What if Flagler County’s Total Assessed Value Drops Next Year?

It probably will. How will this affect your taxes? I’ll bet you’ll be surprised.

November 16, 2007 – Palm Coast, FL – I had an interesting meeting with Jay Gardner, Flagler County’s Property Appraiser a few days ago. Our discussion dealt, in part, with Palm Coast and Flagler County’s declining property values and the effect the decline might have on individual property taxes next year.

The Property Appraiser’s job is to determine each property’s just (market) value. To do this, his staff examines sales of “comparable” properties. By state law, each year’s tax roll is determined by sales the previous year. Thus, each property’s just value for the 2007 tax roll is based solely on comparable sales in 2006. Most of the decline in property values occurred since the first of this year so the effect will not be felt until the 2008 tax year.

The rapid changes in the market have created some unique appraisal problems. For instance, what is the just value of a lot in The Conservatory? These lots were purchased in 2005 at prices ranging from $329,900 to $529,900, depending on lot location and lot size. None have sold in 2007 though more than 40 are listed for sale. The lowest asking price is $224,250 for a lot originally purchased for $404,900. But asking prices do not establish value. Only sales can accomplish that.

Another problem arises when builders or developers provide buyer incentives, such as free upgrades, credits toward closing costs, etc. Many, but not all, of the recent Centex sales at the Tidelands condominium project included memberships to Ginn Resort amenities (Beach Club and Golf Club), as well as subsidized membership dues and association fee payments for a specified period. The deeds received by the appraiser’s office have only the sale price – no mention of incentives or of their imputed value.

Jay’s office is coping with these valuation issues, but the fact remains that property values in Flagler County are dropping this year. Here are some examples:

• In January 2006, the median price for a Palm Coast lot (exclusive of salt water canal lots) was $77,000. By the end of 2006, it had dropped to $62,500. In the most recent three months, the median sales price was down to $40,000.
• The January 2006 median sale price for a single family residential home was $252,250. It dropped to $229,500 by December. It was $209,500 last month.

With your property’s just value dropping, you might think that your property taxes will go down as well. Not if you are homesteaded. Your property record indicates four different values:

• Just value – roughly approximating market value
• Assessed value – generally lower than just value for homesteaded properties because increases in assessed value are limited to the increase in the consumers’ price index (CPI) or three percent, whichever is less. For non-homesteaded properties, the assessed value equals the just market value.
• Exempt value – $25,000 for homesteaded properties. Other exemptions may also apply.
• Taxable value – assessed value minus exempt value.

The table below shows my house (homesteaded) compared to my house without the homestead exemption. We moved into our home in 2001, so the homestead exemption applied as of January 2002.

The assessor does not set the tax rate. He only determines the total taxable value of all property for each taxing district in the county. The various taxing districts (county and city) determine their individual budgets. Each district’s millage rate is derived by dividing their budget by the total taxable value (within the district).

Over the past seven years, homesteaded property owners have been shielded from the huge increases (442%) in both city and county budgets. That’s because the huge budget increases were matched by huge increases in the total taxable value, both from increases in the value of existing non-homesteaded property and from new construction.

In a simplified example, let’s assume that next year’s budgets are the same as this year. If everybody’s taxable value dropped by the same percentage, the result would be no change in your tax bill. That’s because the millage rate would rise so that everyone would be paying the same amount as this year. The real world is not a simplified example, however.

• The taxable value of a non-homesteaded property will drop by the same amount as its just value, which also equals the assessed value.
• For homesteaded property, assessed value can still increase up to 3% even while just value falls as long as it remains equal to or less than the just value . Your taxable value and taxes can rise even though your propery is declining in value.

How would a 10% decrease in overall assessed value effect homesteaded vs. non-homesteaded prooperties? Let’s look at my house again to see. Note that the assessed value can rise by 3%.

The homesteaded taxable value rose while the non-homesteaded taxable value dropped. Even if the millage rate remained unchanged, my taxes would increase. For the millage rate to remain unchanged, the city and county would have to decrease their budgets by 8 – 10%. This is unlikely. Thus, we homesteaders can probably look forward to a combination of increased millage rate (taxes) and reduced government services. This might be what it takes for government officials to realize the importance of an industrial and commercial tax base.