This week my city, Middletown CT, began sending out re-appraisals of properties. They do this every five years (there are adjustments in between those 5-yr re-appraisals, but they're not significant).
As a result of the housing boom of the last few years, everyone is getting re-appraised higher - some a lot - and there's a lot of hand-wringing from residents about how their taxes are about to skyrocket. Comments such as, "my assessment went up 40%, I can't afford a 40% increase in taxes!" are common...but inaccurate.
Most people assume their taxes are calculated directly from their home's market value. They aren’t -- at least not in any simple way.
The actual calculation involves assessments, mill rates, exemptions, budget requirements, and political decisions layered on top of each other. And because every town does things a little differently, confusion is almost guaranteed.
Let's give it a shot.
I'm going to use Middletown's 2020/2021 budget year, rounded off; these can be found at Middletown's really informative and useful web page, https://www.middletownct.gov/ I'm also going to speak of this in generalities since there are many nuances, but I'll try not to get too deep into the weeds.
Property Taxes
Property taxes are "ad valorum" taxes. An ad valorum ("to the value") tax is one that is based on the appraised (not market) value of property such as real estate, personal property, and motor vehicles. Property taxes are paid by property owners to cover the costs of government; the understanding here is that property owners receive the benefits of government therefore they should fund the costs.
Property taxes are the most widespread form of funding for local governments.
Appraisals
The basic calculation for property taxes assumes that if, for example, you own 1% of the property in the city, then you are expected to pay 1% of the costs of its government; "pro rata", or "in proportion".
Those property appraisals are done by a contracted firm going all around the city and appraising all the value of all the things within it: land, homes, vehicles, even personal property inside the home (yes, technically we pay property taxes on our sofas). Businesses are appraised for things like land, buildings, the internal machinery, and even office supplies!
The value of everything you, yourself, own is called your Appraised Value.
The sum of everyone's appraised values is called the Grand List.
To calculate your share of the cost of the city, you divide your Appraised Value by the Grand List to see what percentage of the town you own, thus what percentage of city government you as a property owner are responsible for paying.
Let's say, for example, that your home is appraised at $100k, and the Grand List is $3.6 billion. Your percentage of land ownership is:
$100k/$3.6B = .0000278, or .00278%
So you the property owner will be responsible for paying .00278% of the cost of your city's operations.
The City Annual Budget
Anyway, so now that you know what percentage of the government you have to pay for, how do you determine the costs of government? That, my friends, is your city's annual budget.
My City's Common Council will spend a lot of time figuring out what money it needs to operate the next year and after much discussion they'll eventually come up with a budget.
Our 20/21 example budget shows $198M in total expenditures with $80M in revenues from other than property taxes (e.g., water/sewer fees, licenses/permits, etc). That leaves $118M that needs to get paid for by the property owners.
Theoretically, you could just take your pro rata share of property ownership (.00278%) and multiple it by that remaining part of the revenue budget:
.0000278 x $118M = $3,278
Rather than a percentage of the town you own, "mill rate" represents the dollar amount that you will pay in taxes per thousand dollars ("mill") of property value. In our example above, the mill rate is "32.78 mills".
Your property taxes are the mill rate, times your appraised value, divided by 1000:
(32.78 * $100k) / 1000 = $3,278
Yup, it's exactly the same number. So mill rate is a different way to get to the same place - maybe they don't think we'd understand it otherwise? But in the end, it represents the same thing: you're paying your pro-rata share of the cost of government.
Knowing what you know now, it should come as no surprise that tawny Greenwich with all its expensive property has a lower mill rate than Bridgeport, because with more expensive property it has a larger Grand List. But that lower mill rate is multiplied against much higher values, resulting in higher property taxes.
So comparing mill rates between towns is kinda pointless unless you also compare town budgets and property values.
Appraised Value versus Assessed Value
Notice that everywhere above I've used the term Appraised Value and have never written Assessed Value? You've probably noticed that your tax bill is based on assessed value, right? Right!
Put simply, Connecticut allows some forms of property to be "assessed" at a percentage of its "appraised" value; residential homes, for example, are assessed at 70%. This places a higher property tax burden on other properties that do not get that discount (and some property, such as churches, are not taxed at all). These discounts reduce the Grand List and increase the mill rate accordingly.
So What's the Point?
The whole point of this blog post is to show that increases in overall appraised/assessed values will not necessarily result in higher property taxes. Higher assessed values will increase the Grand List, so given no changes in the budget the mill rate should reduce. But given no change in your pro rata percentage of property ownership or the City budget, your property taxes will not increase.
Said differently, appraisals went up so rejoice, your net worth has increased! But so has everyone else's net worth. And has the Grand List. So you just can't worry about your property tax increases until we see how it affects everyone else's. If your home did not go up as much as everyone else's (is that good or bad thing?) then your property taxes may actually go down!
Yes, this is all general theory - there's nuances for each town - but the point is, don't let these re-appraisals scare you.
But Why Did My Tax Bill Go Up??
Your tax bill went up because your town budget increased (and/or your home increased in value more than the rest of the town). There's nothing you can do about mill rates and appraisals, it's just math.
If you want to reduce your taxes then get your city to spend less money. It may seem a waste of time, but at a minimum you're letting your representatives know that you're watching.
