Here's a great analysis of property value vs. property taxes.  Excerpted from the Wayne Township Assessor's website:


My staff and I continue to hear from residents who expect to see immediate reductions in assessed values due to the declining real estate market. While I would like nothing better than to be able to adjust values to reflect the most recent market activity, Illinois state statute prevents me from taking this action. I am required by law to determine each year’s assessments based on all of the arm’s-length sales that occurred during the previous three years. Distressed sales such as foreclosures are not arm’s-length transactions, and state law does not allow us to consider them. The 2009 assessments were determined using sales that occurred between January 1, 2006, and December 31, 2008. When sale prices are escalating, the use of three years of sales tends to prevent sudden jumps in the case of market swings. In escalating markets, assessments cannot catch up to the market; however, in market downturns it takes several years of declining sale prices for the market to catch up. Sale prices were increasing for many years until 2006, then leveled off in 2006 and 2007, and began to decline in 2008. The steepest declines have occurred in 2009; however, state law did not permit me to consider any 2009 sales activity in determining the 2009 assessments. If I were to reduce assessments based on current sales, the DuPage County Supervisor of Assessments would apply a factor to raise assessments to the level dictated by the 2006-2008 sales.

Based on the declines in sale prices that have occurred in 2008 and 2009, assessments will finally begin to fall in 2010. Because of the three-year sales requirement, these reductions will likely be moderate, but will continue for a year or two after the market eventually (we hope) begins to pick up again.

It is important to keep in mind that across-the-board decreases in assessments, when they occur, will not reduce taxes. Assessments are used to divide up the “tax pie.” The tax pie is determined by the spending of your taxing bodies. Changes in assessments, through equalization, do not change the size of the pie or an individual owner's proportion of the tax burden, or slice of the pie.

Steven Stanger, a former fellow assessor from Lake County, formulated the following illustration to help property owners to better understand the fact that spending by taxing bodies, not global assessment changes, determines changes in property taxes:

Suppose that there is only one taxable property, your house, and one taxing body, you pick the one whose services you want.

In year 1, the taxing body needs $5,000 to provide you with their services. Since yours is the only property, your tax bill has to be $5,000.

In year 2, the real estate market plunges and your property value falls by 30% (or pick any percentage you want). What has happened is that the taxing body's entire assessment base has gone down by 30%, but your proportion of the tax base has not changed. Your property still remains the only taxable property. At the same time values have fallen, the taxing body determines it needs $6,000 (a 20% increase) to provide you with their services. What is your tax bill? It has to be $6,000 because that is what they asked for from the property tax and you are the only taxpayer. Your taxes go up even though your assessment went down by a significant amount.

In year 3, the real estate market rebounds and values skyrocket by 40%. Your assessment notice indicates this trend ane your valuation is up by 40%. But the taxing body has found they only need $5,000 to operate this year. What happens to your tax bill? Your tax bill will go down from $6,000 to $5,000, despite the fact that your assessment went up 40%. Again, your proportion of the taxes didn't change so the only action affecting your bill is the change in spending, in this case a 16.67% decline from the previous year's spending request.