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What’s it to Utz? – Depth and taxes Part 2: Explaining your new tax bill

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What’s it to Utz? – Depth and taxes Part 2: Explaining your new tax bill

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Hans Utz

Editor’s note: Hans Utz has lived in and around Atlanta for 25 years and formerly served as the Deputy COO of the City of Atlanta.  He writes about local and national politics. He and his family currently reside in Decatur.

By Hans Utz

In a previous column, I broke down the components of your tax bill and compared rates across municipalities. In this column, I’ll take those components and compare the difference between the 2017 and 2018 anticipated tax bill for a typical Decatur homeowner.

To start, let’s go into some background on the tax digest. Starting with: what is a digest?

Think of it this way: the tax digest is what Dekalb County thinks all of the taxpaying property in the City of Decatur is worth. In effect, it is the size of the check I would have to write to buy Decatur from the County if none of you complained about it.

The expected value of the digest for 2018 is nearly $2.0 billion, which is estimated to be 8.9 percent larger than last year’s digest. 2.9 percent of the growth, or about $60 million, is due to new property development. Roughly 6 percent of the growth, or $105 million, is due to the increase in value of existing property.

The 6 percent of existing digest growth is an important number: it represents the average growth of a home’s value in Decatur since last year. Or more specifically, it represents the typical increase in your home’s assessed value according to the County.

If we assume an average home value of $500,000 in 2017, a 6 percent growth in value means that home would be assessed at $530,000 in 2018. In other words, if no one changed the tax rates, the average tax bill would still be 6 percent higher in 2018 simply because the assessed value of the home grew by that amount.

 

 

But of course, everything changed, so it’ll take some work to compare the tax bills. Furthermore, this assumes the *average* home – the actual property value changes will be unevenly distributed. Some properties will hew toward the average, but some will be much higher, and some will even decline. This whole analysis will vary greatly based upon what happens to your specific assessment.

Let’s discuss the main components of your tax bill. First are the millage rates assigned by each municipality, and for Decatur there are three entities that set rates: The county, the city, and the schools. These are all developed independently, and so we’ll have to look at each to compare.

To complicate it further, the millage for each entity is made up of multiple separate parts, which added together gives you the net tax rate for each municipality. Each one of these components can change in a given year, and so it gets quite complicated to do straightforward comparisons.

Second are the various fees paid, generally on a fixed basis. We have stormwater and sanitation fees in Decatur.

Lastly there are the credits and exemptions, and this year Decatur homeowners will see a significant change in the credit applied to their county taxes.

Let’s go through each in turn. First, the millage rates.

The City Schools of Decatur have elected to keep their 2018 millage rates unchanged from 2017 at 18.66 mills. That may sound straightforward in theory but remember the average home has increased 6 percent in value. That means the City Schools of Decatur will take approximately 6 percent more in taxes from the average home this year. Even though the rate is unchanged, this is considered a tax increase since you are paying more to the Schools in taxes. You might ask *why* they are increasing your taxes on average by 6 percent?

It has to do with exemptions. More citizens are exempted from paying into the schools than are from paying into the city. This is common, and generally fair. A retired 80-year-old couple on fixed income that has owned their home for 40 years with no kids should not have to pay the same amount to support the Schools as the 35-year-old couple with three kids in the system. There are several exemptions available to the first couple that will allow them to avoid some school taxes, and because of those exemptions the available school digest is smaller than the city digest.

It turns out dramatically so. In 2017 a school exemption went into place that effectively exempts any homeowner in Decatur over the age of 65 from paying taxes to the Schools. The impact was tremendous: in 2016 the value of the property exempted from paying taxes to the City Schools of Decatur was $85 million. In 2017, it was $231 million.

Another way to look at it: in 2016, a little over 4 percent of the digest property in Decatur was exempted from paying School taxes. In 2017 that number grew to over 12 percent. Or more bluntly, it went from 1 in 25 Decatur homes exempted from school taxes to 1 in 8.

Even though the City Schools of Decatur is maintaining the same tax rate, and even though the average home value is growing, and even though the average homeowner will be paying more in school taxes, in 2018 the School’s operational fund is actually decreasing approximately 1 percent due to the decline in taxpaying properties.

We are transferring the cost of the schools away from retired citizens in Decatur to families using the schools. I don’t think this is unfair, but I do think this is impactful, and everyone should keep this in mind when evaluating the school’s budget. I would also expect to see a millage increase in next year’s school budget. Frankly I’m not sure how we are getting away without one this year, and kudos to the school’s budget teams for pulling it off. I know how hard that can be.

