Dramatic fluctuations in the real-estate market in recent years have caused considerable unrest among property taxpayers across Arizona.
Beginning in 2005, the Arizona real-estate market skyrocketed, particularly in the residential-housing market. As they are constitutionally required, county assessors responded to the market by increasing property valuations for property-tax purposes. In Maricopa County, residential properties increased 60 percent in most cases.
When those increases from county assessors hit taxpayers' mailboxes in early 2006, they created shockwaves across the state. The unprecedented valuation increases prompted my organization, the Arizona Tax Research Association (ATRA), to recommend to state lawmakers a series of reforms that focused on reducing property-tax rates to offset the valuation growth.
To their credit, state policymakers adopted most of those recommendations by reducing state tax rates and referring Proposition 101 to the general-election ballot in 2006. Proposition 101 ensured that the constitutional limitations on the primary levies (levies for operating budgets) of counties, community colleges and cities were updated and forced those entities to reduce tax rates this year.
The success of those measures is reflected in the reduction in the state's average property-tax rate from tax years 2006 and 2007. That rate has fallen from $11.56 in 2005 to $10.04 in 2007, a 13 percent decrease.
Despite these positive steps on the part of state policymakers to respond to the property-tax crisis, two groups are circulating major property-tax initiatives for the November 2008 general-election ballot. Before lending support to these initiatives, Arizona citizens should know how significantly they would affect not just our property-tax system but our entire public-finance system in the state.
The first measure, dubbed Proposition 13 Arizona, would roll back property valuations on existing property and cap future growth at 2 percent. More importantly, it would also cap taxes on residential property at one-half of 1 percent of value and business property taxes at 1 percent. New properties would be brought on the tax roll at their sale price.
The second initiative, called Arizona Tax Revolt, would also roll back values to 2003 and cap annual growth at 2 percent. This effort would also roll back 2009 property taxes (excluding levies for bonds) of most jurisdictions to 2005 levels and apply levy limits beginning in 2010.
In addition to fundamentally changing our property-tax system, these initiatives would force dramatic reductions in current property taxes. Proposition 13 Arizona is estimated to reduce state and local property collections by almost 50 percent or $2.6 billion statewide. Faced with prior initiatives mandating increased funding for K-12 schools and health care, lawmakers would be forced into significant tax increases in other areas.
ATRA's opposition to both of these initiatives is not evidence that we think the property-tax system is perfect. In fact, we continue our efforts at the state Capitol to pass a series of reforms to secondary property taxes (mostly voter-approved bonds, overrides and special districts) that will protect taxpayers against major increases when property values rise.
If you are concerned about your property taxes, I encourage you to communicate that message to your state legislators and to Gov. Janet Napolitano. Responsible leadership at the state level will not only solve this problem, it could convince Arizonans not to pull the trigger on initiatives that could do more harm than good.