As we have stated previously in our communications, figuring out how we tax ourselves is one of the most important conversations we can have as a community. And as we’ve said before, it’s a multi-year conversation.
Over the past two years, we've had many conversations on this topic with you at our Ward 1 Meet-Ups, in 1-on-1 talks over coffee, and at City Council meetings. We heard from residents - especially older residents on fixed incomes - who have trouble affording rising property assessments and the taxes that come with it. And after last year's budget, we started working with staff and elected officials on how to lower the burden on single-family home owners.
The first step was to see if we could tax property types at different rates. After years of taxing all property types - e.g., single family home owners or industrial buildings - at the same rate, the city passed legislation last month to create separate classes (although not necessarily different tax rates) depending on whether the property is a single-family home, townhouse, commercial, industrial, or multi-family/apartment building.
Tonight, we introduced a tax proposal on the tax rates for these property types that we believe is fair and balanced. But first, some history is in order.
In the early 2010s, the city raised the tax rate on all property from .79 cents per $100 to .86 cents. In 2018, council lowered it to .84 cents. Last year, we lowered it again to .83 cents per $100 of assessed value.
The purpose of the tax cuts was to reduce the tax burden on single-family home owners as a result of higher home assessments causing higher tax bills. However, because we only had one property class, all building types received the tax cut. So we provided a bit of a windfall to some properties that were not the target of the cut.
It is important to note now that apartment buildings are assessed differently than single-family home owners. While the state assesses a home’s value based on the market value you would receive in selling the home, apartment buildings provide the state a net income calculation that serves as the basis for their assessment. As a result, any tax increase or decrease gets reflected in their income, which gets reflected in their assessment, which lowers or higher their tax bill respectively. What that all means is that apartment complexes don’t necessarily rise in value because home values are rising, and any tax increase is somewhat absorbed through their net income statement that serves the basis of their assessment.
Fast forward to earlier this spring. In trying to lower the single-family home tax burden, the City Manager and Finance Director proposed a budget last month with the five classes referenced above. In trying to get the single-family home rate down to the .79 cents per $100 it used to be, they proposed a budget that would substantially raise tax rates on the apartments to .97 cents per $100. The rationale stemmed from the fact that our police department is the city’s most expensive line item and that, according to staff, the majority of our police calls come from apartment complexes.
The problem with staff’s proposal is it overshot the mark a bit. There are many smaller multi-family buildings that are not responsible for increased police calls. In addition, there was some potential for this to cause rent hikes due to the fact that it was a drastic rise above prior tax rates.
Putting this all together, we worked on a proposal that we thinks right sizes the tax code based on the tax classes. It returns the tax on multi-family/apartment buildings to .86 per $100 of assessed value, correcting the fact that we included these property classes in the tax cuts meant for single-family home owners. We’ve also begun a conversation about whether we need a system of rent control, and whether we can separate smaller apartment units from larger apartment units for purposes of taxation. We think these are conversations worth having.
And tonight, by finding around $100,000 in cuts from spending, we proposed lowering the tax rate for single-family homes, townhomes, commercial, and industrial buildings to .81 cents per $100 of assessed value. While not fully back to the .79 cents per $100 of assessed value for single-family home owners, we think we can get to that goal eventually.
None of this is final. We still have a budget to pass and there are still competing interests that will have to be addressed. But for year one of this conversation, we think this is a good start.
Luke and Celina