How Revenue from Property Taxes is Used to Fund Essential Services

Property taxes are a vital source of revenue for local governments, and it's essential to understand how this money is used to fund essential services.

In the United States, property taxes account for a significant portion of local revenue, with some cities relying on them for up to 70% of their funding.

These taxes are typically collected by local governments and distributed to various departments and agencies to support a range of services.

From funding schools and emergency services to maintaining roads and public facilities, property taxes play a critical role in supporting the community.

Property taxes fund a wide range of essential services, but one of the most significant uses is for schools. For at least 100 years, state and local municipalities have used revenue from property taxes to help build and maintain schools and pay teacher salaries.

Property taxes have proven to be an invaluable tool to meet the educational promises made to U.S. children, especially those in underserved or poorer communities. This is evident in the fact that some states are still heavily reliant on property taxes for public school funding.

In fact, no state has fully abandoned property taxes, although some like Indiana and Michigan are shifting toward a model of state taxes to provide public school funding.

Property taxes have been a crucial source of funding for public schools in the United States for over 100 years. Homeowners are likely aware of the role property taxes play in funding local schools, but did you know that some states are starting to shift towards state taxes for public school funding?

States like Indiana and Michigan are exploring alternative models for funding public schools, while others like California are considering limits on local property tax growth. This indicates a national debate on how to balance educational concerns with fair taxation.

For at least a century, property taxes have been used to help build and maintain schools and pay teacher salaries. This has been especially important for underserved or poorer communities.

Some examples of property tax funding for schools include:

Property taxes fund a significant portion of healthcare costs in the United States.

In some states, property taxes are used to fund local hospitals and healthcare facilities, providing essential medical services to residents.

For example, in Illinois, property taxes help fund the state's Medicaid program, which provides health insurance to low-income individuals and families.

In addition to funding hospitals and Medicaid programs, property taxes also support mental health services and substance abuse treatment centers.

According to the article, property taxes in some states are used to fund public health initiatives, such as vaccination programs and disease prevention efforts.

Some cities have a firefighters' pension fund that can levy an additional tax. If your city has a pre-LEOFF firefighters' pension fund, it can collect an extra $0.225 per $1,000 assessed valuation.

This extra tax is capped at $3.60 per $1,000 AV if the city isn't annexed to a fire or library district.

In New Hampshire, property taxes accounted for 33 percent of its combined state and local general revenues in 2021. This is a significant percentage, especially considering the state does not have a broad-based individual income tax or general sales tax.

The way property taxes are calculated is crucial in determining how much homeowners pay. In our example county, a $2.00 levy rate would result in a $200 levy in the first year for two homes worth $50,000 each. This means each home would pay $100.

However, if the value of one home triples to $150,000 and the other remains the same, the tax bills would be significantly different. The home that increased in value would pay $151.50, a 52% increase from the previous year, while the home that didn't increase in value would pay $50.50, a 50% decrease.

The total levy in this scenario would still increase by only 1%, but the tax burden would be redistributed among the homeowners. This is because the assessed value only determines a home's share of the levy, not the actual tax amount.

Jurisdictions must follow specific procedures to increase property tax revenue. These procedures are outlined by the Department of Revenue, which provides detailed guidance on the matter.

Property tax rates vary significantly from city to city and state to state. Hawaii has an effective tax rate of just 0.31%, while New Jersey has an effective rate of 2.21%.

One reason for the wide discrepancies in property tax rates is each location's reliance on property taxes. For example, some states have higher income taxes and therefore rely less on property taxes to fund their programs.

The property tax rate may be affected by the value of the local property. If a local government has a specific dollar amount it needs to generate in property taxes, the lower the value of the property in the area, the higher the tax rate will be to achieve the necessary revenue.

Average home value is a crucial factor in determining property tax rates. State and local authorities collected $547 billion in property taxes in 2018, but this revenue isn't collected equally across all homeowners.

Wealthy communities with higher average home values pay more in property taxes, even if the tax rate is the same for all residents in the district. This is because property tax rates are determined by assessing the value of homes, which can vary greatly from one area to another.

The assessed value of your home, also known as the fair market value, is used to calculate property tax. This means that if you live in a community with high average home values, you'll likely pay more in property taxes, even if the tax rate is the same as in a neighboring community with lower home values.

States rely on property taxes to fund public education, but the formulas used to generate this revenue vary from state to state. This makes it challenging to compare tax bases across all 50 states, as it's not an apples-to-apples comparison.

Property tax rates vary significantly from state to state, with some states having much higher rates than others. For example, Illinois has some of the highest property tax rates in the country, with an average effective rate of 2.08%.

The main factors at play when it comes to property taxes are the location of the property, with rates often differing between zip codes. This is because local governments have the power to set their own tax rates.

Local governments set their own tax rates, taking into account factors such as the cost of providing services and the overall wealth of the community.

Property tax rates can vary significantly from state to state, with Hawaii having an effective tax rate of just 0.31% and New Jersey having an effective rate of 2.21%.

The wide discrepancies in property tax rates are largely due to each location's reliance on property taxes. Some states have higher income taxes, so they rely less on property taxes to fund their programs.

In fact, some states have no income taxes at all, and so they must rely more on property taxes. This is the case in states with no income taxes.

