A movement is underway to roll back levies of taxing entities to levels of two years ago, one of several efforts in Arizona in recent years aimed at shielding property owners from tax hikes.
Organizers of Arizona Tax Revolt, the most recent petition drive filed with the Secretary of State on July 10, say their effort is inspired by California’s Proposition 13, a landmark initiative to limit government spending, and by extension, the growth of government. However, while Proposition 13 restricted the growth in the assessed value of property, the Arizona initiative is aimed at limiting the total amount of property taxes that a government may levy.
Marc Goldstone said his group’s initiative also builds on Proposition 101, which Arizona voters approved last November. Prop 101 eliminated the surplus in the taxing capacity of local taxing jurisdictions. That excess, estimated at $180 million, represented increases in taxes that could have been levied without voter approval.
Gold stone said the levy petition will be followed soon by a second initiative, patterned more closely after Prop 13. It will roll back property values to 2003 levels, thus “severing” the link between market inflation and property taxes.
“What that means is that any real estate price inflation that occurred or will occur in the future, subsequent to 2003, will have absolutely no effect on the valuation that is used for computing property taxes,” Goldstone said.
Other groups have begun analyzing the language of the latest anti-tax drive. Their positions on the petition drive are expected to become more defined during the next months, depending upon how successful the Arizona Tax Revolt is in gathering the needed approximately 230,000 valid signatures of registered voters to put the measure in the November 2008 ballot.
Opponent calls measure unnecessary
The League of Arizona Cities and Towns is opposed to the initiative.
The reason is apparent enough: the league is unlikely to support a measure that tends to undercut its members’ revenue sources.
Ken Strobeck, the league’s executive director, calls it “unnecessary,” even “draconian.”
“We already have constitutional limits on property tax (increases) in Arizona,” he said.
Of municipalities that do collect a primary property tax, the latter is a crucial part of their budget.
“It keeps pressure off of sales tax and off of other fees,” he said.
He warned that any effort to upset the state’s “fairly balanced” tax system could result in services being cut or in increases of fees in other areas.
“Anytime you put artificial restrictions that are so draconian on one revenue source, you put enormous pressure on other revenue sources and I think that would really disrupt the good balance that we have in the state right now,” Strobeck said.
The bulk of a city’s budget goes to public safety, which could also be impacted if municipalities are “forced to go back to the tax rate of several years ago,” he said.
The head of a tax research group echoed Strobeck’s concern as far as the initiative’s potential impact on state’s financial structure, particularly schools.
Kevin McCarthy, president of the Arizona Tax Research Association, is concerned about the petition’s “sweeping” language.
No support from tax group
Goldstone’s group approached the association for support, but McCarthy said his group declined to lend any.
“We told them that we weren’t interested in running a major property tax initiative that had these kinds of sweeping impacts,” he said.
McCarthy’s group has been fighting to lower business property taxes, an effort backed by conservatives who regard any decreases in Arizona’s business property taxes, which they say is among the highest in the nation, as a sound strategy to keep and lure businesses to the state.
The way McCarthy put it, Proposition 101, approved by voters last year, coupled with recent policy decisions by the Legislature, is working so far.
“There are some refinements that are necessary in the area of secondary property taxes to ensure that when values climb dramatically taxes don’t climb with it,” he said. “(But) those shortcomings on the secondary side I don’t think argue for these types of sweeping initiatives that the Arizona Tax Revolt has put forward.”
Truth in taxation
Policy decisions, such as tax cuts enacted through the past few years and “truth in taxation” practices have brought down the state average tax rate to $10.99 per $100 of assessed valuation from a high $13.27 a decade ago, McCarthy said.
In a nutshell, the property tax levy rollback would mandate taxing entities to return to the levy levels of 2005, with exceptions if certain spending limits are achieved. Any hike in the levy thereafter would be capped at 2 percent plus the value of new construction.
Two-thirds of voters would also have to approve in a general election any levy increase in excess of 2 percent plus the value of new construction.
The petition also sets a mechanism to make it easier to further reduce levies. Under the measure, 10 percent of voters may petition a taxing entity to reduce the levy by up to 20 percent of the previous year’s rate. If the entity fails to act within two months of the petition’s submission, then it shall be submitted for a vote during the general election.