DeKalb County has elected to increase their millage rates, from a combined 9.955 mills in 2017 to 10.819 mills in 2018. This is also a tax increase, but it comes with a very big caveat for taxpayers in Decatur. The credits you get against that tax have dramatically changed, which we will discuss in a minute, and so even though your millage will increase, your actual tax paid to Dekalb County will almost certainly decrease.

The City of Decatur has also elected to increase the millage, from a combined 13.49 mills in 2017 to 13.62 mills in 2018.

Let’s go into a little more detail. City taxes in Decatur are made up of several parts. First is the general fund, which is what supports the operating departments of the city. Think police, fire, planning and zoning, the administrative offices, etc. The millage rate that supports these departments will decrease, from 9.24 in 2017 to 9.0 in 2018.

Here’s where it gets complicated: while the millage rate is decreased for the general fund, it decreased less than the digest value has increased, and so this also is considered a tax increase.

Here is a quick shortcut: is the city spending more money in 2018 than it did in 2017 on the general fund? If the answer is yes, then you have a tax increase.

That is the case this year, even though the tax rate has decreased. Granted the increase is small, and most of it will go to increased personnel costs, a handful of new positions, merit increases in salaries, and growth in healthcare costs.

Additionally, the city’s capital fund will increase from 1.06 mills in 2017 to 1.54 mills in 2018. The bulk of the increase in the capital fund will go toward the acquisition and improvements of the United Methodist Children’s Home property. Annualized this will be around $2 million a year, and the tax increase will cover about $1 million of it. The City was able to use some one-time fund sources this year to cover the difference, but you can expect another equivalent millage increase next year, depending on digest value, to cover the ongoing difference.

Stormwater fees are unchanged, but sanitation fees for Decatur homeowners will increase from $278 to $290 in 2018.

Lastly, credits. This past year we voted to change how we handled the Homestead Option Sales Tax (HOST). In brief, the HOST is a sales tax that Dekalb County uses to offset property taxes for the residents in the area where the HOST is collected. We recently passed the EHOST, or Equalized Homestead Option Sales Tax, that changes the way the funds are distributed.

The net impact is a significant increase in the credit that Decatur residents will get against their County tax bills. Or, more simply, it means Decatur homeowners will owe significantly less tax to the county.

As an aside, this is the reason Dekalb is increasing their millage rates, since they will be collecting far less in taxes from county residents that live in incorporated areas like Decatur.

The impact to a Decatur homeowner is enormous. In 2017, Decatur residents received a 43.2 percent credit on their county taxes. In 2018 that credit will grow to approximately 84 percent. It translates to almost $700 in lower taxes for the $500,000 average Decatur home, even after the growth in the home value and the County millage.

Here is a breakdown of the tax changes that a typical $500,000 Decatur home with the basic homestead exemptions in 2017 will see in 2018:

2017 2018 Change
Home Value  $        500,000  $      528,552  $   28,552
County Millage             9.955         10.819        0.86
HOST Credit 43.2 percent 84.0 percent 41 percent
City Millage             13.49          13.62        0.13
School Millage             18.66          18.66         –
Assessed County Taxes  $       1,898.85  $     2,186.81  $   287.96
EHOST Credit  $         785.26  $     1,781.19  $   995.93
Net County Taxes  $       1,113.59  $       405.62  $  (707.97)
City Taxes  $       3,105.50  $     3,326.94  $   221.44
School Taxes  $       4,665.00  $     4,931.39  $   266.39
Stormwater  $         278.00  $       290.00  $    12.00
Sanitation  $         100.00  $       100.00  $         –
Total Tax Bill  $       9,262.09  $     9,053.96  $  (208.14)

A few things to point out:

  1. Even though the County has actually increased their taxes some $300 per typical Decatur home, the homeowner will actually pay some $700 less in County taxes because of the nearly $1,000 increase in credit received from the EHOST.
  2. Even though the schools have kept their millage flat and reduced their budget, the School taxes are increasing nearly $270 on the average home since there has been a dramatic increase in the number of properties exempted from paying School taxes.
  3. In aggregate, the average homeowner in Decatur will pay a couple of hundred dollars less in taxes in 2018 than 2017 despite millage increases and a significant growth in the digest because of the impact of the EHOST credit.

Before everyone celebrates, keep in mind the EHOST is funded by a sales tax, so it isn’t free money. That said, it is partially paid by nonresidents and so it is generally favorable to homeowners. Also keep in mind that we passed a Special Purpose Local Option Sales Tax (SPLOST), which is a sales tax increase that will go toward capital projects. These sales taxes are not represented anywhere in this analysis, but you will feel them nonetheless.

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