One of the most used lines to bolster any economic development project is how this project will help to lower residential property taxes. In theory it sounds great, and mathematically any increase in commercial property valuations will reduce residential property tax burdens. What is tough is quantifying how much your property tax burden is going down because of all of this economic activity, because while there may be an increase in commercial valuations, residential valuations are rising also, and they don't move at the same rate, and they are not of the same magnitude.

Lets start with scale. Taxing bodies LOVE to pull out the impact of a certain bond on the taxes of an average home in Midland as a selling point. The idea is that even though the issuance seems large, your share through property taxes on an average house really is pretty small. Take the $115 Million Hospital Bond:

At a projected 5 percent interest rate, debt service on the 30-year bond would require a tax rate of 6.6 cents per $100 valuation for Midland County property owners. For the owner of a home valued at $100,000, the projected annual additional property tax required to repay the bonds would be $66 a year.

So, for the Hospital, to fund a $7.5 Million annual payment, it costs a person with a $100,000 home $66 a year.

The entities sell this as "insignificant" or "a couple of pizzas a year", however when it comes to "taking taxing pressure off homeowners" the entities want you to think significant dollars, but don't offer you the comparative math, like they did above.

So, lets do a rough, but illustrative calculation of how much money the average Midland homeowner with a $100,000 home is going to save with $15,000,000 in new taxable commercial value in downtown Midland. There are a lot of assumptions, that the property had no value before the project, that the $2 Million tax investment came from nowhere, we are only dealing with the effect on City taxes, that the whole taxable value was available to go into the unrestricted governmental fund of the City supported by ad valorem taxes only, and that it is 2008-2009 (because I can use the CAFR Numbers).

So according to the City's Year Ended 2009 CAFR, the City of Midland had a tax base of about $6.5 Billion. Residential properties account for about $4.5 Billion, before exemptions, or about 65%. This valuation generated about $29 Million of the City's budget, which gives a tax rate of $0.44615/100, (which with all my rounding is close to the City's actual tax rate of $0.4568/100).

So we add $15 Million to $6.5 Billion and we get $6.515 Billion. We still need to generate $29 Million for the budget. That equals a tax rate of $0.44512.

For a Midlander with a $100,000 house, before the project they paid $446.15, and with the project they paid $445.12. WOW, a whole $1.03 in property tax savings.

What if we forgo the $15 Million property tax addition and just dedicate the $2 Million to the City's budget and the City only had to raise $27 Million? That is a tax rate of $0.41538, or $415.38, for a property tax reduction of $30.77.

The real story, in the case of Basic isn't even this good. The property currently has some value (so it isn't all new valuations), and Basic is retaining jobs (not creating new ones, so no new residential properties are built for new workers).

Unless the MDC brings in a whole new industry (or series of new industries) requiring new capital facilities with a taxable value of $500 Million, you will not generate the same property tax relief as putting $2 Million in cash into the City Budget.

The only other way to do this is to have the appraisal district start devaluing residential property (which grew in value by 92.6% over 2005 values) and start increasing valuations of commercial property (which grew by 75% over 2005 values), thus changing the ratio of residential to commercial, but that is still going to take huge amount of commercial development to swing the tide.