Tax Gimmicks

Tax Gimmicks

October 12, 2023

City councils, school boards, and county entities play gimmicks every taxpayer needs to be aware of.  They like to tell you that you can get a brand new building or program without a tax increase!  Wouldn’t that be grand???  Here’s a list of a few of their favorites…

  1. Paying off a previous bond, but replacing it immediately with a new one at the same dollar amount – Folks don’t see a tax increase, but they also don’t get the tax decrease they would have gotten without a new bond. When a bond is paid off, your taxes SHOULD go down, but they merely replace the old bond with a new one and keep taking your money.
  2. Replacing the tax break provided by a state refund – Sometimes the state legislature provides funds intended to lower your property tax.  This is called “compression.”  The local government, however, uses the money for their own purposes instead of giving it to you in the form of the intended tax cut.  This way folks don’t see a tax increase when those new goodies are purchased, but they also don’t get the tax decrease the state gave them. The cities and schools don’t seem to realize we aren’t just looking to maintain taxes at the same level. We cannot afford them at that level. They need to go DOWN! And it gets worse… two years later when the state legislature meets again, it’s not likely they will repeat the compression, and your property taxes will skyrocket due to the increased spending at the local level.
  3. There’s always the old gimmick of keeping your tax % rate the same. When the value of your house appraisal goes up, you pay more taxes, but the schools and cities brag they did not raise your rate. They didn’t because they didn’t have to!  You’re paying them more money based on the new value of your home, which means they are collecting more money that the voters did not approve. For this reason, we always ask schools and cities to adopt a “no new revenue” tax rate. They’ll play dumb if we don’t call them out on it.
  4. Swap & Drop – Because the total maximum tax they can charge is regulated by the state, they sometimes do what they call a “swap and drop”. This means that they will take a few pennies from one tax bucket and transfer it to the other. (There are two property tax buckets – M&O which is maintenance and operations, and I&S which is paying down debt). They do this to justify additional bond debt, so they can say that the total tax will not increase. BUT – they never talk about the total debt that is increased and financed well into the future of our grandchildren. They can also do it in the other direction – take pennies from I&S and move to M&O, keeping the overall total rate the same. This is done when bonds are either paid down or refinanced. Compare it to refinancing the mortgage on your house and taking out additional equity. The lender might be able to keep your payment the same, but you’ve just extended your debt obligation for 30 years longer.