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Tax capacity is considered the actual base available for taxation. It is calculated by applying the state's property classification system to each property's market value. Each property classification, such as commercial or residential, has a different calculation and uses different rates. Consequently, a city's total tax capacity will change at a different rate than its total market value, as tax capacity is affected by the proportion of its tax base that is in each property classification from year-to-year, as well as legislative changes to tax rates. The City's tax capacity increased 9.8 percent and 14.3 percent for taxes payable in 2020 and 2021, respectively. The following graph shows the City's change in tax capacities over the past six years: Local Tax Capacity $1,600,000 $1,400,000 $1,200,000 $1,000,000 — - $800,000 $600,000 $400,000 $200,000 2016 2017 2018 2019 2020 2021 The following table presents the average tax rates applied to city residents for each of the last three levy years: i Rates Expressed as a Percentage of Net Tax Capacity Average tax rate City City of Gem Lake 2019 2020 2021 40.4 41.3 36.3 County 52.9 52.3 47.7 School 26.1 36.8 37.1 Special taxing entities 6.6 6.6 6.0 Total 126.0 137.0 127.1 The improvement in tax capacity values as previously discussed, contributed to the decrease in the City's average tax rate presented in the table above. -5-