A proposal that seeks to prevent wild swings in property tax bills is encountering a late surge of opposition from tax consultants, who argue it would create inequities among property owners.
Some quarters of the Republican Party are also convinced it won’t do enough to stop tax hikes. And at times, legislative leaders have had to aggressively counter some grassroots activists from directly undercutting the measure.
But supporters maintained that the referral, Proposition 117, is the most workable way to prevent a dramatic property tax increase. It won’t stop the housing industry from swinging like a yo-yo, but it would stabilize revenues generated from a volatile market.
They add it would simplify Arizona’s overly complex property tax system, where a property is taxed on two values, one of which can grow without limit. The proposal would shield taxpayers from having to pay a huge tax bill and governments from budgets as unstable as the stock market.
But by not opting for more rigid tax caps, the measure balances taxpayers’ interests with the needs of governments to fund their operations, the supporters say.
And perhaps more significantly, backers say the proposal would take the sails out of a competing idea that espouses a stricter, California- style property tax limit, which they say would decimate government budgets and cripple operations.
If approved by voters on Nov. 6, Prop. 117 would cap increases in the taxable value of properties to no more than 5 percent beginning in 2014. A property would only be taxed using one value, whose growth is limited, instead of two.
“The beauty of a 5 percent assessed valuation limit will be that when values surge, and in many instances, they’re speculative increases in values, we’re going to bring that value in the system on a more measured pace,” said Kevin McCarthy, president of the Arizona Tax Research Association. The association convinced the Legislature this year to send the proposition to the ballot.
“So we take the roller coaster out of that system,” McCarthy said, referring to tax hikes that shocked and hammered homeowners during the housing bubble a few years ago, and whose impact lingered even after the bubble had burst.
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The central question surrounding Prop. 117 is whether it would rein in sensational increases in property tax bills since Arizona’s housing market is volatile.
Lynne Weaver is convinced it won’t. She is an activist who is pushing for Arizona’s version of California’s Proposition 13, which voters there passed in 1978.
Weaver and Prop. 117’s supporters share the goal of shielding homeowners from shocking tax increases. But Weaver insisted that limiting valuations won’t do the job.
She said Prop. 117’s flaw is it doesn’t confront the real causes of tax hikes — burgeoning budgets and politicians’ ability to increase rates to collect the amount they desire. Nothing in Prop. 117 bars governments from increasing the tax rates if taxable values go down or if they adopt a bigger spending plan, she said.
“Assuming that valuations are held down artificially, they (governments) still are going to raise whatever amount of money they are going to raise,” Weaver said.
Weaver’s skepticism is also driven by a mistrust of lawmakers. She insisted that real property tax reform would have to come from the public — not from the Legislature.
But backers said Weaver is ignoring a political reality: It’s extremely unpopular among homeowners to increase property tax rates and there are political repercussions for ignoring these voters.
Jay Kaprosy, who runs the “yes” campaign, agreed that Prop. 117 won’t lock in property tax rates.
But he said under the current system, jurisdictions need only to maintain the tax rates to get the windfall from spiking property values. That happened in the last decade, when some $33 billion was added to the tax rolls. That revenue evaporated when the housing market collapsed. Under Prop. 117, governments would have to raise the tax rates deliberately if they want more revenue, ensuring that those hikes take place “in the light of day,” he said.
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In addition to Weaver’s distrust of the Capitol, some GOP activists are not so enthusiastic about what Prop. 117 promises. The Maricopa County Republican Party’s Executive Guidance Committee, made up of district chairpersons, recently voted to oppose the measure.
Rob Haney, the county party chairman, said it’s a classic divide between the grassroots and the Republican leadership.
“Just because the hierarchy and the leadership put something forth doesn’t mean the grassroots follow behind, and that’s the problem of the Republican Party and (it) has been for a long time,” Haney told the Arizona Capitol Times.
Another GOP legislative district party changed its position to “you decide” and simply listed the arguments for or against the measure.
Jeni White, chairwoman of the Republican Party in Legislative District 18, said in an email obtained by the Capitol Times that when there is “this much contention within the party… we should let our voters decide.”
The dissent earlier prompted Rep. Debbie Lesko, the House majority whip, to make calls and send out emails to district party leaders to combat what she believed was “misinformation” against the proposal.
“Some of the legislative districts were going to send out some erroneous information about Prop 117,” she said, adding the districts were fed the misinformation.
“The ones that I called changed their position to ‘yes,’” the House leader said.
McCarthy, the ATRA president, said he’s not seeing a lack of enthusiasm for the proposal elsewhere on the campaign trail. But he said opponents are deliberately confusing voters about Prop. 117.
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The organized opposition comes from tax consultants, who recently contributed significant amounts to Truth & Concerns on Prop. 117, the “no” campaign.
Tom Naifeh, a consultant with Sage Tax Group, said the measure won’t lower property taxes but will shift the burden to homeowners and small businesses from owners of larger properties, such as industrial and office buildings.
Sage Tax Group offers consulting services to property owners who appeal assessments of their properties.
Naifeh said homes and smaller properties are valued, for taxing purposes, closer to recent purchase prices while large properties are not.
He said this means that an owner of a $100 million property assessed at 55 percent of its actual sales price, for example, gets to pay a smaller share than the homeowner whose property is assessed closer to the purchase price.
And if a taxing jurisdiction is bent on collecting the same levy amount, “you have shifted the tax burden or liability over,” Naifeh said.
Like other critics, Naifeh argued that the solution to spiking tax bills is to rein in government spending. Naifeh’s antidote is similar to what some fiscally conservative lawmakers have pushed for: Tie the budget to inflation and the growth in population.
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McCarthy and supporters of the proposal said the specter of a shift in the tax burden is a red herring. They also defended the measure from the assertion that dampening the growth in property values would have no impact on taxes. They said their opponents’ argument isn’t supported by what’s happening now, when home values have dropped compared to a few years ago and tax bills have also gone down.
“Local governments didn’t turn around and recapture every last dollar of that by increasing tax rates, so the best evidence that they’re misleading people… is this current environment,” McCarthy said.
McCarthy cited Maricopa County, which maintained its tax rate for fiscal 2012-2013 despite a drop in property values, a decision that decreased revenues for the county by $52.5 million.
The ATRA president also accused the tax consultants of being motivated by pure self-interest, arguing they profit from the complexity of the current tax scheme.
Jeff Hill, a former legislator who is chairing the “no” campaign, acknowledged that tax consultants who funded the opposition could be “unemployed” in 2014, when Prop. 117 would take effect.
But Hill said that doesn’t diminish the arguments against the proposal.
“It (also) doesn’t change the fact that they (supporters) are also special interests trying to keep their taxes lower at the expense of the rest of the taxpayers and they also are funding it,” he said.
While Prop. 117 is not receiving as much attention as other measures on the ballot, its impact on people’s wallets and local governments’ operations could be more profound, especially if its backers are proven correct. McCarthy believes the measure, if successful, would undercut the arguments for Prop. 13 Arizona, which he said would wipe out Arizona’s public finance structure.
“Our Achilles’ heel on our property tax system and where Lynne (Weaver) is right is you shouldn’t have a system that exposes taxpayers to just unlimited increases in values and in some areas, where you have a significant tax increase that will result from that,” he said.
But Weaver isn’t worried. If Prop. 117 passes, Prop. 13 Arizona would just override its language if voters approve the California-style property tax limits in the 2014 general election, she said.