The recent revaluation of real estate in Old Lyme has sparked concerns among residents about potential increases in property taxes. However, the relationship between property values and taxes is more nuanced than it may appear at first glance. Let’s break it down.
What is Property Revaluation?
Revaluation is the process by which towns adjust property assessments to reflect current market values. In Connecticut, properties are assessed at 70% of their appraised value. This means if your home is appraised at $600,000, your assessment will be $420,000.
Revaluation is done periodically to ensure fairness. Over time, real estate markets change, and some properties may appreciate faster than others. Without revaluation, some taxpayers might pay disproportionately high or low taxes.
Does a Higher Assessment Mean Higher Taxes?
Not necessarily. While assessments may rise to reflect the current real estate market, this does not automatically lead to higher taxes for everyone. Here’s why:
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The Grand List: The total value of all taxable property in the town, known as the Grand List, is used to determine how much revenue the town can collect. In Old Lyme, this figure is $2,209,456,433.
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Town Budget: Taxes are based on the town's budgetary needs, not just property values. If the cost to run the town remains constant, an increase in the Grand List could result in a lower mill rate (the rate at which property taxes are calculated).
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Mill Rate Adjustments: After revaluation, the mill rate is often adjusted to ensure the town collects only what it needs to operate. For instance, if property values rise sharply but the town's budget remains steady, the mill rate could decrease to balance the revenue.
How Are Taxes Calculated?
The property tax formula is simple:
Taxes = (Assessed Value / 1,000) × Mill Rate
For example:
- Before Revaluation: If your home was assessed at $336,000 (70% of $480,000) and the mill rate was 23.20, your taxes would be $7,795.20.
- After Revaluation: If your home is now assessed at $423,500 (70% of $605,000) and the mill rate decreases due to an expanded Grand List, the taxes could remain the same or increase only modestly.
Why Do Revaluations Happen?
In Old Lyme, real estate has appreciated significantly, with an average annual appreciation rate of 7.89% over the past 25 years. This outpaces the annual household income growth of 2.71%, indicating a strong demand for housing. The typical home in Old Lyme has risen from $355,000 eight years ago to $605,000 today.
These sharp increases in value necessitate revaluation to maintain equity among taxpayers. Otherwise, long-held properties could become under-assessed while newer purchases bear an undue share of the tax burden.
The Bigger Picture
Understanding how taxes work can help ease concerns. Even as property values climb, the town's revenue needs remain the driving force behind tax rates. Revaluation is a mechanism to ensure fairness, not an automatic tax hike.
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