Property values are continuing their dramatic downward slide in Minocqua and in other northern Wisconsin property-taxing entities, and the region is no exception as the nation struggles with a devastating housing market implosion that just doesn't seem to have an end in sight.
And here's another thing that's not exceptional about the region - for the most part, even as people lose as much as 50 percent of the value of their homes, and sometimes more, average property tax bills are staying put right about where they were.
In financial parlance, it's called a tax roll up. That is to say, as property values decline, first market and then assessed values, and ultimately with it the total assessed value of property that can be taxed, municipalities traditionally "roll up" millage rates (per $1,000 of equalized value) to compensate for the eventual decline on the other side of the equation. So as values decline, rates go up, and levy revenues remain stable.
Critics of the maneuver, using old-fashioned language, call this a tax increase. That is the only logical way to describe it, they say, when, for example, a person paying $1,500 in taxes on a $150,000 home starts paying the same $1,500, or a little less, when the home's value drops by a third to $100,000.
Suddenly, instead of paying 1 percent of the value in taxes, the taxpayer is paying 1.5 percent of the property's lower value.
And there are plenty of those. Since the beginning of the housing slump, home prices have dropped 22 percent nationwide. And, according to the National Association of Realtors, the median price of a single-family home fell 4.7 percent in the third quarter of 2011, compared to the third quarter of 2010.
In Minocqua, the drop is as fast and furious. From 2011 to 2010, the township suffered an 11.8 percent decline in its equalized value - the state's certified annual estimate of the market value of all residential, commercial, manufacturing and personal property in a taxing district - and some observers predict an even bigger drop after the town's 2012 revaluation of properties, all making for a potential drop in values of as much as 30 percent in just two years.
In Minocqua and in many municipalities, however, as home prices slide, the total amounts levied have not been reduced by as much, and in many municipalities not at all, and it has begun to spark something of taxpayer revolt, such as a sharp spike of assessment appeals in Miami, Fla.
In Jacksonville Beach, Fla., the city actually refused to raise the mill rate, thereby forfeiting $20 million in revenues in 2012. By adopting the same millage rate as the year before, the city council delivered a tax decrease totaling more than $650,000 to taxpayers.
The bleak picture
In most places, though, levies are not dropping as values deflate, and so property taxes are inflated as a ratio of levy amount to market value.
And it looks as if they are going to inflate even more.
Using Minocqua as a typical example to paint the big picture - in fairness, the trend is reflected in most municipalities and taxing entities such as school boards - the town's assessment ratio (the ratio of assessed value to equalized value) jumped to 113.5 on Jan. 1, 2011, from 101.5 on Jan. 1, 2010.
An assessment ratio of 100 would mean that assessed taxable values were equal to equalized estimated market values. The higher ratio indicates that estimated market values were down 12 percent compared to a year earlier. and have fallen way below assessed values, exactly the opposite of a normal trendline in which assessments, which are not necessarily recalculated every year, fall out of date and behind usually rising market values.
This year is an actual revaluation year in Minocqua, so the ratio will re-align. That notwithstanding, market observers believe the market will slide much further, based on the current sales market. It's a bleak outlook, they say, and it's about to get bleaker.
Minocqua town assessor, Kit Koski of Bowmar Appraisal Inc., doesn't disagree, based on what he's seeing. Koski didn't want to put a number on the expected decrease this year, but he did feel safe to say property values would likely go down in the revaluation.
"We are at 113.5 percent Jan. 1, 2011, and have sales looked better? No," Koski said.
And so is it unreasonable to say the town could experience another 12 percent drop?
"No, it could be," he said. "Do I think it could be? Yes. Do I know? No."
And Koski says he gets calls relating the tales of properties selling for 35 percent less or 40 percent less than their assessments.
"I still see some sales that are around the assessment, sometimes 10 less, and some more," he said. "If somebody really wants a property, those sales are in there, and then those people that have to get rid of something, those sales are in there."
Minocqua town chairman Mark Hartzheim said one property in Minocqua that had listed at more than $700,000 had sold recently for $269,000 or $279,000.
"Now the sevens, that was way too high," Hartzheim said. "That's when the market was hot. But there was a time when that could have been legitimately sold for 500-something."
