Rising Property Taxes Reverberate Politically

Skyrocketing housing values mean higher property taxes, and that has voters stewing in a way not seen since the late 1970s.

Homeowner anger is reverberating politically: At least six state legislatures acted this year to ease the property tax burden. Now the spotlight is on Maine, where voters this November will consider capping property tax increases. Tax-cut proponents believe that what happens in Maine could kick-start a new national movement to curb property tax hikes.

Even though the property tax is largely a local tax, state law provides the power to impose it. Property taxes pay for a range of local services, including fire and police protection, but especially schools. Nearly 30 percent of states’ and localities’ total revenue came from property taxes in 2001, according to the bipartisan National Conference of State Legislatures.

Homeowners have seen property tax bills shoot up more than 40 percent in one year, in some cases. Vermonters in the small towns of Killington and Dorset are so fed up that they want to by annexed by next-door New Hampshire, where taxes are lower.

Homeowners’ concerns have prompted a variety of responses from state policy-makers. These are some notable examples:

• Indiana lawmakers set up a commission to come up with ways for easing or replacing the property tax burden. Recommendations are due by December.
• In Iowa, a special panel will look at ways to make the Iowa property tax more fair and provide recommendations to the Iowa Legislature next year. 
• Nevada Gov. Kenny Guinn (R) rebuffed calls from some state lawmakers to hold a special session of the Legislature to consider rising property taxes, urging legislators to tackle the issue during the next session that begins in February. 
• New Jersey Gov. James E. McGreevey (D) pushed and signed into law a new “millionaire’s tax” that hikes taxes on the wealthy in exchange for cutting property tax for seniors. New Jersey also set up a task force to come up with recommendations for a constitutional convention to reform the property tax system in the Garden State. 
• Pennsylvania Gov. Ed Rendell (D) promises that the new law he signed this summer bringing 60,000 slot machines to the Keystone State will cut property taxes by $1 billion. 
• South Carolina Gov. Mark Sanford (R) is still deciding whether to sign a measure that would prevent local governments from raising property values for tax purposes more than 20 percent during reassessments.

Voters’ wrath over high property taxes is not new. The most famous revolt occurred in California in 1978 when voters approved Proposition 13, which limited annual tax increases to 2 percent.

“It would not be unfair to compare [the forthcoming Maine initiative] to Proposition 13-style movements of the late 1970s and early 1980s,” said Pete Sepp, spokesman for the National Taxpayers Union, a trade group that lobbies for lower taxes. Sepp said the renewed focus is not surprising because the same conditions that spurred Prop 13 exist now: an unsettled and uncertain economy, employment worries, and dramatically rising property values.

The states’ budget squeeze also plays a role. Facing million-dollar deficits, many states in the past three years cut funding for localities as a way to balance the books. Some localities, in turn, opted not to cut property taxes when property values climbed and instead collected the extra tax revenue.

“Local governments are stuck because a lot are facing cuts in state aid … so [localities] capture the revenue from the rising assessments to fill the hole in their budget,” said Nick Johnson, a state fiscal expert at the Center on Budget and Policy Priorities, a Washington, D.C., group that focuses on tax policies that affect the poor.

States and localities collected $279 billion in property taxes in 2002, compared with $259 billion in 2000, said Sumeet Sagoo, an economist with the Tax Foundation, a Washington, D.C., think tank, quoting Census data.

Sagoo attributed the surge to lower mortgage interest rates. The lower the rates, the more people bought homes or tried to buy homes, driving up (prices) property values. “Houses are over-valued. … Something needs to be done,” he said.

Homeowners agree. Local ballot initiatives limiting property tax increases are pending in Cincinnati; Houston; Fairbanks, Alaska, and in several communities in New Jersey and Tennessee. But the big test is in Maine, where voters will decide whether to cap property taxes at 1 percent of a property’s value, based on assessed values in 1996-97. The measure also would limit annual increases to 2 percent as long as the property stays in the family.

Voters in Washington state will decide whether to reduce property taxes by expanding gambling. And voters in Indiana will decide whether to allow the General Assembly to exempt certain property from property taxes. Efforts to put the issue to a popular vote in Nevada and Oregon failed to make it on the ballot for lack of signatures.

In Virginia, lawmakers are being pressured to pass a measure similar to Prop 13. “Politicians … look at our private properties as their personal bank accounts from which they can withdraw however much money they need to fuel their spending plans,” said Al Aitken, chairman of Virginians Over-Taxed on Residence, an organization that Aitken started after his own property tax went up 45 percent.

Property taxes also are important in governors’ races. In Indiana, Republican gubernatorial candidate Mitch Daniels says he wants to “eventually” eliminate property taxes while Democratic Gov. Joe Kernan this summer unveiled a proposal to encourage counties to cap annual property tax bills at 2 percent of the home’s gross assessed value.

In New Hampshire, Democratic candidate John Lynch wants to eliminate the statewide property tax. Republican incumbent Gov. Craig Benson boasts that he cut the tax by pushing education funding reform.

In Vermont, Democratic contender Peter Clavelle says that the state’s “over-dependence” on the property tax must be reduced while Republican Gov. Jim Douglas showcases measures he enacted to save Vermonters “millions” in property taxes next year.