With the arrival of every new year and the government budget planning process that begins shortly thereafter, we hear the term “Constant Yield Rate.”
Unfortunately, it’s frequently misrepresented as the gold ring that every budget planner should aim for, even though that is not the case.
The constant yield rate is more of a budgetary guidepost than it is a goal, since it has no bearing on what the tax rate might or needs to be. In one respect, it’s a number that results from looking forward and backward at the same time.
The constant yield rate is computed by the state Department Of Assessments and Taxation every year for each of Maryland’s taxing authorities — the 23 counties, every municipality and Baltimore City.
To produce the number, the office looks at a jurisdiction’s tax revenue and the assessed value of all its property, or tax base, for the year just ending.
It then factors in the changes that will occur in the tax base for the year ahead. New properties added to the rolls are part of that, as are the reassessments the state performs every three years, and all the adjustments in between.
Using the earlier year’s tax revenue and the upcoming year’s tax base, it calculates what the tax rate would be to generate the same amount of tax money as the year before if applied to the new assessed value of real property. In other words, the constant yield rate could also be called the “constant income rate.”
That would make for a much clearer picture, as most people accept that no government — just like households and businesses — can operate on the same amount of income year after year. Expenses, including those government can’t control, generally go up.
The constant yield rate is the state-provided starting point for local government budgeting. What happens after that — whether the local rate goes up, down or stays the same — is between government and the public. The constant yield rate itself is just the launching platform for that discussion.