By Callie Hietala
Last year, personal property tax values in the City of Martinsville climbed to unprecedented heights, and this year, values may climb even higher.
However, during Tuesday’s budget work session, Commissioner of Revenue Ruth Easley offered city council members some options to help ease the financial burden on residents.
Easley said vehicle valuations continue to rise, partly due to a chip shortage (needed for certain vehicle components), and a short supply of used vehicles in the market.
That scenario has caused the value of used vehicles to appreciate rather than depreciate.
Last year, “you all recognized a windfall in your FY22 (fiscal year 2022) budget based on the increased values from last year” in the amount of $179,056.88 as of March 3, Easley told council members.
This year, she said, she sent the city’s fleet file earlier than usual to J.D. Power, the firm which provides vehicle value assessments, “so I could get my head around where we were going and give you all and your finance staff a heads up on what they needed to do to build a budget.”
The value of this year’s fleet of more than 13,000 vehicles increased by 26.14 percent over last year, which was already a significant increase over 2020 values, and the value increase may continue even into next year, she said.
The highest increase was 62 percent over last year’s values for a 2019 Dodge Grand Caravan, while an average increase was 26 percent for a 2013 Honda Accord, which jumped from $9,500 to $11,950.
According to materials Easley provided, passenger cars increased an average of 28 percent, truck values averaged a 22 percent increase, motorcycle values increased by an average of 11 percent, and RVs and campers increased by an average of 29.29 percent.
“This is a historic value increase,” Easley said.
Along with those increases, Easley said the tax reimbursement rate likely would decrease due to the rising value of the city’s total fleet. Last year, she said, the reimbursement rate was 42.28 percent. “Based on what I’m seeing right now, if nothing is done, that rate is probably going to drop to 32.23 percent.”
She presented five potential courses of action from which council members could choose, including the first, which is to take no action at all.
“You already advertised your general personal property tax rate for this year at $2.30 (per $100 of assessed value), and the city manager has built his budget based on doing nothing” to mitigate the increase, Easley said.
Should council members decide to take no action, “you’ll probably recognize a windfall of $230,372.73,” she said, adding that some localities elected that route, but earmarked the revenues for specific projects such as paving or school construction.
During a conversation, Easley said City Manager Leon Towarnicki “indicated that (council) had plugged in $200,000” for the upcoming year’s personal property revenues, which “is anticipated to be the windfall over what was budgeted for last year.”
Another option Easley presented was lowering the tax rate, which she did not recommend “because it’s (the valuation) eventually going to come back down. It’s really popular to lower the tax rate, however you will have to increase it again once we get back to a more normal depreciation.”
Easley also did not recommend increasing the annual percentage of the Personal Property Tax Relief Act (PPTRA).
In the materials she provided, Easley explained that the city’s annual allocation from the state is $626,428, which must be allocated by the city for tax relief or forfeited. Last year, the city’s PPTRA relief percentage was 42.28 percent, and this year is expected to fall to 32.32 percent due to the increased values of the city’s taxable vehicles.
Easley noted that business vehicles, RVs, campers, boats, and trailers do not qualify for PPTRA relief, regardless of the unprecedented value increases over the last two years. Additionally, 1,086 vehicles in this year’s fleet are assessed at $1,000 or less, and will receive 100 percent tax relief.
The final option, and the one that Easley recommended, was applying an assessment ratio—reducing the fair market value of vehicles by a certain percentage that is mutually agreed upon by council members and Easley, whose agreement is required for the action.
While she declined to recommend a particular ratio, Easley provided a financial breakdown of what a 5, 10, 15, or 20 percent assessment ratios would mean for the city’s finances.
By her calculations, Easley said she believes there is “enough wiggle room to do up to the 20” percent, but “this is your call. This is your budget.”
According to a chart she created, the total value assessment of passenger cars, trucks, and motorcycles for 2022 currently is $74,490,990, an average 42.37 percent change from 2021. This would result in an average $219.81 personal property tax, and a revenue impact of $1,713,292.77.
A 5 percent assessment ratio would lower the total assessed value of $70,766,441, resulting in an average $209.26 tax bill and reducing that original revenue impact by $85,664.63.
A 10 percent ratio would lower valuations to $67,041,891, meaning an average tax bill of $198.25 and a decrease of $171,329.28 in revenues for the city.
At a 15 percent assessment ratio, taxpayers would see an average bill of $187.23 while the city’s revenues would decrease by $256,993.90 and at 20 percent, the average personal property bill would be $176.22 with a decrease in city revenues of $342,658.55 from the original estimated amount.
“You have the opportunity to mitigate the unprecedented increase, so it’s your call,” Easley said.
Towarnicki said that the budget team put an additional $200,000 in personal property revues over last year’s budget, which could still nearly be met should council opt for the 10 percent assessment ratio.
“Even at 20 percent, that’s still more revenue than what we had last year,” Mayor Kathy Lawson noted.
“If you opt for 20 percent, just so everybody understands, then we’ll have to back out $342,000 in revenues which means, most likely, fund balance,” Towarnicki said. “At this point, there’s not much else we can pull from.”
While an immediate decision was not needed, Easley said should the council choose to pursue the tax assessment ratio option, it could be accomplished by adopting a resolution.