MillageRate.com

(The following was posted in response to an inquiry in the `About Camden` discussion forum.)

Under this type of exemption [an assessment "freeze"], people in lower-valued homes and in established areas of slower growth will over time pay a higher percentage of their actual tax bill than will somebody in a high-dollar house. For this example, I will use the current situation in fast-growing Gwinnett, but this would be true for any jurisdiction with a value offset exemption (“freeze”) where you have older, established neighborhoods as well as newer, actively-developing areas in the same tax district:

Two homes– a $100,000 home in an older part of the county, an established neighborhood much like a subdivision in the western part of Gwinnett, closer to Atlanta… the other a $500,000 home in fast-growing eastern Gwinnett. Both are eligible for the “value offset” exemption, which “freezes” the assessed value by increasing an exemption by the same amount as the assessed value increases each year, so long as the eligible owner stays in the home.

For the purposes of this example, both homes are purchased on the same day or, at least, within the same tax year.

Our smaller home in the older area is a great place to live, especially for a retired couple or individual. Sure, there’s some functional obsolescence– one bathroom for three bedrooms, for example. And it’s in a subdivision that is surrounded by several non-residential areas in need of revitalization. It’s not the “latest and greatest,” but all in all, the situation is fairly stable.

The older home appreciates at a steady 2% a year, at least for tax purposes.

Eastern Gwinnett is where people really want to live. The newer $500,000 home appreciates at a 12% clip every year– it’s right in the middle of one of the fastest growing areas in the nation. New homes are being snapped up right and left, and the developer/seller demands a premium for the limited housing supply.

Increasing at 2% a year, after three years the smaller home is now assessed at $106,120, a 6.12% increase in value. However, because of the “freeze” the owner is still paying based on the $100,000 value. It’s a good deal; the tax bill stays steady… at least, until the millage rate goes up.

The law requires that every property be taxed at 40% of its Fair Market Value; however, the owner of the smaller home is not being taxed on $42,448 (40% of $106,120). He is getting a little break– he’s only paying on $40,000 (40% of $100,000). $40,000 is 37.7% of the FMV, which is $106,120.

(As an aside, you can already see why I believe that this exemption is unconstitutional. The constitution requires equal protection under the law… that all equally-situated individuals be treated equally. The above individual is only paying taxes on 37.7% of the FMV of his property while others pay on the full 40%.)

The owner of the newer, more expensive home in the more desirable area is fairing much better. After three years, his home is now valued at $702,464. However, because his value is subject to the “freeze,” his tax bill is based on the three-year-old FMV, $500,000. If you do the math, you find that the owner of the newer home is only paying taxes on 28.47% of his property’s actual Fair Market Value.

Actual FMV = $702,464 (40% = $280,985)
“Frozen” FMV = $500,000 (40% = $200,000)
$200,000 (40%) divided by $702,464 (actual FMV) = $28.47%

That is a huge, and very unconstitutional disparity between how the government treats the smaller home and how it treats the larger home for tax purposes. As I stated above, the law requires that the two homeowners be treated equally by the government.

You have probably heard about homestead and other exemptions, and how they slowly “shift” the tax burden to commercial properties. The argument is that businesses are better able to bear the burden; that homeowners deserve a break. Operationally, residential property owners with exemptions are paying on a lower percentage of their FMV than are the commercial properties. That’s the essence of the “shift.”

That is exactly what happens with the “freeze.” The property tax burden (at least, that part borne by residential properties) is shifted by some measurable amount from the owners of newer, faster-appreciating homes to the owners of older, slower-appreciating ones.

I am not a “bleeding heart liberal,” but this is a perfect example of a deficient law that helps the rich get richer while the less-affluent suffer.

Even if you don’t accept my rates of appreciation, the general principle is time-tested and provable. Over time, it only gets worse. Likewise, the circumstances in your community may be different. However, I am pretty sure that you have older, established areas as well as newer, more desirable areas within the same tax district.

You might argue that the owner of the lower-value home is paying fewer actual dollars than the owner of the higher-value property. That’s true, but for the argument to mean anything you must compare the actual dollars in proportion to the owner’s ability to pay — income, earning capacity, etc. I am sure, generally speaking, that the owner of the lower-value home earns less money than does the high-dollar property owner.

Moreover, the higher-value house has more equity built in. The “freeze” subsidizes the creation of this equity.

In conclusion, the owner of the lower-value home not only receives less benefit from the value offset exemption, but he pays taxes on a higher percentage of his FMV, compared to other property owners.

I don’t know how the promotion of the “freeze” is going in Camden County, but here in Gwinnett the value offset exemption was touted as a way to encourage long-term home ownership and benefit the folks who have been here the longest. However, “the math,” as you see, proves exactly the opposite. In Gwinnett, the folks buying homes in the eastern part of the county are, in large part, new to the county. The folks living in the older, established neighborhoods have been here a while.

As I hope I have adequately described, the value offset and other similar “freeze” exemptions will slowly shift the overall tax burden to homes in older parts of the county. Not only will property owners be treated unfairly, but it will be the county’s long-term and older residents who suffer the most.