The Millage Rate – An Overview
You’ve heard the stories, I am sure– in counties across Georgia and especially in areas with overheated development economies like Gwinnett, rising assessments for property tax purposes are literally taxing some people off of their land. Each county Tax Commissioner is required to value property at “fair market value” for tax purposes. Individual property values climb, whether or not the property owner has any intent to sell.
Every year, city and county governments bank significant surpluses each year, generated by the increasing tax digest to which the taxing authority’s millage (tax) rate is applied.
Here is how it happens: every taxing authority (cities and counties) and recommending authority (school boards) set a millage rate each year. The millage rate is the amount of tax (in dollars) on every $1,000 of taxable property value (the net tax digest) required to fund each authority’s budget. The county Tax Commissioner applies that rate to the net tax digest (consisting of individual properties) to generate property tax revenue.
There is only one way to mathematically calculate the millage rate. You divide the portion of the budget to be funded by property tax dollars by the net tax digest. [A] divided by [B] equals [C], the millage rate. By calculating the rate in this fashion, the portion of the budget that must be funded by property tax dollars (after all non-tax revenue has been considered) is spread equally across the value of all taxable property.
This simple math has been taught for years by the Department of Revenue to county Tax Commissioners, assessors and appraisers, as well as Board of Equalization members, but it is NOT taught to newly-elected County Commissioners, City Council members and School Board members, the very folks who adopt the millage rate!
(You will find an explanation of the millage calculation process here.
Elected officials don’t “do the math”
For the past year, I have analyzed the millage rates of selected cities, counties and school boards from across the state. My research indicates that more than 9 out of 10 Georgia taxing authorities adopt a mathematically incorrect rate each year. When elected officials fail to simply “do the math” described above, they either OVER-tax or UNDER-tax their constituents– it HAS to be one or the other.
Taxing authorities often adopt arbitrary, politically-palatable rates that have absolutely no mathematical connection to their budget needs. The result of this failure to “do the math” is that Georgia’s property owners often pay more than is necessary to fully fund the cost of their local government.
The problem is particularly insidious because elected officials often maintain the same millage rate from year to year, claiming that they are not “raising taxes,” yet still reap windfall surpluses every year as a result of a growing tax digest. Remember the math– the over-collection (read “overtaxation”) results when the tax digest [B] goes up, but the millage rate [C] stays the same.
Politicians to the rescue
You may be surprised, if not alarmed, that there is currently no law that requires taxing authorities to adopt mathematically-correct millage rates. The law currently allows taxing authorities to set any tax rate they choose.
Rather than require a mathematically-correct rate, state legislators have tried a wide range of measures in response to the cry from overburdened taxpayers. ALL legislative action, to date, has been directed toward treating the SYMPTOMS of the problem, but not the problem itself.
Roy Barnes’ “Taxpayers Bill of Rights”
For example, in 2000 the State Legislature enacted Roy Barnes’ “Taxpayers Bill of Rights.” A portion of the law requires taxing and recommending authorities to either A) roll back its millage rate by the same percentage that the net tax digest grows as a result of new construction and reassessments (designed to make growth in the digest “revenue neutral”) or B) hold three public hearings and advertise an “Intent to Increase Taxes.”
While it may result in lower tax bills, the millage rollback does NOT guarantee that the rate is not STILL too high. The rollback does not pass the full benefit of a growing tax digest to the taxpayer in the form of a lower millage. Besides, the rollback is NOT required; a taxing authority can choose to overtax if it is willing to weather the public hearings.
Many politicians have figured out that they can easily fool their ill-educated constituents. In 2004, for example, the Muscogee County School system adopted the same millage rate as it had in the previous 15 years. (If you understand the math, you know that it is almost impossible for the rate to stay the same from year to year, much less for 15 years!)
With the same millage rate each year, the Muscogee School system has banked yearly multi-million dollar surpluses as local property values increased. But instead of calculating the millage rate correctly (which would result in an immediate tax cut), the School Board has justified its overtaxation by claiming that it has not “raised taxes” (by keeping the millage the same each year).
