How Local Governments Set Property Tax Rates

How Local Governments Set Property Tax Rates gives you a clear, step-by-step way to understand what drives your bill, what to verify on your notice, and what to do if the numbers look off.

Local property tax rates are not arbitrary – they’re carefully calculated based on budgets. Each year, county, city/town, school district, and other local entities determine how much money they need (the levy), then set tax rates to raise exactly that amount. Here’s a closer look at the process: 1. Budget Planning: Every municipality and school board drafts a budget for the coming year. This includes all expected expenditures (salaries, maintenance, debt, etc.) and subtracts non-tax revenues (grants, state aid, fees). The result is the total funding gap to be filled by property taxes – the tax levy. 2. Calculate Total Property Value: The government then compiles the total taxable assessed value of all

property in its jurisdiction. This is usually done right after the annual reassessment cycle. For example, if a town’s total taxable value is $100 million and the levy is $10 million, they need to raise 10% of property value in tax revenue. 5. Compute the Mill Rate: Using the formula from New York’s tax guide, the mill rate is simply: Mill Rate = (Total Levy ÷ Total Assessed Value) × 1000. In our example, that would be (10,000,000 ÷ 100,000,000) × 1000 = 100 mills, or $100 tax per $1,000 of value. Each taxing authority (school, city, county, etc.) computes its own rate this way, then those rates are added together for the final bill.

4. Public Hearings and Voter Input: Many places require at least one public hearing before finalizing tax rates. Citizens can attend these meetings, ask questions, and express support or concerns. In some states (like Colorado or New York), the final tax levy or rate may even go to a public vote (through referenda or the town’s budget vote). 5. Rate Approval: After hearings and any votes, the local government officially approves the rates. The tax assessor’s office will then multiply each property’s taxable value by the mill rate to produce tax bills. 6. Distribute Tax Bills: Finally, tax bills or escrow statements are sent to property owners, reflecting the combined rates of all taxing bodies.

[56†embed_image] Where Do Your Dollars Go? Often, the biggest share of property taxes funds public schools. For example, a 2025 budget breakdown in Midland Park, NJ shows ~63% of the tax levy going to schools, 25% to the municipal government, 10% to the county, and small percentages to libraries and open- space programs. This illustrates that property taxes fuel multiple local services. It’s important for homeowners to follow this process. When you see a proposed budget or attend a budget hearing, know that a higher proposed levy in any category (new school construction, police department expansion, etc.) will push up that year’s rate. Conversely, if a town finds efficiencies or receives more non-

tax revenue, the levy might go down. Key Points:

• Coordination across districts: If you live in a municipality that spans multiple counties or school districts,

each body will set its own levy. That means you might see separate lines on your tax bill (city tax, school tax, county tax).

• Tax caps and limits: Some states impose limits on how much levies or rates can grow annually. If an

increase is needed beyond the cap, a popular vote or special override might be required. Keep an eye out for such referenda on your ballot.

• Property revaluations: Every few years, assessors reassess values. If total values jump (due to a new high-

priced sale), a given levy translates to a lower rate. If values lag and levy grows, rates must increase.

• Special districts: Sometimes school levies or other taxes don’t cover a whole county; they’re apportioned

across towns based on formulas. This can affect your local rate uniquely. By understanding this annual cycle, you can better predict and even influence your property taxes. For example, if a school board proposes a big budget increase, check if any of it could be offset by grants or cost cuts. Asking questions at public meetings (“Where does the tax levy go?”) encourages accountability. Lastly, use tools to empower yourself. ProptaxHelper’s Local Budget Analyzer helps break down your town’s budget and levy, showing exactly how the rate was calculated. Checking these numbers might reveal opportunities – for instance, if your town has unusually large “surplus” funds, it may mean the levy (and

thus your tax) could be lowered. 6 In short, property tax rates are driven by local budgets. The better you grasp that link – levy to rate to budget – the more equipped you are to manage your tax bill or challenge its fairness. The Role of Property Tax in Gentrification and Urban Development Property taxes don’t just fund services – they also influence how neighborhoods change. Gentrification (the influx of higher-income residents into a lower-income area) and urban development are tightly linked to the tax system.

• Rising Values and Displacement: When an area gentrifies, property values skyrocket. Higher prices

raise tax assessments for all homes in the area. Longtime residents on fixed incomes may find their tax bills suddenly unaffordable, leading some to sell and move away. In cities like San Francisco or Seattle, rapid value increases have caused waves of displacement through steep tax hikes. While taxes themselves are not the sole cause, they do exacerbate the pressure on lower-income homeowners.

• Incentives for Developers: On the flip side, many cities use tax tools to encourage new

development. Tax increment financing (TIF) or abatements lower taxes for developers building in blighted areas, stimulating investment. For example, a city may freeze the tax base and let all new taxes from new construction fund public improvements. These incentives can accelerate gentrification by making redevelopment financially attractive.

• “Fiscalization of Land Use”: Urban planners often use this phrase to describe how property taxes

push growth into profitable zones. Brookings Institution notes that the current U.S. tax structure has encouraged building in risk-prone areas (like waterfronts) by treating all property equally tax-wise. In plain terms: the city gets the same tax revenue whether a parcel is a $1 million home or a $1.5 million development. That motivates developers to maximize value – sometimes at the expense of equity or safety. The Brookings analysis found that such fiscal incentives “drive and are driving cities to continue building on the waterfront, despite clear evidence that this is a bad idea in the long term”.

• Tax Delinquency and Gentrification: Research from the Philadelphia Fed suggests that gentrifying

neighborhoods often see higher rates of tax delinquency among older homeowners. In other words, some residents simply can’t pay the new higher taxes. Cities sometimes respond with special freezes or relief for seniors. For instance, some jurisdictions offer low-income senior exemptions in areas at risk of displacement, to ease the transition.

• Equitable Policies Emerging: As awareness grows, many cities are exploring ways to use property

tax policy for equity. Circuit-breaker programs (credits that “break” bills that exceed a percentage of income) are one example. Others offer “phase-in” reductions – freezing taxes on the first $50k of value or capping annual increases for longtime owners. By contrast, absence of such policies can allow gentrification to accelerate unchecked. For urban planners and concerned homeowners alike, property taxes are a double-edged sword. They can fund the services that make communities livable, but without safeguards they can also drive economic change that hurts vulnerable residents. 7 What can homeowners do? Stay active in local politics. Many cities allow petitions or referenda to create exemptions or abatements for seniors or low-income owners. Supporting such measures can slow

gentrification’s negative effects. Also, understand if your area has tax incentives for developers, and voice your opinion: projects that are tax-subsidized should ideally provide community benefits (like affordable housing or infrastructure improvements). In summary, property tax and urban change are intertwined. As Brookings scholars explain, the way taxes are structured today tends to push wealthier development and can exacerbate displacement. Being aware of this dynamic is the first step to advocating for fairer tax reforms or targeted relief programs in your city. ProptaxHelper’s City Tax Map tool can show you how your neighborhood’s tax rates compare to nearby areas, which is a first clue about where gentrification pressures may be building.

Next steps

• Use the Property Tax Estimator to sanity-check your bill.
• If something looks off, run a quick Appeal Savings scenario.
• Scan the Articles list for related topics like exemptions, deadlines, and escrow planning.