Tax rate confusion
The McCreary County Fiscal Court is expected to meet next week and set the property and personal tax rates for the current year. Despite an increase in property values over the past year, County officials could impose a tax increase if they were to base their decision solely off information provided by the Department of Local Government.
With the overall property value in real estate and personal property in the county rising by nearly $10 million over last year, it would be expected that the Fiscal Court would adopt the same or, possibly, a lower tax rate as they traditionally opt to take the compensating rate, which is named thusly to imply that the governing body receives about the same revenue as the previous year. Last month the McCreary County Board of Education elected to take the compensating rate, which lowered their tax rate for the year based off the same numbers.
The rate set by the Fiscal Court last year amounted to 9.4 cents per $100 of assessed value and a lower rate of 9.3 cents could produce about $4,000 more if it were to be chosen as the new tax rate.
But there is confusion on what the actual compensating tax rate should be thanks to a document from the Department of Local Government that calculates possible tax rates based on formulas established by statutes.
According to the rate calculation worksheet provided to McCreary County Judge Executive Doug Stephens from the Department of Local Government, if the Fiscal Court would want to guarantee, as much as possible, to make at least the same revenue in the current fiscal year, they would need to adopt a 10.8 cents per $100 of value property tax.
The problem with that number is that is reflects a 13 percent increase in property tax rates, which is hard to justify with an overall increase in property values.
Looking over the document shows just how confusing setting the tax rate can be. Last year a similar issue occurred when the Fiscal Court voted to adopt the “compensating rate” as presented on the worksheet, which would have raised the rate to 10.7 cents per $100 – a 1.2 cent increase.
Concerned with the increase PVA Bruce Lominac contacted the DLG and discovered that the rate on the worksheet was considered a “substitute” rate, and the actual compensating rate should have been 9.4 cents. The Fiscal Court met in special session after the discovery and amended the rate to reflect the lower amount.
It appears that the same issue could be present this year when examining the figures from DLG.
One issue with the DLG’s calculation is that it uses an incorrect value for the 2016 property tax rate. The worksheet uses a value of 9.5 cents per $100 of value, when the Fiscal Court set the rate at 9.4 cents last year. That number is consistent with the property tax value posted by the Department of Revenue.
That rate should have generated about $361,861 in revenue for the previous year. According to basic calculations a property tax rate of 9.3 cents per $100 of assessed value should produce about $365,167 in revenue and keeping the rate the same at 9.4 would amount to about $369,093 in total revenue.
The DLG stated the way the proposed rate of 10.8 cents was calculated was to divide the total revenue generated between real and personal property taxes in 2016 by the total property value in 2017 and multiplying that number by 100 to get the percentage.
A spokesperson from the department stated the discrepancy comes from the large difference between the property tax rate and the personal property tax rate. With such a large range between the two rates (9.4 real property and 20.4 personal) creates a higher rate for counties that have such a variance.
The DLG points out the rate worksheet is not a recommendation to the Fiscal Court, but merely a statutory obligation by the department to provide the figures to the county government.
Ultimately it is up to the individual fiscal courts to choose the rate they prefer.
The Fiscal Court and Judge Stephens have been open about their reluctance to increase property tax rates, especially on the heels of the recent Occupational Tax increase earlier this year.
The Court could decide to keep the rate the same, lower it, or take up to a four percent increase. If they opted for the 4-percent increase (which would increase revenue by 4-percent – not increasing the rate by that amount) they would be required to hold a public hearing on the tax, but it would not be subject to a recall. A tax increase of more than 4 –percent would be subject to a possible public recall election, similar to the recent School Board proposed nickel tax.
Judge Stephens said this week he plans to investigate the issue further and will hope to have a recommendation on the tax rate for next week’s meeting. The tax rate for personal property is expected to remain at 20.4 cents per $100 of assessed value.
Other taxing districts in McCreary County, such as fire departments, the health department and library are expected to present their tax rates at the meeting as well.
Real property values increased from nearly $385 million to just over $392 million last year, a gain of about $7 million, while personal property subject to the tax saw a gain of about $4 million.
