As property values continue to rise across Daviess County, local taxing districts — including the City and County governments and the public school systems — must weigh how to manage tax rates while maintaining funding for essential services.
Under Kentucky law, taxing entities are limited to a 4% increase in revenue from property taxes each year — unless they put a larger increase to a public vote. The state sets a “compensating rate” annually, which is the rate that would bring in the same amount of revenue as the previous year despite changes in assessments.
If property values increase significantly, which has been the case recently, taxing bodies are often forced to lower their tax rates just to stay within that 4% revenue growth cap.
“When assessments go up, your compensating rate will go down,” said Daviess County Treasurer Jordan Johnson. “That’s designed to keep your revenue steady — unless your fiscal court or board votes to take the 4% increase, which most do.”
According to Johnson, Daviess County’s tax rate dropped from 13.0 to 12.9 cents per $100 of assessed value this past fiscal year, even while the County opted to take the 4% revenue increase. If taxing bodies don’t stay within that threshold, they must put the proposed rate on a ballot, which Johnson said voters would likely reject.
Angela Waninger, director of finance for the City of Owensboro, said the City annually reviews three tax rate options: the compensating rate, the 4% revenue increase rate, and simply keeping the rate the same.
“If assessments go up enough, we actually have to reduce our rate just to stay under the 4% cap,” Waninger said. “We’ve never taken more than that and have no plans to.”
Waninger noted the City’s rate remained flat from 2019 to 2023, then dropped slightly in 2024. She added that while local governments want to be sensitive to taxpayers, they also face inflation and increased operating costs.
Schools get the biggest share
While City and County governments are often the most visible taxing entities, school districts receive the largest portion of a homeowner’s property tax bill.
For example, in 2024 the tax rate for Owensboro Public Schools was 85.1 cents per $100 of assessed value, compared to 26.1 cents for the City of Owensboro.
Both local school systems say they try to balance financial needs with the impact on taxpayers.
Daviess County Public Schools Finance Director Sara Harley said the district’s budget for 2025-26 assumes the full 4% revenue increase, but the final tax rate won’t be set until updated property assessments arrive in July or August.
“Our board’s goal is to keep property taxes low while still balancing our budget,” Harley said.
She added that inflation and salary raises make it nearly impossible to operate on the same revenue year after year. The district hasn’t changed its real property tax rate since 2019, holding steady at 71 cents. Harley also noted that as property values rise, state SEEK funding to the district decreases, creating further pressure on local revenue.
Owensboro Public Schools CFO John David Sandefur said his district also typically stays within the 4% increase limit.
“All decisions are based on what’s best to meet the needs of our students while being good stewards of taxpayer dollars,” Sandefur said. “But if property values ever decline, yes — it could be a concern.”
Long-term tradeoffs
Johnson warned that if governments always adopt the compensating rate, keeping revenue flat year after year, they risk being unable to recover if property values fall.
“If assessments ever go down, you can’t just raise your rate back up without triggering that 4% cap,” he said. “It’s a hole you can’t easily climb out of.”
Still, he and others say the system offers a layer of protection for homeowners while allowing public bodies to keep up with modest growth — so long as they plan carefully.
“It’s a balancing act every year,” Johnson said. “You’re trying to meet growing costs, but you can’t overreach — because the taxpayer gets the final say.”
