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Sometimes we receive news that is both good and bad. I did recently when I was informed of the new tax value of our home. It had gone up more than 25 percent in the last four years.

The good news is my wife and I will likely get more money whenever we sell our house. The proceeds from the sale will be an important part of our retirement nest egg. The bad news is, in the meantime we will likely pay more property taxes to our local governments each year.

Notice I said “likely pay more” property taxes. This is because your property tax bill depends on two factors. One is the value of your property, the most important of which is usually your home. The second factor is the tax rate per dollar of property value set by locally elected officials.

This means it is possible your property tax bill could not change at all if local leaders reduced the property tax rate to counter the rise in property value. Yet while local leaders often do reduce the tax rate, they generally don’t reduce it enough to prevent a jump in property tax payments.

There’s a reason for this which goes to the core of why property taxes are used. Property is one of several economic bases that can be tapped to generate public revenues. These include income, spending or sales and wealth. Of course, wealth includes the value of property, but also comprises financial wealth such as stocks and bonds.

Some say there’s been a kind-of unwritten agreement among different levels of government to reserve certain tax bases for certain governmental levels. For example, taxes on income produce the greatest amount of revenues for the federal government. Most states rely on sales taxes, with some — such as North Carolina — also administering a state income tax. Property taxes are almost exclusively used by local governments like counties and municipalities.

There’s a natural tie-in between property taxes and local governments. Two of the major functions of local government — police and fire protection — involve protecting private property.

Therefore, levying a tax on the value of a household’s property provides revenues proportionate to the amount of property protected.

Additionally, in North Carolina local county governments are responsible for constructing and maintaining public school buildings. Building new schools usually involves purchasing local land as well as paying for building materials and labor. These are the same inputs that go into the value of local residential and non-residential buildings. Once again, it is therefore logical to use the same private source — here private property values — to fund public property.

There are, however, challenges in using local property as a financing source for local governments. Perhaps the biggest challenge is measuring property values. Certainly, when a property sells, the sales value can be used as the same value for tax purposes. But most properties like homes don’t sell every year. The last time our home sold was 34 years ago when we bought it. This means in the years between sales of a particular property, local governments must estimate the value.

Estimating property values is a tedious process, which is one reason why North Carolina counties are only required to do it every eight years. Yet this long lag between property revaluations creates another problem. In many counties, but especially those that are growing, property values rise over time.

Using outdated property values to provide revenues paying for the current costs of land and construction materials creates shortfalls. To close the shortfalls, local leaders often increase property tax rates until the next property revaluation. This can create confusion among property owners over why the tax rates are rising.

When I served on a Wake County citizens’ group a dozen years ago we addressed this issue by recommending the county cut in half — from eight to four years — the time between property valuations. Wake County Commissioners adopted the recommendation, and several other counties also have shortened the time periods between the revaluations of local property values.

Some experts think modern information technology could eventually allow inexpensive annual revaluations of local properties. If this could be achieved in an acceptable way for property owners, it could allow property tax rates to remain more stable over time as values rose to keep pace with the property-related expenses of local governments.

I’ll close this column addressing another issue related to property taxes. Although owners of properties with high values often have high incomes, this is not always the case. A good example is a retiree who owns a high-valued property, but who now has less income to pay the property taxes.

One option is for the owner to downsize by selling the high-valued property and purchasing a smaller property with more affordable taxes. There may be sentimental losses suffered when this is done, especially if the owner lived in the property for a long time. Another option is special reduced property tax rates for elderly households. But this option can create conflicts over fairness with non-elderly property owners who don’t get the tax break.

Property taxes are the most important local tax in North Carolina. Understanding how and why they work can help you decide if they should be kept or changed.

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University.