A move to cap secondary property taxes is underway at the Arizona Capitol.
Under S1421, the existing limitations on annual increases in primary property taxes would apply to special taxing districts throughout the state.
The Senate Finance Committee approved the bill by a vote of 5-1 on June 10. Its next stop is the Senate floor for a debate and a vote.
Right now, primary taxes are constitutionally limited to a 2-percent increase annually plus the cost of new construction. The Senate bill, though, would establish a similar limitation on secondary property taxes that county library, jail, television and public health services districts collect. Fire districts also would be subject to certain limitations, but with more leeway.
If successful, the bill would alter how Arizona’s homeowners are taxed. The aim is to stem a spike in secondary taxes that has taken place in some jurisdictions during the past few years, supporters said.
But the bill’s critics argued that the limitation is arbitrary and ignores the nuances in local communities. They also said local taxing jurisdictions know their communities better than state lawmakers.
Sen. Sylvia Allen, a Snowflake Republican, said numbers alone do not tell the whole story. She said the Legislature should leave more of the decision-making to local governments.
“They are there. They understand the cultures, the traditions, the lifestyle, the amount of revenues coming in,” she said. “We don’t understand what it is like to live out in the middle of nowhere with dirt roads. Those counties do.”
Sen. Jim Waring, the bill’s author, said the tax increases he has seen are unsustainable. The Phoenix Republican was referring to a chart prepared by the Arizona Tax Research Association showing the two-year percentage increases of levies collected by special taxing districts.
“We are trying to address that,” he said.
Waring pointed out that the actual amount of taxes collected in several library districts went up by more than a million dollars between 2006 and 2008.
In terms of percentages, the increases were in double-digits.
Residents of Mohave County, for example, saw a 75.59 percent increase in the tax revenue collected by its flood district between 2006 and 2008.
In Navajo County, the spike in taxes collected by its library district was 65.37 percent.
In Pinal County, the chart showed a jump of more than 230 percent for its flood district and nearly 280 percent for its library district during the same two-year period. But Pinal County has also experienced an explosion of population in the past few years.
“I guess I would put this in the realm of taxpayer transparency,” Waring said.
Kevin McCarthy, president of the Arizona Tax Research Association, said many taxpayers saw a dramatic increase in the assessed value of their homes during the recent real estate boom. But some taxing jurisdictions left their rates the same. In short, while the tax rate did not necessarily increase, taxpayers’ bills did as a result of soaring home valuations.
McCarthy said if the legislation were signed into law, taxpayers would benefit in “a big way.”
“When valuations skyrocket, those jurisdictions won’t be allowed to just simply leave the tax rate the same,” McCarthy said.
Arizona’s tax system is unique. It levies two types of property taxes — primary and secondary.
Primary taxes are levied by the state and local governments, community colleges, and school districts to pay for maintenance and operating costs.
Secondary taxes, on the other hand, pay for special districts, fire districts and bonds. They are also used to fund voter-approved expenditures.
Right now, there are no caps on secondary property tax levies. Nor is there a limitation in valuation increases on the secondary property tax side.
Under S1421, secondary taxes levied by county television districts, library districts, jail districts, and health care districts would be limited to 2 percent plus new construction. Fire districts would be limited to 8 percent growth each year.
The legislation also would allow voters in a fire district to override the annual cap.
Craig Sullivan, a lobbyist for the County Supervisors Association of Arizona, called the proposed limitations on local taxing “arbitrary.”
“Our concern is that these arbitrary caps have no reflection of what’s really occurring out in the community,” Sullivan said. “We don’t like this kind of state removal of local flexibility, particularly in these districts where the local supervisors have done a good job.”
Sullivan said tax growth in terms of percentages in some districts might be double-digits, but the dollar amounts are small.
Consider the Navajo County library district, he said. The percentage jump in the taxes collected between 2007 and 2008 was 17.32 percent.
But the actual amount of increase was $73,721, boosting the total amount collected to $499,380 in 2008 from $425,659 in 2007.
“This bill, while trying to address certain situations, is not looking at the local nuances. It is just pulling them all in, and saying, regardless of where you are, we are putting you on this cap,” Sullivan said.