There are a handful of politicians--state legislators mostly--running around right now talking about how local taxing authorities, mainly school districts, aren't "rolling back" their tax rates the way the Hancock Amendment requires. When pressed, these legislators usually admit that local taxing authorities are violating the "spirit" of the Hancock Amendment and not the "letter" of it. At any rate, they're feeding taxpayer anger and misleading the public for the sake of political gain, it seems to me. They can do this in part because the Hancock Amendment is so hard to understand. So here are a few short paragraphs that I hope help to explain it.
Imagine that your school district in 2006 has a tax rate of an even $5.00/$100 assessed valuation, and that the total assessed valuation in your district is $20,000,000. Your school district will thus generate $1,000,000 in revenues. The calculation:
Assessed Val. x Rate = tax revenue. So:
$20,000,000 x $5/$100 = $1,000,000.
Now let's say that inflation, as measured by the Consumer Price Index, is 2% this year. The Hancock Amendment thus requires that your district can only take in $1,020,000 in revenues in 2007, even if assessed valuation in your district goes up 10%, 20%, or higher.
2% of $1,000,000 (2006 revenues) = $20,000.
So 2007 revenues max out at $1,000,000 + $20,000 = $1,020,000.
Let's say for the sake of the example that assessed valuation in your district increased by 25% from '06 to '07. So your district's total assessed valuation has gone from $20,000,000 to $25,000,000. To get the maximum allowed (Hancock permitted) revenues, your local school board has to approve a new tax rate of $4.08--in other words,
they have to "roll back" the rate from $5.00 to $4.08. Here's the calculation:
$25,000,000 x New 2007 Rate=$1,020,000. So
$1,020,000/$25,000,000=New Rate=$4.08/$100.
The law
requires these rollbacks; no school district has the option of simply ignoring them. Our Chief Financial Officer has to send an elaborate set of tax rate calculations into the State Auditor's office so that the State Auditor can make sure that we are rolling back correctly according to the provisions of the Hancock Amendment and Missouri Statute (and case law).
So why, the taxpayer will ask, does it happen that my property tax bill from one year to the next can increase by more than the consumer price index? Typically, there are two ways this happens. First, and more commonly, you have the bad luck (or good luck, if you're trying to sell your house), that your house goes up in value more than the average increase in your district. Let's say that you live in the district in my example above, and that your $150,000 home goes up in value by 50% and is now worth $225,000. The Hancock Amendment requires the district to roll back the rates for the district taken as a whole; in other words, one rate is generated through the rollback that applies to every house in the district. So your rate will be $4.08, your neighbor's rate will be $4.08, everyone in the district's rate will be $4.08. That's so whether your house goes up in value 50%, 25%, 5%, or even declines in value. So, anyway, back to your house. Last year, at $5.00/$100 as the rate, on your $150,000, you paid approximately $1425 in property tax to your school district. (Remember, in Missouri, there's a .19 multiplier: you don't pay property tax on the entire value of your home, but on 19% of it: your "assessed value" is 19% of what the county assessor says your house is worth.) In 2007, however, you'll pay a lower rate ($4.08), but on a more valuable home, and you'll wind up paying approximately $1744. (Here's the calculation: $225,000 x .19 x $4.08/$100 = $1744.) So you're paying $319 more! But the Hancock Amendment did exactly what it was supposed to do. You are in fact paying about 22% more to the school district than you did last year. But it's not the school district's fault, or the Hancock amendment's fault--it's that your increase in assessed valuation went up so much more than the average increase in assessed valuation. If your house had gone up in value at the average increase of 25%, you'd be paying 2% more in tax to the school district. And, in fact, if your house had gone up in value, but had gone up less than 22.5%, you'd be paying
less in tax to the school district than you did in 2006.
So here's a simple rule of thumb to remember about how the Hancock Amendment works: if your house goes up in value more than the average in your district, you'll probably be paying an increase to the taxing authority that's more than the rate of inflation. But if the value of your home goes up--just less than the average increase in your district--you'll probably be paying less to the local taxing authority in tax than you did last year. So the Hancock Amendment does work.
(True life example: in our school district this year (reassessment year 2007), total assessed (residential) valuation increased by 29%; my assessed valuation, on the other hand, went up 54%. As a result, my tax bill went up 28%. My tax bill didn't go up so much because taxing authorities violated the law and simply chose not to roll back; it went up so much because the assessed value of my property increased so much more than the total, or average, assessed valuation did. Notice though that a 28% increase in my tax bill is a lot better than a 54% increase!!!)
OK I'm tired of writing my blog, but now, briefly, for the second way in which a property tax bill can increase at a faster rate than inflation/the consumer price index: when voters approve a tax levy increase, the Hancock Amendment doesn't require any rollback in that taxing authority's property tax rate. The voters are taken to be saying, ''I know what my assessed valuation is, and I know what the increased property tax rate is that the taxing authority is asking for, and I approve that tax rate for that level of assessed valuation." I just looked at my personal property tax bill today; there are 14 different entities receiving property tax revenue from my personal property tax payment. I know at least two of them received voter-approved tax levy increases in the past year. Those two rates don't have to be rolled back, according to the Hancock Amendment. However, I believe the city of Maplewood did do a voluntary rollback, even though, after the voters approved a 20-cent tax levy increase in April, they were not required to roll back their property tax at all.
There's still a lot more to say here. I do welcome questions!!!
