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Local Government and School Accountability

Multiyear Financial Planning

A Tutorial for Local Government Officials

Module 2 - Projecting Revenues
Real Property Taxes and Other Real Property Tax Items

Sensitive to Economic Change: Not significantly
Predictable: Yes
Controllable: Yes
Large Source of Revenue: Yes

Real Property Taxes

Real property taxes usually represent the largest portion of local government revenues. While property values are affected by economic trends (including, for example, changes in interest rates), the property tax base is normally fairly stable, at least in the short-term. Both assessment frequency and tax rates are determined by local policy makers.

  • There are two methods that can be used to project real property taxes:
    • Property tax revenue can be kept constant at the current level or with a conservative adjustment for projected changes in total assessed value. This will almost certainly result in overall projected budget deficits, which will reflect the challenges that need to be overcome to achieve fiscal balance.
    • Property tax revenue can be increased enough to eliminate all projected budget deficits. This means that fiscal challenges will be presented as levy and rate increases.
    • In addition to revenue, it is helpful to separately project assessments, tax rates, and levies. If a municipality's levy is not guaranteed by another level of government, it should already be using this information to calculate the amount a municipality must levy in order to generate a certain amount of revenue, due to delinquencies in its own tax base and in the tax base of any subcomponent governments that this government must guarantee. Pay particular attention to high or increasing delinquency rates, which could indicate economic distress or a need for more stringent collection enforcement.
  • Local officials should also consider factors outside of local control, such as
    • Major upcoming certiorari cases
    • The impact of constitutional property tax limits on cities, villages, and counties. If a local government exceeds its tax limit, the Comptroller is required by law to withhold certain State aid payments. Currently, the Comptroller notifies any local government that has exhausted 80 percent or more of its tax limit. This threshold indicates that the municipality has reduced revenue generating capacity and should pay closer attention to tax levies and exclusions, given its narrowing margin.

Real Property Tax Items

Real property tax items include revenues from payments in lieu of tax (PILOTs), which generally follow a pre-determined payment schedule. They also include any special assessments, sales of forclosed property, and interest and penalties.

  Next: Sales and Use Tax and Other Non-Property Taxes