State Capitol News
11:39 am
Tue October 9, 2012

Prop 117 Would Cap Changes in Taxable Property Value

Central to the fight over Proposition 117 is the state's complex tax system.

 All property is supposed to be assessed at its market value. That starts with the selling price of the new home or business. And every year it gets reassessed for its "full-cash value,'' again, supposedly the market value. But here's the thing: All property also gets a "limited value'' which can increase only 10 percent a year. But during a real estate boom, it can be reset every three years by 25 percent of the difference between the two values. Kevin McCarthy, executive director of the Arizona Tax Research Association, says that system is just too cumbersome.

"And the other thing, we're one of 50 states in the country, the only one that confuses taxpayers with two values," McCarthy said. "You do not have to have two taxable values to confuse the living bejeebers out of these people. We'd like to get to one taxable value. Then the only debate is, does it have a limit or not."

Under the terms of Prop 117, that value could go up no more than 5 percent a year. McCarthy said that should protect homeowners from sharply higher taxes, especially in situations like what occurred last decade when property values shot up in the boom times -- but did not help those still living in their homes who did not suddenly have extra cash in their pockets. But Lynne Weaver points out that a limit on year-over-year changes on assessed valuation really does nothing to limit annual increases in actual taxes. That's because nothing in the measure keeps a city council, board of supervisors or other government district from increasing the tax RATE -- the figure that, together with the assessed valuation determines the actual property taxes due.

"It doesn't do anything. So if you have an unnatural fixation about an assessed value, not an appraised value which you should worry about, then 117, it really does nothing," Weaver said. "And it was designed to head off Prop 13 Arizona.

That measure would roll back home values to what they were before the real estate boom. But it precludes the kind of shifting Weaver fears with a provision limiting total taxes on any home to no more than one-half of one percent of value. Weaver acknowledged she has had trouble getting the signatures for the measure, twice now. But she is trying again for 2014. And she sees Prop 117 as an effort to confuse voters at that time into believing that they really have done something to cap taxes. McCarthy conceded that, strictly speaking, Weaver is right: Nothing regulates tax rates. And if the district's total assessed value does not keep pace -- or declines -- the governing board can make up for that by spiking the rate. But he said that's not likely to happen for political reasons: Elected officials are loath to announce they're raising rates. McCarthy said the proof occurred just this year when the new assessment figures came out and most districts saw an actual decline in valuation.

"11 of the 15 counties held their rate the same or actually reduced it and had a net reduction in their take," McCarthy said. "Maricopa County reduced property tax levies $52 million because they were sensitive to increasing the tax rate."

But Weaver remains adamant that the only way to really protect homeowners from government excess is to put a hard and fast lid on how much government can collect.

"And then have the government operate as we do in our own household where we say this is how much money we have and we're going to set priorities.," she said. "We're going to spend our money on things that are important first. And if there's anything left over, then we'll do the things that aren't necessities."