Every January, when BC Assessment Authority sends out its annual assessments, many panic as they see double-digit increases, and as sure as rain (or sometimes snow) in January, they assume this is how much their taxes are going up.
My first year as a reporter I had to look into this. It was all pretty straightforward, even though I had never owned property: the assessment value is based on how your property stands in light of the real estate market, plus your improvements to the property.
If your assessment goes up a lot, chances are many other people’s assessments are too. Somehow though, many still jump to the conclusion the assessment automatically equals the level of a tax increase. Not so.
Earlier this week, I watched a valiant soul – let’s call him Mike H. – try to explain this to someone on an online discussion forum, only to be told he was living in fantasyland. The thing is he’s not. He’s dead on.
The assessment, first off, is not a real estate appraisal. People can and do challenge an assessment, but first they need to understand it. Its function is to give local governments a yardstick on how to divide the tax burden. It is but one part of an equation, the other being the mill rate and the end product being the actual tax requisition.
If my property increases more than the average – say by 17 per cent versus a 15 per cent average – I will probably see a tax increase, assuming the local government wants more revenue – and it probably does. However, if the value increases less than the average, I might see a smaller increase than most or even a drop. Again, it depends on local government demand, but that’s a different topic.
On the online forum, when someone pointed out this city’s scheduled tax increases are actually in the 2-3.5 per cent range, another person chimed in saying this would be on top of the assessment increase.
Sigh…. Again, clearly the respondent didn’t get the assessment is not a tax increase but is simply used to figure out tax rates.
In the first small town I worked in, property values were stagnant, even dropping. Did this mean a drop in city coffers? No. Dropping assessments don’t mean less revenue; they simply mean a government has to adjust its rate to generate what it needs.
They do when things rise too.
All of this sounds as a sexy as a high school math exercise. For example, let’s say the number 100 represents what a government needs and 20 represents the total assessment roll (you’ve just received your tiny portion of this in the mail), the rate then needs to be five. Please note these are totally fictitious numbers; I’m trying to keep this straightforward.
If the following year, the assessment figure goes up to 25, the rate can be drop to four unless the government needs to increase the end product, i.e. 100, to pay for everything – and it probably will, if for no other reason than inflation, though possibly other reasons too.
Yes, property values in many parts of this province have been going wild for years, and no one likes tax increases, especially when they’re steep, but we can spare ourselves a little stress by understanding what these numbers mean, as confusing as they may seem.