Voters ‘have to be vigilant’
“It is these voter approval requirements that assure that the limits are not exceeded. So the voters will constantly have to be vigilant to keep their taxes affordable and predictable,” Goldstone said.
The initiative puts in place an “incentive” for taxing entities to spend within the requirements laid out by the petition. (That is, taxing entities would raise taxes no more than 2 percent in 2007 and 2008.) If they do, the levy rollback in 2009 would be based on the average of the budgets of the last four years beginning 2005. If they don’t, the rollback would be based on the 2005 levels, according to Goldstone.
The group has approximately one year to gather signatures. But the group already appears to have begun formulating its talking points and casting its arguments. (A detailed explanation of the petition drive can be viewed on the group’s Web site, www.arizonataxrevolt.org.)
Goldstone, a former California resident, hopes that the dynamics of next year’s elections will flip the tide in the group’s favor.
“We’re going to see every other politician in the state of Arizona wanting to help and endorse the tax revolt because this is an election year coming up in 2008 and it’s either you’re part of the problem or you’re part of the solution. We are welcoming every one of the political leaders to be part of the solution,” he said.
In the fight to buffer property owners from increases in property values, the Arizona Tax Revolt could draw on its experience from 2006.
2 failed initiatives last year
Last year, the group filed two initiatives, one after the other. The first one ran into legal problems regarding single-issue amendments and had to be dropped. The second petition drive sought to roll back residential property taxes to 2003 levels and establish a tax cap.
But it was hastily written, conceded Goldstone, and with fewer months before the submission of signatures, the drive failed.
This year’s efforts will rely in part on the power of the Internet to get volunteers. The group needs exactly 230,047 signatures by July 3, 2008. The group urges residents to visit its Web site and help out. Whether or not it will pay for petition circulators will also rely on donations it could get, according to Goldstone. (The group raised $45,000 last year. Part of the money went to law firms that helped craft the current initiative’s language).
In the battle to reduce property taxes, the Arizona Tax Revolt looks up to Proposition 13, approved by 65 percent of California voters in 1978, for inspiration.
In drafting the petition the group has taken into account the complaints against the California measure, according to Goldstone.
One of these complaints centered on the disparities of property taxes paid between old and new neighbors of roughly similar houses. Under it, annual assessments were limited, but not when homes were sold. That resulted in higher tax bills for new owners.
Stephanie Nordlinger, a Los Angeles lawyer, challenged the law in court, arguing that it violated the equal protection clause. She had bought a house in Badwin Hills in 1988 for $170,000 and paid about $1,700 a year in property taxes. But she found out that some of her neighbors paid only $300, even though their houses were identical. The dispute reached the U.S. Supreme Court, and in an 8 to 1 decision, the high court ruled in 1992 in favor of Proposition 13.
Goldstone said their initiative avoids the failings of Proposition 13.
California Prop 13 intact
Proposition 13 has been the target of numerous court cases but has remained largely intact. Several attempts to water it down were also defeated. A group, the Howard Jarvis Taxpayers Association, named after the man who spearheaded the landmark initiative, has been formed to preserve its gains.
In a 2003 paper, Michael New of the CATO Institute concluded that Proposition 13 “resulted in substantial and ongoing property tax relief in the state and generated nationwide momentum for tax reform.”
“However, Proposition 13 did not impose overall discipline on state and local spending in California,” he said, adding that the state’s rapid spending increases in the 1990s caused the budget crisis that California later faced.
“The good news is that Proposition 13 spawned policy innovations in other states, and a number of states provide models of effective TELs (tax and expenditure limitations),” he said.
Groups in Arizona have been wary of California-style limits. The Arizona Chapter of the National Association of Industrial and Office Properties said last year such limits would “devastate local governments.” It argued that local governments would find a way to replace lost revenues maybe in an even more aggressive way. A business group said freezing taxes on one end would result in somebody else footing the bill.
Strobeck summed up the arguments against such limits in a recent interview.
“There is no such thing as a free lunch,” he told the Arizona Capitol Times. “If revenues are cut you either have to raise revenue somewhere else or cut services. There is no other decision.”
“They will have to reduce waste and inefficiency,” the Arizona Tax Revolt answered on its Web site in response to the question of how government would continue to provide necessary services if people were paying less taxes.