A former Dade County Commissioner has challenged the constitutionality of floating homestead exemptions, (AJC: `Ex-official files tax lawsuit,'). Twenty-four counties including Cobb, Fulton and Gwinnett, and dozens of cities have approved some type of floating exemption that, in essence, `freezes` the taxable value of your property at a certain level, usually until you move.

The purpose of the exemptions is to protect property owners from higher tax bills resulting from rising property values. The initiatives are very popular; not one has been defeated by the voters and five more are on the ballot in November for various jurisdictions.

In my opinion, the exemptions will be overturned because they violate a foundational principle of our state's highest law. The state constitution requires that equally-situated persons be treated equally under the law and that no person be granted a "special favor" that is not accorded to all similarly-situated citizens. The principle is reaffirmed time after time in Georgia courts, in various contexts. It is the same argument that is often used by developers to successfully overturn a denial of their rezoning application-- that their property is not being treated by the government in the same way as a similar nearby property.

Exemptions Don't Solve the Problem

The problem with the politically-popular exemptions, besides the constitutional issue, is that they will fail to achieve the desired result and, over the long-term, result in higher tax bills even for property owners receiving the exemption.

These exemptions, like every exemption from property taxation, do not decrease the total amount of tax dollars needed to fund the associated budget nor the number of tax dollars collected. They merely shift the burden to the other taxable property. Government must go on; somebody has to pay the bill.

Government will continue to need a certain number of dollars to fully fund budgets, but as the exemptions take taxable value off of the tax rolls, taxing authorities will be forced to raise millage rates to compensate for the decrease in revenue. And higher millage rates mean higher taxes, no matter whether your property is under an exemption or not.

School systems may be especially hard hit in areas where the exemptions are in place for a longer time period. Millage rates for education are constitutionally-capped at 20 mills. School Boards can only raise the rate above the limit after voter approval. These days, voters are less likely to approve an increase, meaning that school systems across the state will soon be strapped for cash and even experience deficits as state funding decreases and their ability to generate local dollars is restricted.

There is, however, a REAL solution to the problem that is completely constitutional, promotes honesty in the property taxation process, and just makes common sense.

Doing the Math

There is only one way to mathematically calculate the millage rate, which is the rate adopted by your City Council members, County Commissioners and School Boards that is applied to the value of all taxable property within its jurisdiction to generate the tax dollars needed to fully fund the budget.

You divide the portion of the budget to be funded by property tax dollars by the net tax digest.

This simple math is taught 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! Also, there is currently no law that requires them to adopt a mathematically-correct millage rate.

Consequently, taxing authorities often adopt an arbitrary rate that has absolutely no mathematical connection to their budget needs. In fact, my research indicates that more than 9 out of 10 Georgia taxing authorities adopt a mathematically incorrect rate.

Honesty in Taxation: The Numbers Don't Lie

If cities, counties and school boards were simply required to "do the math," increases in the tax digest would-- by operation of the math-- result in a 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 by the same percentage as [ B ].

A mathematical millage does exactly what the tax "freezes" and the "Taxpayers' Bill of Rights" rollback fail to do-- protect property owners from higher tax bills resulting from increases in the tax digest.

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-- go down.

Also, no exemption protects a property owner from an arbitrarily-inflated tax rate. Your property can be subject to an exemption and still be "overtaxed."

The above will not be true for every individual taxpayer-- some folks' property value may go up at a greater rate than does the tax digest overall (thus producing a higher tax bill)-- but, in general, the only LEGAL way that the benefit of growth in the tax digest can be passed along to the taxpayer is by requiring a mathematically-calculated millage rate. There are numerous other benefits, but this is the foundational aspect that does what floating exemptions fail to do, and legally at that.

Mathematical Millage Guarantees a Benefit

When the exemptions are ruled constitutional, you should be watching your elected officials like a hawk-- especially if we haven't yet succeeded in getting our "mathematical millage" law on the books. When the exempted property value is returned to the digest, some taxing authorities (the ones currently with the floating exemptions) may experience a tax revenue windfall UNLESS their millage rates are reduced proportionately or calculated correctly. If you live in an area currently under a floating exemption law, be prepared to DEMAND that your elected officials "do the math" so that YOU receive the benefit, and not them.
 

Back to the Library