Tax Justice Digest stories about South Dakota

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.

While the Democratic takeover of the House of Representatives (and apparently also the Senate) on Tuesday has has given new hope to advocates of progressive tax policies at the federal level, the results of ballot initiatives across the country indicate that state tax policy is also headed in a progressive direction. 

In the three states where they were on the ballot, voters rejected TABOR proposals, which involve artificial tax and spending caps that would cut services drastically over several years. Washington State defeated repeal of its estate tax. Several states also rejected initiatives to increase school funding which, while based on the best intentions, were not responsible fiscal policy. Two of four ballot proposals to hike cigarette taxes were approved and the night also brought a mixed bag of results for property tax caps. 

Taxpayer Bill of Rights (TABOR):
Maine - Question 1 - FAILED 
Nebraska - Initiative 423 - FAILED 
Oregon - Measure 48  - FAILED
Voters in three states soundly rejected tax- and spending-cap proposals modeled after Colorado's so-called "Taxpayers Bill of Rights" (TABOR). Apparently people in these three states had too many concerns over the damage caused by TABOR in Colorado. 

Property Tax Caps:
Arizona - Proposition 101 - PASSED - tightening existing caps on growth in local property tax levies.
Georgia - Referendum D - PASSED - exempting seniors at all income levels from the statewide property tax (a small part of overall Georgia property taxes. (The Georgia Budget and Policy Institute evaluates this idea here.)
South Carolina - Amendment Question 4 - PASSED - capping growth of properties' assessed value for tax purposes. The State newspaper explains why the cap would be counterproductive. 
South Dakota - Amendment D - FAILED - capping the allowable growth in taxable value for homes, taking a page from California's Proposition 13 playbook. (The Aberdeen American News explains why this is bad policy here - and asks tough questions about whether lawmakers have shirked their duties by shunting this complicated decision off to voters.)
Tennessee - Amendment 2 - PASSED - allowing (but not requiring) local governments to enact senior-citizens property tax freezes.
Arizona's property tax limit will restrict property tax growth for all taxpayers in a given district. South Dakota's proposal was fortunately defeated. It would have offered help only to families whose property is rapidly becoming more valuable, and those families are rarely the neediest. Georgia's is not targeted at those who need help but would give tax cuts to seniors at all income levels. The Tennesse initiative, which passed, is a reasonable tool for localities to use, at their option, to target help towards those seniors who need it.

Cigarette Tax Increase:
Arizona - Proposition 203 - PASSED - increase in cigarette tax from $1.18 to $1.98 to fund early education and childrens' health screenings.
California - Proposition 86 - FAILED - increasing the cigarette tax by $2.60 a pack to pay for health care (from $.87 to $3.47) 
Missouri - Amendment 3 - FAILED - increasing cigarette tax from 17 cents to 97 cents
South Dakota - Initiated Measure 2 - PASSED - increasing cigarette tax from 53 cents to $1.53.
While many progressive activists and organizations support raising cigarette taxes to fund worthy services and projects, the cigarette tax is essentially regressive and is an unreliable revenue source since it is shrinking.

State Estate Tax Repeal:
Washington - Initiative 920 - FAILED 
Complementing the heated debate over the federal estate tax has been this lesser noticed debate over Washington Stats's own estate tax which funds smaller classroom size, assistance for low-income students and other education purposes. Washingtonians decided it was a tax worth keeping.

Revenue for Education:
Alabama - Amendment 2 - PASSED - requiring that every school district in the state provide at least 10 mills of property tax for local schools.
California - Proposition 88 - FAILED - would impose a regressive "parcel tax" of $50 on each parcel of property in the state to help fund education 
Idaho - Proposition 1 - FAILED - requiring the legislature to spend an additional $220 million a year on education - and requiring the legislature to come up with an (unidentified) revenue stream to pay for it.
Michigan - Proposal 5 - FAILED - mandating annual increases in state education spending, tied to inflation - but without specifying a funding source. The Michigan League for Human Services explains why this is a bad idea.
Voters made wise choices on education spending. The initiative in California would have raised revenue in a regressive way, while the initiatives in Idaho and Michigan sought to increase education spending without providing any revenue source. Alabama's Amendment 2 takes an approach that is both responsible and progressive.

Income Taxes:
Oregon - Measure 41 - FAILED - creating an alternative method of calculating state income taxes.
Measure 41 was an ill-conceived proposal to allow wealthier Oregonians the option of claiming the same personal exemptions allowed under federal tax rules and would have bypassed a majority of Oregon seniors and would offer little to most low-income Oregonians of all ages.

Other Ballot Measures:
California - Proposition 87 - FAILED - would impose a tax on oil production and use all the revenue to reduce the state's reliance on fossil fuels and encourage the use of renewable energy  
California - Proposition 89 - FAILED - using a corporate income tax hike to provide public funding for elections 
South Dakota - Initiated Measure 7 - FAILED - repealing the state's video lottery - proceeds of which are used to cut local property taxes 
South Dakota - Initiated Measure 8 - FAILED - repealing 4 percent tax on cell phone users.

This November, South Dakotans will vote on the latest too-good-to-be-true policy solution — Amendment D, a constitutional amendment that would change how property is assessed for tax purposes. In most states a property's taxable value depends on what its really worth. Amendment D would confuse matters by creating two different property tax systems. Property that is sold would be assessed based on its value at the time of the sale. Property that does not change hands would be assessed by rolling back its value to 2003 levels and then increasing growth by an arbitrary 3% or the rate of inflation.

The ideas driving Amendment D are nothing new. In fact, almost identical laws have passed in New Mexico, Florida and California. These laws created a situation where one home located next to an identical home could be assessed at twice the value of the adjacent home, merely because it was sold more recently. As this excellent letter to the editor points out, South Dakota currently has several measures in place to support homeowners when property taxes are due. An expansion of the current homestead credit or a property tax circuit breaker would help those most in need of assistance.

In South Dakota, property tax reform became a hot topic this week when schools brought a suit against the state over education funding. In New Hampshire, where the role of property taxes has been debated for a while now, the State Supreme Court is hearing a case to determine and define the cost of adequate education. The districts bringing the suit argue that statewide property tax is geared to give wealthy towns a break compared to poor towns.

Meanwhile, another state looks to passively let its problem slide by. In response to an executive order by Florida Governor Jeb Bush, a 15-member panel will study property tax reform. Some speculate that the panel was formed for purely political reasons and that during an election year a study of this magnitude means that legislators can put off making politically difficult decisions.