Others have cited other properties in apparent similar freefall, including a lakefront property with a 3,000 square-foot home and 150 feet of frontage, which was going at $350,000, down from around $850,000.
Another factor that could push market values even lower this year is a potential pickup in foreclosure rates after a year's lull. Many banks suspended foreclosures after suspect banking practices were exposed, but, after an accord with states' attorneys general, those can be expected to increase.
And, Hartzheim said, many people can only hang on for so long in a distressed state before they tip over into actual foreclosure, and that could happen this year without a robust economic recovery.
For many, it is too late already.
The debate over taxes, services
So where will all that leave the tax levy and the property tax burden?
For his part, echoing many municipal leaders, Hartzheim points out that the town held the line on the levy for next year, passing a zero-increase budget, and has done so several times since the 2007 budget.
Because of about $2 million in net new growth, that means a very slight drop in the average taxpayer's bill.
"We kept our levy exactly the same as the previous year," Hartzheim said. "We could have levied a little more, but we decided that the best thing to do is what we have been doing and freeze it."
All of which leads to the question critics of millage rate roll-ups ask: If values go down, and the tax levy stays the same, isn't that a tax increase, or an inflated tax, as some call it?
Hartzheim says it's the tax rate that fluctuates, not the levy amount, and fluctuation is a two-way street. Just as your taxes won't go down by 25 percent if you lose 25 percent of the value of your property, they don't rise by 25 percent if your property rises in value by that much.
"You ride the bubble up, you ride the bubble down," he said.
The bottom line is, Hartzheim continued, towns need a certain amount of money to operate.
"You need that tax revenue to remove snow, pay for the parks, for the different things the town does," he said. "That doesn't necessarily change a whole lot. The value doesn't change the total tax paid very much. It changes the mill rate, and sometimes significantly."
But, he added, Minocqua's mill rate has never been lower. And that is true also: Minocqua's tax rate has plunged from $2.94 per $1,000 in 2004 to around $1.98 this year.
But critics counter the argument, saying property owners actually lose twice in a housing bubble where market values are exaggerated. They lose once when the bubble rises because they pay higher taxes than a realistic market would support; then they lose again when the bubble pops and values go down but taxes stay higher than they should ever have been.
The logic is, if inflated market values lead to inflated property tax levels, which lead to inflated government spending, then keeping inflated spending at current levels when values decline keeps taxes inflated as well.
What's more, critics contend, while government officials and assessors don't have a crystal ball and can't be faulted for the nation's housing collapse, government nonetheless has a stake in such bubbles because they raise lifeblood revenues to ever higher levels, and in fact help bolster bubbles by forcing banks to offer cheap credit and more liberal mortgage criteria.
Along the way governments add services and expand, and officials are able to camouflage artificially high revenue streams by bragging that they lowered millage rates. Often enough, the critics contend, the public buys into it, and even collaborates by passing referendums to evade imposed revenue caps and levy limits, or to authorize expensive capital projects.
But, as in Jacksonville Beach and in other spots in at least six states, voters are beginning to question whether some services are a luxury in an age of contraction and whether municipalities and schools should reduce their spending and eliminate nonessential services as well.
Next: How Minocqua fits into the bubble and burst cycle, plus the implications for local services and next year's tax levy, as well as the economic consequences of inflated property taxes.
Richard Moore may be reached at firstname.lastname@example.org
Posted: Thursday, February 2, 2012
Article comment by:
I have just returned to northern Wisconsin after 27 years in lower Michigan. I can attest to what happens when you lose your tax base. Some school districts have discontinued bussing, as they can't afford the energy costs. Millage increases are being rejected by the tax payers who feel that they have been squeezed enough. Michigan has lost industry to the southern states due primarily to an adversarial work force and antagonistic public policy. Michigan has had the highest number of outward bound citizens in recent years. The state has lost much of its brain trust. Many graduates of Teacher-Ed. programs are going out of state to find work. Looks like Wisconsin has been headed in the same direction for several years. The public sector may have to come to grips with reality and tighten its belt like everyone else.
Posted: Tuesday, January 24, 2012
Article comment by:
Could it be that people are fed up with being ripped off in the beautiful northwoods?