Real estate groups pushing for major tax relief

Mike Sunnucks

The Business Journal

January 17, 2006

A heavyweight coalition of real estate industry groups is pushing for a $200 million property tax cut that would impact state funding for schools.

They also want further reductions to another business property tax sliced earlier this year.

The real estate groups, along with the Arizona Tax Research Association, want the state to drastically reduce or scrap a state-imposed property tax that funds local public schools, arguing high property tax levies stunt economic development and business investment in Arizona.

They also want to speed up a 5 percent, 10-year business property tax reduction approved earlier this year by Gov. Janet Napolitano and state lawmakers.

The real estate effort includes the National Association of Industrial & Office Properties, Valley Partnership and the Building Owners & Managers Association. They also are looking to work with other real estate advocates, economic development organizations and chambers of commerce to drum up political support for property tax cuts.

"Our No. 1 issue is property tax relief," said NAIOP Arizona President Tim Lawless.

A portion of commercial and residential property taxes go toward local schools. The state-imposed tax is assessed at the county level, and the levy currently stands at 43 cents per $100 of assessed value. The real estate groups want to see that assessment ratio substantially lowered or eliminated. A complete elimination would cost more than $200 million annually and would require more direct state funding for schools.

Kevin McCarthy, president of the Arizona Tax Research Association, also supports eliminating the state-imposed county education tax. McCarthy argues property taxes in the state need to be reduced in order to be competitive and that rising real estate values are going to push up tax bills and create major sticker shock next year. He said getting rid of the education property tax will help on both those fronts.

"Property taxes continue to be the most significant tax problem we have in this state," McCarthy said.

NAIOP and some other business advocates also would like to fast track business property taxes that were cut earlier this year. Those cuts reduce the primary commercial property rate from 25 percent to 20 percent over the next 10 years. The real estate groups want to make those cuts over the next five years.

The property tax push comes as the state faces a possible budget surplus of $750 million. That hefty surplus has launched an armada of tax cut ships, including proposed reductions to levies on personal income and business equipment.

Lawless said the state's overall tax structure is competitive, with the exception of property taxes, which remain especially high for businesses and commercial owners. The real estate advocates argue property tax reductions will offer more economic bang than other tax cut proposals, including one favored by conservatives that would trim personal income tax rates.

Property and income tax cuts will face strong opposition from those who want the surplus allocated toward education, health care and other programs.

Critics point out that the state-approved $300 million tax relief earlier this year included cuts for business property owners, computer chip-makers and manufacturers.

"We certainly cut back in many, many ways in the past few years, and we are behind in many, many ways," said Dana Naimark, special projects director for the Children's Action Alliance.

The Phoenix-based child advocacy group wants the state to increase funding for preschools, health care and other early childhood programs.

"We need to make up for lost ground before we look at tax cuts," Naimark said.

Lawless countered, saying slicing property taxes will help business invest and grow jobs, which will further economic development and the tax bases. He said the $750 million surplus offers a prime time to cut into the high property tax burden.

"Let's give some of the surplus money back to the folks that create jobs," he said.