How market changes impact real estate taxes

by Joe Testa
Franklin County Auditor

In December 2007, I wrote a column for In Contract describing the state of the Franklin County residential real estate market from the perspective of the County Auditor. Essentially the message was that home values for nearly all property remains secure in Franklin County and while sales have certainly slowed they still show a slight appreciation in value over our last countywide reappraisal in 2005. 

I am frequently asked however that if property values actually did decline how much of a tax break would we see. The answer is, essentially none!

Why is that? It is because Ohio Law protects schools and social service agencies during down markets just as it protects homeowners during up markets.

You might recall House Bill 920 which developed "reduction factors" in the 1970s. The reduction factors are applied to most voted millage and reduce the effective rate of that millage commensurate with the district value increases during the State mandated reappraisals and updates conducted by the County Auditor. This "outside millage" as it is called is reduced so that in an appreciating market the schools etc. receive only the amount of money the voters approved for each particular levy.

New construction is outside that calculation and does create new revenue for the schools in most cases, but an increase in general value due to these three year updates does not. The exception to all of this is the so called "inside millage" which represents approximately 15% of the overall millage. The inside millage is allowed to generate more or less revenue as the general market sales dictate.

Therefore the same law which protects homeowners by decreasing the tax rate when property values increase in the countywide reappraisal works in reverse if you have a decrease in value and protects the schools and social service agencies. State government's concept here was that this source of revenue for schools and social service agencies would be guaranteed by State law to be more consistent and dependable.

Here is an example: In the City of Columbus/Columbus Schools the current effective residential tax rate is 50.06 mills. The average residential home value is currently $111,700. If reappraisal increased the district's residential value 10% that home's value would go up to $122,870. The tax bill would increase 1.8% or $ 31.20 .per year. Likewise, if reappraisal decreased that value 10% to $ 100,530, the tax bill would be reduced the same 1.8% or $31.20 per year.

Using that last example, you would have lost $ 11,170 in equity out of your home and only "saved" $31.20 per year in a reduced tax bill. If nothing changed, it would take you 358 years to recoup that equity loss through slightly reduced tax bills. This would be a horrible scenario to be sure.

Fortunately, as I stated before, in Franklin County we are not experiencing overall real estate value declines. We will be completing the 2008 State mandated update and mailing out our tentative value figures this summer. You will then see the tentative conclusions we come to and the schedule of informal reviews for property owners to consider attending.

While other parts of the U.S. saw extravagant increases in property values in previous years and have seen their bubble burst, we never had that and thank goodness we didn't.

While we have seen better years for the housing market than we have right now, a solid steady increase in property values beats the roller coaster some parts of the country have experienced hands down.