Efforts to limit property taxes taking shape

Arizona Republic

8/02/2007

A concerted effort is under way to brew up another property-tax revolt in Arizona.

The state felt the aftershocks of California's Proposition 13 in 1978. A similar cap on property values and taxation began to circulate in Arizona.

The Legislature successfully headed it off by holding a special election in 1980 to enact the system of spending and property-tax limits that still generally govern public finance in Arizona today.

The results of the 1980 reforms in holding the line on spending and property taxes have been mixed, at best.

According to the Arizona Tax Research Association, per capita state and local tax collections in Arizona, adjusted for inflation, increased by nearly 52 percent from 1980 to 2000. Per capita property taxes increased less rapidly, but still exceeded inflation by 35 percent.

More recently, the state Legislature has enacted significant property-tax relief. Those reductions, however, have been more than offset by increases by local governments. Overall, property-tax collections have been increasing at about a 6.5 percent annual clip over the lalast five years, according to ATRA's figures.

The most steam for a new property-tax revolt appears to be coming from Marc Goldstone and his Arizona Tax Revolt group. They are circulating two initiatives.

The first addresses the infuriating practice of local government officials pocketing higher property-tax collections caused by rising property values, and then claiming fiscal virtue for having held the line on property-tax rates. The Goldstone initiative would roll back property values for tax purposes to their 2003 level and then cap increases at 2 percent a year. New improvements would be given the value they would have had in 2003.

Unlike California's Proposition 13, values for tax purposes wouldn't be bumped up to the purchase price upon the sale of a property. The property would have the same limited value for property-tax purposes regardless of who owns it or when it was purchased.

That avoids some of the problems with Proposition 13, which has created gross discrepancies in tax bills for similar property. Adding a huge increase in tax liability upon sale is also obviously a drag on the real estate market.

The second Goldstone initiative gets to the heart of the matter by sharply limiting property-tax collections by state and local governments. Property-tax collection growth would be limited to 2 percent plus whatever rate that yields applied to new construction.

Most taxing jurisdictions are already subject to such a limit, but various items, such as voter-approved bonds, are exempt. Under the Goldstone initiative, only items approved by two-thirds of voters would be exempt from the 2 percent limit. That certainly raises the ante, particularly for bond elections.

The second group, Proposition 13 Arizona, seems to have less momentum. Which is just as well, since its ideas are inferior.

Proposition 13 Arizona is also contemplating two initiatives, the first being a California clone on valuation. Property values for tax purposes would be rolled back to 2001 levels. After that, they could increase by 2 percent a year.

However, upon sale, the purchase price becomes the value for tax purposes, recreating California's gross discrepancies in tax liability and constraint on the real estate market.

This group's second initiative would cause a huge shift in liability to business taxpayers. As part of the 1980 reforms, property taxes on residential property are limited to 1 percent of the property's market value. Voter-approved bonds and some other specified assessments are exempt from the limit. This initiative would eliminate the exemptions.

Currently, the residential limit has been reached in only a handful of places in Arizona. If this initiative were to pass, most places would bump up against it, with businesses having to make up the difference.

Arizona already has some of the highest business property taxes in the country, and this would exacerbate one of the state's biggest tax problems. It also would reduce restraints on spending, since voters would have even less skin in the game.

Neither group, at this point, has the financial backing to pay for circulators to actually get their ideas on the ballot. These days, purely voluntary efforts just don't make the grade, at least at the state level.

So, at present, the discussion is largely academic. Nevertheless, property-tax discontent seems to be percolating.

Reach Robb at robert.robb@arizonarepublic.com or (602) 444-8472. His column appears Sundays, Wednesdays and Fridays. Read his blog at robbblog.azcentral.com.