And get involved at a minimum of reviewing your city's budget and voting for candidates that have the best interests of the taxpayers at heart.
I've got other thoughts that I might add in here later. But for now I'm going to avoid being boring, and redundant, and repetitive, and repeating myself. Feel free to jump in the comments and lambast me, I can take it (I hope). At least help me correct anything I got wrong.
Hope this helps! - GA
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Epilogue: CT 2022 Motor Vehicle Mill Rate Limits - Getting into the weeds a bit
I noted above that I used the '20/21 budget numbers because it made the math a little easier. Reason is, in 2022 the CT State Legislature passed a law, effective July 1, that placed a maximum 32.46 mills that municipalities (cities, taxing districts) can charge for motor vehicle property taxes.
Hold on! You told me mill rate doesn't matter! Why are we talking about this??
It doesn't matter! Except, well, in this unique situation it does. But, as you'll soon see, it probably won't any more (at least for Middletown).
Did you go check out Greenwich's mill rate versus Bridgeport's? If you did, you learned that tawny Greenwich has a mill rate of 11.59 while Bridgeport's is 43.45. It's primarily because the Grand List of Greenwich (the value of all their taxable property) is larger than Bridgeport's, as expected. The larger that number, the lower the mill rate, given similar budgets.
But you and I know that number means nothing at all in terms of how much they'll pay in taxes; after all, 11.59 mills on a $2M home is a bigger tax bill than 43.45 mills on a $200,000 home.
The CT State Legislature knows this, too, and they used it as a tax hammer. Quite cleverly, I might add.
What they did was place a statewide 32.46 maximum mill rate on all motor vehicles. The reason? That number means that Greenwich vehicle owners, with a 11.59 mill rate, will be below the 32.46 limit and will still be charged full-rate property taxes on their Mercedes-Benz. Bridgeport and Hartford (and other high-mills cities) motorists will only pay at most 32.46 mills (instead of, for example, Bridgeport's 43.45) on their Camrys and Accords.
The motor vehicle owners in high-mills (lower Grand List) cities totally got a motor vehicle property tax break. Greenwich motor vehicle owners did not. It shows the Legislature understands the mill rate's vagaries (hopefully).
Of course, "there's no such thing as a free lunch" so unless the cities reduce their budget, that shortfall will be placed on real estate owners (and, vicariously, renters). (Thanks Milton for the quote. Well, actually Heinlein but now we're being picky).
To their credit, the Legislature reimbursed the cities and districts for those revenue shortfalls with State grants, so in the end this rate cap was a State handout to voters that live in higher-mills (read: lots of voters) districts (or is that me just being cynical?) Where that State grant money came from is anyone's guess -- I'm not gonna spend time swimming (drowning?) through the State's budget docs -- but ultimately those grant reimbursements fall upon the shoulders of all State taxpayers.
Where this matters to Middletown is that our mill rate in '21/22 was 35.70. That meant property owners paid 35.7 mills on real estate but only 32.46 on motor vehicles. And because our three fire districts had nothing left after the City got its first 32.46 cut, residents did not pay any fire property taxes at all on motor vehicles. All four districts (City budget, City Fire, Westfield Fire, and South Fire) received that lost property tax revenue back from the State via grants (how long could/will the State keep that up before just saying, "sorry nope, no more grants"?)
But budget year 2022/2023 is where it'll get interesting. Remember our the discussions about how we expect the Grand List to increase due to re-appraisals? From an extremely informal and very small sample of spot-checks of random properties, I see the city's appraisals went up around 40-45% on average (we'll know for sure when the dust settles and we see the new Grand List, due in February.) If that holds true - and please check my math - then, assuming the budget holds steady as before then the City's mill rate will decrease about 28.5% to around 25.5 mills (again, assuming a stable budget). If that happens then it means that even with the 32.46 mills limit in place, residents will again be paying full city and fire district taxes on their motor vehicles.
Which will result in an overall out-of-pocket tax increase for Middletown motor vehicle owners. And a bit less for real estate owners (and vicariously, renters).
Which will cause another mini-panic (especially for those who may rent their homes and didn't get a direct fire tax bill last year for their cars).
[...sigh...]
Let's see what February brings...
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Terms and math (hey, no eye rolling!)
Property Taxes = your fair share of the costs of running your city government
Appraised Value = the value that someone (or someones) has determined your property is worth
Assessed Value = Appraised Value times 0.70 (or whatever your city does)
Adjusted Grand List = the aggregate property value, minus exemptions, that we use for our tax calculations
Expenditure Budget = what your city has determined it needs for this year's operations
Revenue Budget = what your city expects to receive in revenues, including property taxes
Mill Rate = 1000 x (Expenditure Budget - all "other" revenue) / (Adjusted Grand List)
Taxes owed = Your Assessed Value times the Mill Rate
How do I lower my property taxes? Get your city to spend less money!
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Links
Middletown CT Mill Rates (remember, don't focus on these numbers!)
Middletown CT 2020/2021 Expenditure Budget
Middletown CT 2020/2021 Revenue Budget
Middletown CT Proposed 2022/2023 Expenditure Budget (here's where your attention should be)
Middletown CT all prior budgets
Middletown CT Housing and Property Information (where you can look up your appraisal and assessment)
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