in values of real property (land and structures) in the city as a result of the recent revaluation of all properties in Beaufort County, including those in municipalities.
After a revaluation, many counties and municipalities try to adjust their property-tax rates so they are revenue neutral, meaning the new tax rate when applied to the new property values generates the same amount of revenue as the previous tax rate and property values generated.
Matt Rauschenbach, the city’s chief financial officer, determined that the revenue-neutral tax rate for the city in the upcoming fiscal year would be 47.44 cents per $100 valuation.
State law requires that after the city’s budget officer calculates the revenue-neutral tax rate, then he or she increase that rate by a growth factor equal to the average annual percentage increase in the tax because caused by improvements since the last reappraisal.
“This growth factor represents the expected percentage increase i the value of the tax base due to improvements during the next fiscal year,” reads the law.
Rauschenbach’s calculations show that the revenue-neutral tax rate, adjusted for growth, comes to 48.56 cents per $100 valuation.
The target property-tax rate of 50 cents per $100 valuation reflects city officials’ concerns the city could see some of its revenue sources not generate as much revenue as expected. Mayor Pro Tempore Bobby Roberson expressed concern that the Beaufort County Board of Commissioners may change the way it distributes sales-tax income to the municipalities in the county. That change could result in those municipalities receiving less in sales-tax revenues.
Also, actions by the General Assembly, now in session, could result in other revenue declines for local governments, city officials said.
Roberson said the city “might need that” difference between the 50 cents per $100 valuation rate and the 48.56 cents per $100 valuation rate to offset possible loss of revenue from other sources.
Councilman Gil Davis said not knowing what the county and the General Assembly might do leaves “a lot of question marks” surrounding some of the city’s revenue sources.
Councilman Doug Mercer doesn’t support the target tax rate of 50 cents per $100 valuation, preferring the rate of 48.56 cents per $100 valuation.
The new tax rate, whatever the amount, includes 2 cents per $100 valuation that’s earmarked to provide revenue for the city’s public-safety capital reserve fund, used to help pay for items such as new public-safety buildings and equipment. Mercer believes that allocation, now at slightly more than $120,000 a year, should be derived from the 48.56 cents per $100 valuation tax rate instead of the 50 cents per $100 valuation tax rate.
Under the 50 cents per $100 valuation tax rate scenario, the taxes on a house whose value increased from $100,000 to $130,000 as a result of revaluation would come to $650 in the upcoming fiscal year. That amount is $50 higher than the taxes paid on that house — valued at $100,000 and taxed at a rate of 60 cents per $100 valuation — this fiscal year.
Under the 48.56 cents per $100 valuation scenario, the taxes on a house whose value increased from $100,000 to $130,000 as a result of revaluation would come to $631.28 in the upcoming fiscal year.
The council meets again at 5:30 p.m. June 14 in the Council Chamber of the Municipal Building, 102 E. Second St.
For more coverage of the council’s meeting, see future editions.
Whatever “revenue-neutral” tax rate the city adopts, about a third of city taxpayers will pay more in property taxes during the next fiscal year than they paid this fiscal year, according to city officials. Another third will pay less taxes, with the remaining third will paying about the same.
‘Revenue-neutral’ tax rate’s
effects on property owners
While the revenue-neutral rate will generate the same revenue as the previous year adjusted for average growth, it will not result in the same real-property tax bill as the previous year for each property owner for the following reasons:
• Real-property owner’s change in valuation is more or less than the city-wide average of 35.87 percent.
• Average rate of growth of 2.37 percent is included in revenue-neutral tax rate.
• In a revaluation year, the assessed value of real property equals its market value as of Jan. 1 of that year. In each subsequent year, the assessed value of real property (other than new construction) remains constant, though its market value typically increases. Personal property, in contrast, is valued at its market value each year. In a revaluation year, a realignment occurs in the tax burden between real property and personal property when both are reset to current market value. As a result, many individual real-property owners receive increased tax bills in revaluation years.
Sources: Matt Rauschenbach, Washington’s chief financial officer, and the UNC School of Government.