Policy Issues Relating to Property Taxes. Property owners in Trevor City were shocked when they recently received notice that assessed valuations on their homes had increased by an average 35 percent, based on a triennial reassessment by the County Board of Equalization. Like many homeowners in the city, you have often complained about the high property taxes in Trevor City, and now you are outraged that your taxes will apparently increase another 35 percent in the coming year. After stewing all weekend about the unreasonable increase in assessed valuation, you decide to visit the county tax assessor on Monday to find out why your assessed valuation has increased so rapidly. When you finally reach the counter, the customer service representative explains that reassessment considers such factors as actual property sales in particular neighborhoods, trends in building costs, and home improvements. He also explains that heavy demand for both new and previously owned homes has skyrocketed in the Trevor City area in recent years. Moreover, you learn that the reassessment on your home is only average, with some being higher and some lower. Although this information calms you down somewhat, you ask: ‘But how can we possibly afford a 35 percent increase in our taxes next year?” The representative explains that actual tax rates are set by each jurisdiction having taxing authority over particular properties (in your case, these are the county government. Trevor City, the Trevor City Independent School District, the Trevor City Library, and the Trevor City Redevelopment Authority), so he cannot say how much property taxes will actually increase.
Required
a. When you have regained your composure, prepare a brief written analysis objectively evaluating the probability that your property taxes will actually increase by 35 percent next year. In doing so, consider factors that you feel may mitigate against such a large increase. What would have to happen to the tax rates for your taxes to remain at their current level or increase only slightly?
b. Put yourself in the position of the city manager of Trevor City. Does she view the rapid growth in property values as a windfall for the city? What are the potential economic and political risks involved with a hot real estate market such as Trevor City is experiencing?