Wake County’s tax assessors come around every four years. Your home’s tax rate and dollar amount due goes up or down. If you ask why, you get told something about “revenue neutral.” What does that mean?
Revenue neutral is a county policy requiring that when the county reassessment figures are in, the total revenue collected from across the county does not change. Only the county commissioners have the authority to change that total.
The consequences of this “revenue neutral” policy for homeowners is that their tax bill sometimes seems odd, until you know how the assessors prevent the grand total from changing. For example, assume the overall increase in assessed value for the last four years for all the houses added together is 20%. If they kept everybody’s tax rate the same as last year, we all would be paying 20% more in taxes and the county would collect a windfall. But the elected commissioners would not dare to let that happen. So, they instruct the assessors that the total collected for the entire county must stay the same.
Though homeowners know there is a connection, they are more interested in how the assessment affects their own tax bill than in how it affects the county’s budget. The simplest way to do this is to reduce the tax rate for everybody by the same amount.
To keep the calculations easy, assume everybody’s tax rate last year was 1.25%. For the grand total to stay the same, the assessment office reduces the rate by 20%, making the new rate 1%. So, let’s consider three houses, A, B, and C:
A’s value was $240,000, so its taxes were $3,000 (1.25% times $2,500). If its value went up to $300,000 and the new rate is just 1%, then its new tax bill stays the same at $3,000.
B’s value was $200,000, so it paid $2,500 last year. But its value went up to $275,000. At the new rate of 1%, its tax bill goes up to $2,750, an increase of $250.
C’s value was $400,000, so it paid $5,000 in taxes last year, but its value only went up to $450,000. With the new tax rate, it only has to pay $4,500, a decrease of $500.
When homeowners get together and talk about their tax change, their lack of understanding of the term “revenue neutral” causes them to raise questions. One family down the street has a bigger house and their taxes dropped, but the family with the smaller house got an increase. It doesn’t seem fair to them.
This is not just a random example because across the county, houses under $240,000 have risen a higher percentage than houses above that figure. There is simply more demand in our county for lower cost houses and demand drives up their cost. This also does not mean that there are no expensive houses that increased in value above the 20% but that there are fewer of those than of less expensive houses. So according to our county’s simple way of keeping “revenue neutral,” the expensive houses get the best break.
