Monday, December 21, 2009

Tax Rate - Same or Higher?

Community Member Question:

Redevelopment plays many parts in a community, the design for job creation, increase in property values of existing structures, low income housing opportunities and much more. Property taxes on land and structure increase as they get new buyers, after redevelopment makes them more desirable to "purchase and once resold". How does the property tax increase due to improved value increase serve the community?

City Manager Response:

I’m sure you understand this, but to make sure there is no confusion, the tax rate for property does not increase when land is improved or resold. The tax rate remains the same, but it is applied to the value of the property which may have increased due to development or redevelopment of the property. The benefit to Fontana from such an increase varies depending on if the property is in a Redevelopment Project or not.

If the property being resold is not in a redevelopment area, the City receives 3.6 cents for every dollar in taxes paid by the property owner. This benefit is extremely low because the state has permanently “stolen” most of the property tax revenues that are normally used to pay for city services. For example, if a property owner that was paying $1,000 per year in taxes now pays $2,000 dollars a year, the City would see an additional $36 benefit.

If the property is in a Redevelopment Project Area, the increase in taxes paid would on average, result in a 70% benefit to the Redevelopment Agency. So in the same example listed above, the Redevelopment agency would see a return of an additional $700. The catch for the Redevelopment agency is that the monies received cannot be used to pay for government services.

The money can be used to pay down debt associated with capital projects such as the construction of streets, sewers, storm drains, etc. This, in part, is why we say that RDA is so critical to economic development. It is the investment of these RDA monies in various projects that allow for new private investment to take place in the community. It is this private investment that then pays a return in the form of increased sales taxes that can be used for paying for government services.