Assessed values drop, tax bills probably won't

The East Valley Tribune
Sunday, March 1, 2009
Mark Flatten

The deep slide in East Valley home values is showing up in property tax assessments being mailed out to homeowners, but don't expect that to translate into a drop in your tax bill anytime soon, if ever.

Declines of roughly 20 percent in market values of homes in Mesa, Chandler, Gilbert and Queen Creek are reflected in the notices of value being sent out by the Maricopa County Assessor's Office. The drops in the values of single-family homes range from about 18 percent in Chandler to almost 24 percent in Queen Creek. The median value of a home in Mesa dropped almost 23 percent, while a Gilbert home fell about 20 percent over the last year, based on the values showing up in the tax assessments.

Countywide, tax values of single-family homes dropped about 23 percent. This is the first year since 1993 that the net assessed value of property in the county declined, according to the assessor's office.

Those assessments will eventually be used to figure tax bills, but that is still more than a year away.


Values for tax purposes do not exactly line up with true market values. For one thing, the assessments being sent out are based on data collected from about June 2007 through about September 2008, according to Paul Petersen, a spokesman for the county assessor's office.

For another, there are nuances in state law that define how a property is valued for tax purposes, Petersen said. And since the taxes residents pay are based on assessed values, the estimates are somewhat low-balled to where they represent about 80 percent of true market value, he said.

But what is significant about the new round of notices is they are the first to show how far the area's real estate market has tanked since 2007.

There could be some good news in all of this if the lower assessments automatically meant lower tax bills. But that is not the case, said Kevin McCarthy of the Arizona Tax Research Association, a private organization that monitors state and local tax policies.

The property taxes that homeowners pay are based on two things: the assessed value of their property, and the tax rates that are set by school districts, cities and other local government entities with the authority to levy property taxes. Basically, the value of the property is multiplied by the tax rates of local governments to figure out how much money a homeowner has to pay.


In past years, when real estate values were soaring, elected officials bragged they were holding the line on taxes by leaving their tax rates unchanged, McCarthy said. That resulted in a net increase in property tax bills because of the higher values, he said.

Now that the assessed values are dropping, politicians will need to decide whether to hike the local tax rate or face the prospect of declining revenue, he said.

"What we always try to focus on is taxes, not rates," McCarthy said. "We try to get taxpayers to focus on how much money the local governments are taking."

If that's not confusing enough, the assessments that are being sent out to homeowners will not even factor into tax bills until 2010. There is a lag of about 18 months between the time property tax values are set and they are used in figuring tax bills to allow people to file protests if they believe their valuations are too high, Petersen said. The lag also allows local governments to plan finances to figure out exactly where officials will need to fix tax rates to ensure the governments raise enough money, he said.

Then there's the difference between primary and secondary property tax assessments, which are calculated differently. Primary property taxes go to a local government's general operations. Secondary taxes go to pay for capital improvements.

So what's the bottom line?

That depends on where you live.


The biggest chunk of a property tax bill goes to support local schools. But the amount of money homeowners pay for schools is largely formula driven, said Chuck Essigs, director of government relations for the Arizona Association of School Business Officials.

The state sets a formula for how much money each district can spend per student, Essigs said. The primary property tax rate for school districts is also set by the state. The difference between what is raised in property taxes and what is required to meet the per-pupil formula is made up by state aid to local districts.

District governing boards also have little control over the secondary tax rates they charge to pay for construction and building upgrades, said Clyde Dangerfield, assistant superintendent for business at the Gilbert Unified School District.

All bonds and budget overrides that affect secondary taxes are voter-approved, Dangerfield said. Every year, a calculation is made as to how much money needs to be raised by property taxes to make the annual payments on those bonds, and that cost is spread across the properties within the district boundaries.

There are some provisions in the law that allow districts to do a little tinkering, but the amount that homeowners pay in property taxes to local schools is determined almost entirely a mathematical formula, said Joel Wirth, chief financial officer of the Chandler Unified School District.

"I think a lot of people out there may be assuming as the values go down they will pay less," Wirth said. "Not true. The same thing is true when the values go up, they don't necessarily pay more."


Cities do have more leeway in setting their own tax rates than school districts because there are far fewer restrictions set by the state.

Mesa does not have a property tax yet. Last November, voters approved a secondary property tax to pay for about $170 million in bonds for public safety and street improvements. That tax is expected to add about $47.50 to the property tax bill of a house valued at $250,000, according to city estimates. It will start showing up tax bills late this year.

Gilbert does not have a primary property tax. It does have a secondary tax to finance construction projects. The council as a matter of policy has held the tax rate steady.

As assessed values fall, it could force the town to put off some planned construction projects to avoid raising the tax rate, said George Pettit, town manager. If values fall too low, the rate might have to be raised to cover the annual payments on bonds that already have been issued, he said.

"I certainly don't feel any urge from any of the political leadership to increase the tax rate just so we can issue more debt," Pettit said. "The immediate impact that people are likely to see is that some of the things we were hoping to do maybe a year or two from now, we won't do because we don't have the capacity to generate enough revenue to pay the bonds."

Chandler does have a primary property tax, which generates about 13 percent of the city's general fund revenue, said Dennis Strachota, management services director. However, state law puts limits on how much cities can increase primary property tax rates, Strachota said.

However, the dropping property values will force the council to reconsider its capital improvement plan, which is financed by secondary taxes, Strachota said. When property values were rising rapidly, there was ample growth in revenue to pay for ambitious construction projects, Strachota said. Now that values are falling, city planners will have to weigh whether to scale back on construction projects or hike the secondary tax rate, he said.

"It's going to be a trade off," Strachota said. "At one extreme, do you decimate the program and do very little if anything in terms of infrastructure and facility needs? Versus do you increase tax rates or hold the levy so that you are able to at least do some level of projects over the next five years or so? That's just a decision the council will have to make."

Queen Creek does have a primary property tax, but no secondary rate. And since voters capped the rate the town could charge, the amount of money that will be raised will drop as assessed values fall, said Patrick Flynn, assistant town manager.

About 10 percent of Queen Creek's operating budget comes from the primary property tax, Flynn said.

"People will see a decrease in their actual property tax bill unless the voters approve a new rate," he said.

Typical tax bill

Major components of a sample 2008 property tax bill:


Location: Near Greenfield Road and Southern Avenue

History: Purchased in March 2007 for $185,000

Total bill: $846.92

Mesa: $0*

Mesa Unified School District:

Primary: $447.62

Secondary: $247.52

* Mesa had no property tax in 2008. Voters did approve a bond issue in November.


Location: Near Pecos and McQueen roads

History: Purchased in November 2006 for $236,500

Total bill: $1,083


Primary: $46.80

Secondary: $156.66

Chandler Unified School District

Primary: $447.58

Secondary: $247.05


Location: Near Warner and Val Vista roads

History: Purchased April 2008 for $221,500

Total bill: $1,454


Primary: $0

Secondary: $252.43

Gilbert Unified School District

Primary: $545.75

Secondary: $402.22


Location: Near Queen Creek and Ellsworth roads

History: Purchased in August 2007 for $202,400

Total bill: $2,265

Queen Creek:

Primary: $437.56

Secondary: $0

Queen Creek Unified School District

Primary: $769.06

Secondary: $554.19