My small town (Bristol, Rhode Island) had its triannual exercise in controversy this month: real estate revaluation. Its almost amusing to read the newspaper, as person after person complain about their new valuations on the "call-in" line (which is a core element of a good small town paper). Leave a message on the answering machine, as long as its not slanderous or completely uninteresting, it gets published.
1) The average value increased 60%. Valuation is independent of taxation, so if your house value increased only 60% you're at break even. If your value stayed even, your taxes will drop by 1/3. Therefore, people really shouldn't be complaining unless their value increased 80%+. My value increased 80% (as expected), since I paid far more for the house than its previous valuation.
2) A valuation increase of this type is the equivalent of winning the lottery for most people. This reflects an incredible real estate market. Yet, the newspaper is flooded with callers complaining about being driven out of their houses. Reality check: when the value of your house increases by 150K, don't complain about a 1.5K/year increase in property taxes. Too many people see their house as a static asset. A price increase doesn't come for free -- you have to be willing to tap into the asset to pay the new taxes. Reverse mortgages or home equity lines are perfect. One thing our town offers is capitalization, in which tax increases can be deferred at a reasonable interest rate until the house is sold, ensuring the taxes are paid but that cash-poor elderly residents can stay.
It reminds me of an elderly aunt who owned a fortune in stock in a financial institution (given to her by her father). She was setup for dividend reinvestment. But she had to pay taxes on the dividends. As the bank exploded in value, she found herself in financial crisis. Her social security checks just couldn't pay her utilities, food, and the taxes. And she refused to touch her father's stock. She saw herself as poor, yet it was her exploding wealth (and a view that social security should pay all current expenses) that was leaving her short. The first option is to get the dividends paid in cash rather than reinvested (so there's money for taxes). The second is that just because dad left you 1000 shares of stock, it's not an insult to sell a small amount every year to pay the taxes on the dividends.
I will make this offer. In exchange for the equity increase in your house in Bristol, RI since the last revaluation, I will pay indefinitely the increase in your taxes attributable to the increase (rather than the general level of town taxation). This is a dead serious offer -- just put me on the deed and I'll send you a check every quarter.
3) The other source of complaint is relative values. More modest houses increased 100-125% while the high-end waterfront homes only increased 60-80%. Is it unfair that the modest houses are receiving the tax increases? Probably, but its irrelevant. There are some good reasons for why real estate economics worked this way the past few years (maximum size of conforming mortgages, salary distributions). But the reality is that plenty of 175K houses are now 400K houses while 600K houses only rose to 850K. Reality is sometimes unfair, but the most fair way to assess property taxes is actual value.
4) The other complaint is from people in the historic district. My house costs more to maintain, therefore I should pay lower taxes. Also an unsound argument. Its true that you can't choose not to maintain it (and have the value drop) since in extremis they will fix it and send you a bill. And historically correct repairs can be lengthy due to the approval process and pricy. But being in the historic district is a positive when selling a house (enforced look of the neighborhood). The additional maintenance costs are a negative. Buyers assess the long-term economic consequences of these factors when they make an offer. Therefore your valuation already reflects the increased maintenance costs.
5) The one area I do recommend reform on is vacant lots. A decent lot is now worth 200K or so. Which is a $2500 annual tax bill. However, as long as it is vacant, it uses relatively little town services (possibly fire and police). The high tax bill causes owners of vacant lots to accelerate development in order to monetize their asset. It would be far better to give them a 60-80% tax reduction, and encourage the continued vacancy in order to maintain green space. As soon as they file a building permit, charge them full price. But the cost to the town is not from land, it is from the people who will someday live on the land (which is why farmland is only assessed at 10K/acre vs. 300K for buildable lots).
6) The retiree issue. We shouldn't have to pay, since most of the money goes to schools. Great from a theoretical standpoint, terrible in practice. A small, means-tested exemption for the elderly isn't necessarily a bad idea (disclaimer: I take advantage of a $120 discount for war veterans). But if you own a $1M house, you need to pay 95% of the normal bill ($13K). I don't have kids (and may never) and 65% of my money goes to schools too. So should I get an exemption? How about all of the businesses (who may have corporate spinoffs but they're unlikely to go to school)? All I know is this -- people subsidized my parents for many years as my sister and I went for 13 years of public school. Now my parents and I subsidize the next generation. The pendulum may well shift back in my case as I have children. The only way we can have affordable schooling for middle and lower class families is payment through general taxation, which most states find most appropriately funded through local property taxes. If you don't like it, you have the option of moving elsewhere. But just because its not your turn to receive the subsidy, doesn't mean society should transform at your request.