Influential tax policy group seeks limit in growth of property values

Arizona Capitol Times
Friday, January 20, 2012
Luige del Puerto

An influential tax policy group will seek to put a measure on the ballot to limit growth in property values.

The Arizona Tax Research Association wants taxable property values to grow by no more than 5 percent each year.

Capping the increases in property values for taxing purposes effectively limits the amount that may be assessed on local properties.

The proposed constitutional amendment will undoubtedly have some impact on local governments, which rely on property taxes for revenues. Already, lobbyists for municipal governments are wary of the idea.

But the tax policy group said the proposal would insulate taxpayers from fluctuations in the real estate market.

Kevin McCarthy, the group’s president, said a 5 percent limit produces more stability by establishing a steadier growth pattern — something that is less vulnerable to wild swings in valuations that could, in turn, lead to higher jumps in tax bills.

“In the current system, hyper-growth drives values up and then we have the real estate market ups or in this instance, crashes, and it all comes back down,” McCarthy said Jan. 19.

Politically, the proposal couldn’t be timed better.

The collapse of Arizona’s housing market has led to a situation where secondary and primary net assessed values are pretty much the same.

Capping the growth of property values for taxing purposes now would likely mean minor disruptions of local governments’ budgets.

In contrast, introducing a growth cap when housing prices are skyrocketing — and therefore producing big swings in valuations for taxing purposes — would likely mean major adjustments—and troubles for local government budgets.

But Ken Strobeck, executive director of the League of Arizona Cities and Towns, is wary of the proposal.

Strobeck said there are already sufficient safeguards for taxpayers when it comes to growth in primary property taxes, and secondary property taxes are subject to voter approval.

“So it doesn’t seem to make a lot of sense to put additional limits on property tax,” Strobeck said.

Keep in mind that Arizona has one of the most complex property tax systems in the country.

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.

The Constitution limits the growth of primary property values to 10 percent of the previous year’s value.

Also, the Constitution places a hard cap on how much may be collected on residential property taxes — it cannot exceed 1 percent of its full cash or market value.

On the other hand, secondary taxes pay for special districts, fire districts and bonds. They are also used to fund voter-approved expenditures.

Secondary taxes are generally not subject to levy limits. Their assessed values are also not capped.

ATRA’s proposal still has a long way to go before voters can give their verdict on it.

In any case, ATRA’s measure may compete with a citizen initiative that seeks to place a California-style limit in property taxes.

Prop. 13 Arizona wants to cap residential property taxes to ½ percent of its value and limit all other types of property taxes to 1 percent of their value.

The group’s initiative, which was filed with the Secretary of State’s Office last year, would also limit property valuation increases to 2 percent annually and eliminate all exceptions to the tax caps.

There are major differences between the two proposals.

Prop. 13 Arizona’s measure puts a hard cap on property taxes while ATRA’s proposal only limits valuation increases.

Also, Prop. 13 Arizona is using 2003 property values as the baseline for those who purchased their properties before 2004.

ATRA’s proposal, if approved by voters in the general election this November, would apply to property values in 2013.