Prop. 117 aims to simplify property-tax system

The Arizona Republic
Friday, November 2, 2012
Catherine Reagor

Arizona has one of the most complicated property-tax systems in the nation. It’s the only state that taxes two tiers of valuations, something that confuses many homeowners.

Backers of Proposition 117 want to simplify the system and protect homeowners from big swings in taxes caused by ups and downs in home values.

Known as the Arizona Property Tax Assessed Valuation Amendment, the measure would limit property taxes to no more than a 5 percent annual increase on only assessed values.

Kevin McCarthy, president of the Arizona Tax Research Association, is leading the campaign for Prop. 117.

He believes the measure will improve the state’s property-tax system by making it less convoluted. He also believes it will ensure that another boom in housing values won’t mean a another skyrocketing tax bill for homeowners.

Prop. 117’s opponents believe the measure’s proposed changes to the state’s property-tax system could end up costing homeowners more.

Jeffrey Hill, a former state senator who worked on creating the current property-tax system in 1979-80, said he’s “outraged by Prop. 117.”

He said Prop. 117 won’t lower taxes and will shift a bigger tax burden to homeowners and retirees.

The Department of Revenue’s research found the bill could cost the state as much as $9million a year because property taxes would be limited.

Currently, property taxes are based on two valuations: full cash value and limited property value.

Full-cash values, usually considered the market value of a house, are used to assess secondary taxes such as bonds and special districts. Limited property values are used to assess taxes for schools, cities and counties.

According to current law, there are no limits on how much full cash values can grow, but limited values can’t exceed 10 percent a year.

If Prop. 117 passes, it would require all property taxes be based on the limited value of the property, and limited values could not increase by more than 5 percent a year.

Bas Aja of the Arizona Cattlemen’s Association is backing Prop. 117 along with McCarthy. Research from their group, Yes on 117, said there is bipartisan support in the Legislature “to simplify and restrain Arizona’s property-tax system.”

The group’s research also quotes Yuma County Assessor Joe Wehrle saying Arizona’s flawed property-tax system must be simplified to create more predictability.

Some of the measure’s opponents say it’s unconstitutional and won’t guarantee lower taxes for homeowners because it doesn’t prevent the state’s thousands of taxing districts from raising tax rates.

Maricopa County Treasurer Hos Hoskins agrees with McCarthy that the state’s tax system needs to be fixed. But Hoskins doesn’t support Prop. 117 because he’s opposed to any tax assessment that disconnects value from the market.

He said in a note to McCarthy that Prop. 117’s premise is like trying to disconnect sales tax from the amount of purchase, or income tax from personal income. Also, he believes limiting value increases can result in a shift of a state’s tax burden to homeowners.

If Prop. 117 passes, Hoskins said he would like McCarthy to back legislation assuring homeowners their property taxes won’t go up.

Arizona State University’s School of Business real-estate analyst Mark Stapp said caps on property taxes, including California’s well-known Prop. 13, hurt a state’s ability to raise funds for schools and bonds to build infrastructure.

The measure, on the Nov. 6 ballot, is a proposed constitutional amendment referred by the Legislature. If passed, Prop. 117 will go into effect during the state’s tax year 2014.

Reporter Mary Jo Pitzl contributed to this report.