High property taxes aren't necessarily a bad thing. If you're comparing two cities and deciding which to live in, you might use property taxes as a factor.

The value of the local property also affects the property tax rate. If a local government has a specific dollar amount it needs to generate in property taxes, the lower the value of the property in the area, the higher the tax rate will be to achieve the necessary revenue.

Property tax increases in Washington are capped at 1% each year, unless the public votes for a greater increase or the jurisdiction uses banked capacity.

Taxes on new construction, changes in the value of state-assessed utility property, and newly annexed property are exempt from this limit and can be added to the tax levy.

The property tax levy is calculated based on the amount of taxes assessed in the previous year, not the increasing value of properties.

The complexity of property taxes can make it difficult to understand how your bill changes from year to year. Glenn Olson, a former Deputy County Administrator, developed examples to illustrate how property tax bills may change based on various factors.

The property tax formula is expressed as: Levy Amount ÷ Assessed Value (000s) = Levy Rate (per $1,000 AV). This formula is used to calculate the levy rate that property owners must pay.

A county can raise its general fund levy rate up to $2.475 per $1,000 AV, but only if the total of the levy rates for the general fund and road fund do not exceed $4.05 per $1,000 AV.

The levy amount is determined by the taxing district's desired levy amount, which is subject to several restrictions.

The $10 limit is a key concept in Washington State property tax law. This limit is the same as $10 per $1,000 of assessed value and is often referred to as the 1% limit. The 1% limit is the maximum rate at which property taxes can be imposed on an individual parcel of property.

The $10 limit is allocated as follows: the aggregate limit for cities, counties, and most special districts is $5.90 per $1,000 assessed value. This means that these types of taxing districts can impose a maximum levy rate of $5.90 per $1,000 of assessed value.

If either the $5.90 limit or the 1% limit is exceeded, then the junior taxing district levies involved must be reduced through prorationing. This process involves reducing the levies of junior taxing districts in a specific order, depending on whether the $5.90 limit or the 1% limit has been exceeded.

Here's a summary of the limits on levy rates:

Note that these limits are in place to prevent excessive property tax increases and ensure that taxing districts are held accountable for their levy rates.

Local governments use property taxes to fund various services and infrastructure, and the way they collect these taxes can vary. In Washington State, for example, cities like Kirkland and SeaTac have set their property tax levy amounts according to specific ordinances.

Some cities, like Buckley, take a less than 1% increase in property taxes, while others, like Kirkland, take the full 1% increase. In fact, Kirkland's 2024 ordinance shows calculations for the full 1% increase. Other cities, like Shoreline, set their property tax levy amounts in dollars and percent increase, with clear calculations shown in their ordinances.

The way local governments collect property taxes can also be influenced by factors like the implicit price deflator. For taxing districts with populations of 10,000 or more, the levy can only be increased by 1% or the implicit price deflator, whichever is less. However, if the implicit price deflator falls below 1%, the jurisdiction may increase its levy beyond the IPD rate and up to the full 1% by adopting an ordinance or resolution making a finding of "substantial need".

Here's a list of some of the cities mentioned in the article section facts and their corresponding property tax levy amounts:

Cities have their own ways of setting property tax levies. Buckley took less than a 1% increase in 2019, banking the capacity.

Some cities take the full 1% increase allowed by law. Kirkland, for example, did just that in 2024, setting its property tax levy amount in dollars under RCW 84.55.120.

Other cities use property tax levies to repay debt incurred by fire districts before annexation. SeaTac did this in 2022, setting the property tax levy amount in dollars under RCW 84.55.120.

In some cases, cities have multi-year levy lid lifts tied to Seattle CPI-U, which can result in higher property tax increases. Shoreline's regular levy increase exceeded 1% in 2019 due to this type of lift.

Here are some examples of cities setting their property tax levies:

Small towns often have unique challenges when it comes to managing property taxes. In taxing districts with populations under 10,000, a specific process must be followed to increase property tax revenue.

To do this, the taxing district must adopt an ordinance or resolution. This is a crucial step, as it allows them to bank excess levying capacity.

Local governments in Washington State have the authority to set their own property tax ordinances, which can vary depending on the specific needs and circumstances of each city. In some cases, cities may have a firefighters' pension fund, which allows them to levy an additional $0.225 per $1,000 assessed valuation.

If a city belongs to a fire and/or library district, the rules are a bit more complicated. The maximum levy rate is $3.60 per $1,000 assessed value, but this can be reduced by the levy rates of the special districts. For example, if a city belongs to both a fire district and a library district, and both districts are levying their maximum amount, the city's levy rate can be no higher than $1.60.

Cities may have different approaches to setting their property tax levies. For example, some cities like Buckley and Kirkland have taken the full 1% increase, while others like SeaTac have taken a 0% increase and banked their capacity instead. The specifics of each city's approach can be found in their individual ordinances.

Taxing districts with populations under 10,000 must adopt an ordinance or resolution to increase property tax revenue, and levying a percentage increase less than 1% will automatically "bank" capacity. This is in contrast to taxing districts with populations of 10,000 or more, which may only increase their levy by 1% or the implicit price deflator, whichever is less.