And Some People Still Think This Is a Good Idea?
Not all property tax cuts are created equal. Though the intent is to shield homeowners from property tax hikes in times of strong growth in housing prices, it is the unintended consequences of caps on increases in a home’s taxable value that have gained these measures attention in recent months.
By effectively limiting the amount by which one’s tax bill can increase, these provisions primarily benefit those long-term residents whose taxable home values have been suppressed for the most years. Since this creates huge inequities in tax bills between neighbors who have lived in their homes for different amounts of time, Florida voters in January passed a “portability” measure that allows long-time homeowners to take their tax savings with them to a new home upon changing residences. This obviously does nothing to assist first-time homebuyers, or correct a host of other potential problems that states with such limits have been experiencing.
In Michigan, where housing prices have actually been on the decline, homeowners are continuing to see increases in their property taxes as previously suppressed “taxable values” are using the housing slump to catch up with actual “market values”. This development, in addition to baffling and infuriating homeowners, provides an excellent illustration of exactly how convoluted these tax limits make the property tax system. In their poorly conceived attempt to keep property tax bills from getting “out of control”, state legislators have created a system where the property tax barely resembles a tax on the actual value of property at all. Only under one of these ridiculous assessment-capped regimes could decreases in a home’s market value lead to increases in a home’s taxable value.
Aside from destroying the common sense connection between the actual value of one’s property and the tax one pays, such limits also constrain local revenues without regard to the rising costs faced by local governments. South Dakota county leaders, facing increasingly grim budgetary realities created by a 3% cap on increases in taxable value, have had to resort to petition drives to raise needed funds. After a recent failed attempt to try to get an alcohol tax increase on the ballot to make up for revenue shortfalls, one county commissioner remarked that “we need to find a source of revenue…We’ve opted out of the property tax limitations five times. I don’t think that was ever what the Legislature intended to happen”. Given that local budgets primarily consist of law enforcement and education expenses, South Dakota residents should feel very fortunate that their state allows county governments to opt out of these overly restrictive limits.
