In the face of the struggling economy and declining property values, the City Commission has been grappling with the City’s budget since last spring. First, Commissioners were faced with plugging holes in the current year’s budget due to revenue shortfalls. Now they’re being challenged with how to best allocate resources in the coming fiscal year to maintain the high level of services residents deserve in light of projected shortfalls due to the sagging economy.

When they meet next week for a budget workshop, Commissioners will be looking at four different budget options, each with a different millage rate. The millage rate is the tax rate used to calculate property taxes. One mil equals $1 for every $1,000 of taxable property value. The City’s major source of income, over 42 percent, comes from property taxes. Due to distressed property values, the amount of money available to fund City services and programs is down.

For homeowners with homestead exemptions who purchased their homes during the height of the boom, it is possible that their taxes may be reduced, even if the millage is increased. This is because the market value has fallen below the assessed value. When that happens, it triggers a reduction of the assessed value to the level of the market value. On the other hand, most homeowners who bought their properties well before the boom may expect their taxable value to go up .01 percent, which would mean a slight increase in their taxes.

Here is an example of a single family home with a homestead exemption in the City bought in 2005.

2008
Market Value	$135,098
Assessed Value	$119,098
Taxable Value (assessed minus $50,000	$69,247
Taxes, 2008, at 0.0064553	$447
2009
Market Value, 20% down	$108,078
Assessed Value, now adjusted to Market Value	$108,078
Taxable Value (assessed minus $50,000	$58,078
Taxes, at current millage rate (0.0064553)	$375
Taxes, at proposed millage rate (0.0073)	$424
Decrease in taxes paid, 2009-2008, at current millage rate	-$72
Decrease in taxes paid, 2009-2008, at proposed millage rate	-$49

 

City staff reviewed data from the Palm Beach County Property Appraiser’s Office for 2008 and 2009 (preliminary) to determine the trends in taxable value for homesteaded properties in the City. Here is what they found.

HOMESTEADED PROPERTIES
2008
Total number of residential parcels	32,243
Number of homesteaded properties	17,891
Homesteaded properties as % of all residential parcels	55%
Total Market Value of homesteaded properties	$3,357,481,910
Average Market Value of a homesteaded property	$187,663
Total Taxable Value of homesteaded properties	$1,499,188,600
Average Taxable Value of a homesteaded property	$83,796
2009
Total number of residential parcels	31,719
Number of homesteaded properties	17,733
Homesteaded properties as % of all parcels	56%
Total Market Value of homesteaded properties	$2,432,588,506
Average Market Value of a homesteaded property	$137,179
Total Taxable Value of homesteaded properties	$1,216,324,603
Average Taxable Value of a homesteaded property	$68,591
Decline in the average Market Value of homesteaded property	-$924,893,404
Decline in the average Taxable Value of homesteaded property	-$15,205

 

In the “boom” years, when residential market values were going up, the assessed value of homesteaded properties was also going up, but at a much slower pace, because their annual increase was capped at 3 percent as provided by the “Save Our Homes” program. This produced an increasing gap between market and assessed value of these properties.

The market values have been falling since 2006, and the fall was particularly sharp this year. The reverse trend started to reduce the gap between market and assessed values of homesteaded properties and for many, the 2009 market value actually fell below the level of the 2008 assessed value, which triggered an immediate reduction of assessed value to the level of market value. This had the effect of reducing the taxable value, which is calculated as assessed value minus exemptions.

The staff’s analysis shows that some 35-40 percent of properties may be in this category, resulting in lower taxes, even with an upward adjustment of the millage rate. Most, although not all such homes, were purchased in 2005 and 2006 at the peak of the housing boom. Other owners of homesteaded properties will see their assessments increase by .01 percent as determined by the 2008 Consumer Price Index. As per the “Save Our Homes” program, the assessed value of a homesteaded property increases by a percentage determined by the Consumer Price Index, or 3 percent, whichever is lower. In 2008, the CPI rose by .01 percent, which is the smallest increase in the history of the “Save Our Homes” program.

To have a better handle on this analysis, it may be helpful to understand some of the terms. Market value is the estimated price a buyer would pay and a seller would accept, both being fully informed and the property exposed for a reasonable amount of time. Real estate appraisers will use “comparable” sales of similar property in the area to determine market value, adding or deducting amounts based on differences in quality and size of property.

Assessed value is the value placed on a homesteaded property before any exemptions are deducted but after the property tax cap is factored. For non-homesteaded properties, the assessed value is the same as the market value. Assessed value minus exemptions equals taxable value.

For more information on Florida’s “3% Cap Law,” visit the Palm Beach County Property Appraiser’s website.

The City’s budget workshops will be held Tuesday-Thursday, July 14-16, 1-5 P.M. each day in the Boynton Beach City Library Program Room, 208 S. Seacrest. Blvd.