Currently, there are two primary variables in the property tax millage rate computation, and both are in the hands of politicians and subject to political influences– and therein lies the problem.
The three parts of the millage calculation:
- The budget
- The net tax digest
- The millage rate
The budget: Determining what services are to be offered by government, what the cost of those services will be, and how expenses will be funded are fundamental responsibilities of elected officials during the budget process. The budget process can be fraught with political influences, to which any critic of out-of-control, “pork barrel” spending can attest.
The net tax digest: The tax digest is determined by the Tax Commissioner’s Office through the Board of Assessors and staff. The process is generally “politics free;” values are overseen by county Boards of Equalization and the final digest must be approved by the state.
The millage rate: Currently, a taxing authority can set the millage rate at whatever level it chooses. Although no analysis of statewide data exists, anecdotal experience indicates that most jurisdictions do not set their millage rate mathematically, but rather set the millage rate arbitrarily and “politically.”
A millage too low
Many city councils and and county commissions have maintained the same millage rate for years1, fearing public reaction to a “tax increase.” They pray, instead, for growth in the tax digest to fund the ever-increasing cost of government, or they raise fees and fines beyond reasonable levels. If the tax base doesn’t grow as fast as the cost of government, percentage-wise, they suffer a budget deficit.
Even worse, City Councils and County Commissions may approve bad development just to boost the tax digest so that they don’t have to “raise taxes.”
The bottom line: if you set the millage rate lower than what the millage rate computation requires, you will not collect enough revenue to fully fund government, absent an unexpected windfall or over-estimated expenses.
While a county or municipality may be able to withstand the occasional deficit year, it is just as much a failure of an elected official’s fiduciary responsibility to his/her constituents to set the tax rate too low as it would be to overtax through an improperly-inflated rate.
A millage too high
Many jurisdictions, especially in the metro Atlanta area, rode the 1990’s wave of growing tax digests, banking a yearly surplus which was produced by failing to reduce the millage rate by the same percentage that the tax base grew (assuming the cost of government stayed the same).
If you recall our primer on the millage rate process (and you remember your fourth grade math), you know that if “B” (the net tax digest) increases by a higher percentage than does “A” (the cost of government), then the product of the equation– “C,” the millage rate– must decrease.
When it fails to “do the math” and reduce the millage rate, the taxing authority essentially increases the burden of the cost of government on the taxpayer without proper notice and consideration. Cities and counties collect more from the taxpayer without first considering and establishing the need for collecting that money (via the budget hearing process).
The failure to “do the math”– to reduce the millage rate as tax digests grow faster than the cost of government– is the epitome of a “back door” tax increase.
If the millage rate is set higher than mathematically required, the taxing jurisdiction is guilty of overtaxation, plain and simple.
A matter of honesty
The failure by elected officials to set a mathematically-correct millage is, in our opinion, tantamount to lying to their constituents. Our research indicates that this dishonesty is not willful but borne out of innocent ignorance of the process and influenced by political pressures.
The budget must be set before the millage rate can be calculated and adopted. When the taxing jurisdiction calculates its budget each year, it computes a specific number which represents the portion of the budget which must be funded by property tax dollars.
The millage rate is, by definition, the number which will produce the property tax revenue necessary to meet that specific number and fully fund the budget– no more and no less.
If a taxing authority adopts any millage rate other than the mathematically-calculated rate it has, in our opinion, dealt dishonestly with its taxpayers.Â The taxing authority has, in essence, said:
“When we set the budget, we told you that we needed “X” of your tax dollars to fully fund it, but we have now adopted a tax rate which will take more/less than we told you that we needed.”
Training is deficient
The “innocent ignorance” of your elected officials is understandable. When they took office, they were not taught how to perform this important part of their public duty.
The instruction on the millage rate calculation for new County Commissioners and City Council members amounts to approximately three paragraphs in the manual for the state-mandated training. The actual millage calculation is not included. In June 2005, additional training became available, but is not required.
New School Board members are taught a process which can be described as a “millage value estimation.” BoE members are taught to divide last year’s actual tax revenue by last year’s millage and use that “dollar value of a mill” to compute how many mills will be needed to make up the budget shortfall for the current year. The process is invalid because it produces a millage rate that has no mathematical relationship to the actual needs of the budget.
While sufficient training is sorely needed, we believe that elected officials would still give in to political pressure, even if they knew how to calculate the rate. A state law requiring taxing authorities to “do the math” is necessary.
Why another law?
We have identified several examples from across the state of elected officials who ignore the recommendation of their own finance staffers, we believe, for “political reasons.” The staff calculates and recommends a mathematical rate; however, the politicians adopt a different rate, often because they don’t want to “raise taxes.”
Even worse, some politicians adopt the same rate as the previous year even though the budget requires a lower millage. Many taxing authorities are currently perpetuating overtaxation by simply adopting the previous year’s rate.
Previous legislative proposals missed the point
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 have been 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. [Reference]
In 1999 and subsequent years, a resolution was considered to limit millage rate increases to the rate of inflation. This measure did not pass, nor should it have.
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 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.
Governor Roy Barnes’ “Taxpayer Bill of Rights” was enacted in 2000, in theory, to protect taxpayers from “back door” tax increases produced by increasing property value assessments. In our opinion, the law not only fails to protect the taxpayer from arbitrarily-inflated tax rates but it provides a disincentive for elected officials to set millage rates correctly. [More on the TBoR]
The bottom line
The problem is easy to recognize– rather than properly being a product of the process, the millage rate is currently part of the process itself, and thereby subject to miscalculation and, in some instances, abuse.
In fact, it could be argued that the failure by a taxing authority to compute and adopt a mathematically correct millage rate is a violation of the law requiring a balanced budget each year. Elected officials are in essence causing more revenue to be collected than is required to meet expenditure requirements.
Update 09.04.14 — This site has not been updated to take into account recent (2010 and after) changes to property tax laws. However, all recent changes continued to address symptoms of the problem and, in many cases, actually created additional inequities in taxation.