A local newspaper reported this from Board member James Walker: “…it is not the school district that is raising the millage rate by 3%. He further stated that this is the result of the tax digest and the school district will benefit from someone else’s actions.”
In other words, rather than accept his responsibility as the taxing authority for the arbitrarily-high (albeit the same as the prior year) millage rate, Walker instead “blamed” the Tax Commissioner for the fact that the school system would realize a tax windfall.
In 2004, the owner of a $150,000 Muscogee County home paid $88.68 more in property taxes for schools (total bill $1,402.20, not considering exemptions) than the School Board actually required to fully fund its budget. The system realized a paper surplus of $4.78 million simply as a result of the arbitrarily-high millage.
Other failed measures
Georgia legislators have tried to address the problem of rising tax bills in the past. In 1995 and 1996, for example, resolutions were proposed to freeze millage rates at current levels; increases would have to be approved by popular vote. Fortunately, this remedy did not receive significant support; it would have been an artificial and ineffective influence on the millage calculation.
A bill was reportedly recently introduced which would have taken the millage calculation completely out of the politicians’ hands. The taxing authority would provide its budget to the county Tax Commissioner, who would then calculate the rate required to generate the necessary revenue. That bill reportedly never made it out of a legislative committee.
Currently, there is a constitutional limit of 20 mills for the funding of schools. School Boards can adopt a rate above the cap only by voter approval.
A legal challenge was recently lodged against floating exemptions, a popular measure in jurisdictions across the state including Gwinnett [ http://www.ajc.com/metro/content/metro/0705/24taxsuit.html ]. In my opinion, floating exemptions are unconstitutional because they do not treat equally-situated property owners equally.
All of the above are nothing more than artificial influences on either the millage rate or property values. The proposal to put the millage calculation in the hands of the Tax Commissioner would eliminate mathematically-incorrect rates, but it would also serve to remove accountability for the increasing cost of government from the elected officials. I would rather have the elected officials publicly adopt the rate, even if it is nothing more than the product of a math problem.
A simple solution
If taxing authorities were simply required to “do the math,” increases in the tax digest would result in an automatic and systematic benefit to the taxpayer in the form of a lower millage. Keep the math in mind….
[A] the portion of the budget to be funded by tax dollars DIVIDED BY [B] the net tax digest EQUALS [C] the millage rate.
If [B] increases in this equation, [C] MUST decrease (as long as [A] doesn’t rise at the same pace as [B].
In other words, as long as governments hold the line on expenditures, when property values go up the millage rate– and thereby individual tax bills– goes down, but ONLY as long as the rate is mathematically “connected” to the budget and the tax digest.
(A mathematical millage is what it is and nothing more…. just the answer to a math problem. The “politics” of the millage rate are eliminated; all of the focus is then shifted to the budget process. If politicians want to “cut taxes,” they MUST hold increases in the cost of government BELOW the rate of increase in the tax digest. In other words, politicians would be required to EARN their “tax cut.” This may be the primary long-term benefit of my proposal.)
The above will not be true for every individual taxpayer, of course– some folks’ individual property value may go up at a greater rate than does the tax digest overall– we must assume (and, by law, should ensure) that everybody’s property is assessed at “fair market value” and that, as long as Georgia uses property taxes to fund the cost of government, everybody should pay equally based on the taxable value of their property.
Nonetheless, the ONLY way that the benefit of growth in the tax digest can be passed along to the taxpayer is to adopt a mathematically-correct millage rate. There are numerous other benefits, but this is the foundational aspect that does what floating exemptions, value increase limits and the “Taxpayers Bill of Rights” millage rollback fail to do.
The “bottom line” benefit of a mathematical millage is that the Georgia property owner pays no more and no less than is required to fully fund the cost of their local government. A mathematical millage forces elected officials to hold down the cost of government or, at the very least, identify additional non-tax revenue sources.