“It’s not really a tax increase,” he said. “[It] is the amount we’d have to bring in to not bring in anymore money than we had last year but to pay off the debts and the operating funds and so forth we need.”
A higher recommended tax rate can be linked to the city’s tax rolls growing at a slower rate recently, Montgomery County Tax Assessor-Collector Tammy McRae said.
“When the [appraisal] values go up, the [effective] rates will go down,” she said. “When [appraisal] values go down, the effective rate increases.”
The city’s taxable value grew about 0.4 percent from 2016 to 2017, a smaller increase than the nearly 14 percent growth from 2014 to 2015.
Adopting the effective rate
McRae said the city of Magnolia will receive more revenue than in FY 2016-17 by adopting the effective tax rate recommended by the county because the effective rate does not consider developments added to the tax rolls in the last year.
“The effective rate is the rate that would generate approximately the same amount of revenue as in the prior year on properties that were on the tax roll in both years,” she said. “That means any new improvements are not part of that effective rate calculation, so while the effective rate is designed to generate the same amount of revenue for properties that were on the roll in both years, if you adopt the effective rate, you will in reality generate more [revenue] due to the new improvements.”
According to city budget documents, Magnolia last raised its property tax rate in FY 2007-08 from 48.47 cents to 49.14 cents per $100 valuation. The tax rate has remained steady or decreased in the years since.
During the Aug. 8 meeting, Magnolia city officials recommended the council vote to increase the city’s property tax rate from 46.29 cents to 47.09 cents per $100 valuation for the upcoming fiscal year. The higher tax rate aligns with the effective tax rate recommended by the Montgomery County Tax Office, Mendes said.
“The effective rate is what you absolutely have to have to pay the bills and make everything work,” he said. “There’s no extras, no increases or anything else.”
During the Aug. 8 meeting, Mendes said the city would have more than a $16,000 deficit at the start of FY 2017-18 if the council did not raise the tax rate.
From every 1 cent increase in the property tax rate, the city expects to collect about $11,000, Mendes said.
According to the Montgomery County Tax Office, the county recommended 49.53 cents per $100 valuation as the effective rate for the city of Magnolia in tax year 2016, which is higher than the adopted rate of 46.29 cents. In tax years 2012-15, the effective rate was lower than the city’s adopted tax rate.
The recommended tax rate can be tied to decreasing appraisal values within the city, Mendes said.
“They set your tax rate on the value of the properties versus what you’re going to need to pay the bills and so forth,” he said. “The appraisals have gone down for the last couple of years, and even though we’ve got more construction and more homes and everything, the appraisal values have dropped on many of the homes, so that has an impact on it. But really when you look at how much is being done and so forth, the amount of different taxes, the city is doing very well.”
Although Mendes said home values are dropping within city limits, the city’s pool of taxable property is growing. The city’s tax rolls have grown about 188 percent since 2006, although the taxable value in the city increased less than 1 percent from 2016 to 2017, according to data from the city’s budget and the county tax office.
Because the city will not collect additional money with the tax rate increase, no second public hearing is required, Mendes said.
The council held a public hearing on the proposed tax increase and budget for FY 2017-18 during a special meeting Aug. 29. A second public meeting is set for Sept. 12. The budget proposed prior to the tax rate increase totaled $3.1 million in general fund revenue.
The city’s pool of taxable property continues to grow although City Administrator Paul Mendes said appraisal values have slowed in recent years.[/caption]
The city of Magnolia last increased its property tax rate in fiscal year 2007-08 to 49.14 cents from 48.47 cents in FY 2006-07.[/caption]