Property-Tax Con Game

The Arizona Republic
Friday, March 3, 2006
Robert Robb

For years, Arizona politicians have played a con game about property taxes.

They would hold the line on property-tax rates and claim not to be raising taxes. They would then pocket and spend the additional revenue brought in when those rates were applied to increasing property values.

That gig may be on its way to being over. The shock of the huge increases in property valuations being handed out by county assessors across the state has focused public attention on the true relationship between property values and taxes.

The con game has been quite a moneymaker for local governments. If the property-tax rate remains the same and property values increase by just 10 percent a year, property-tax collections double in about seven years.

When value increases are incremental, it's easier for politicians to get away with the con about holding the line on rates. It also enables them and others to imply, as the proponents of the Phoenix bond election are now doing, that debt doesn't cost anything. We'll hold the line on property-tax rates, goes the pledge. In reality, that means that taxes will go up as property appreciates.

The sticker shock of this year's value increases clears away the fog. In Maricopa County, the average increase in value for homes was more than 50 percent. That will result in huge increases in tax payments, unless property-tax rates are substantially reduced. There are some mitigating mechanisms already in state law. For operational purposes, there's a limit on what local governments can collect overall in property taxes and how much residential values can increase in a single year. But these will not be enough to prevent a large tax increase unless politicians quit playing the rate con game.

The Arizona Tax Research Association has made valiant efforts over the years to expose the con and make politicians accountable for the stealth property-tax increases they have been enacting. In the late 1990s, the Legislature passed a provision championed by ATRA called Truth-in-Taxation.

Under Truth-in-Taxation, rates are rolled back to reflect appreciation in property values. Elected officials then have to vote to increase the rate from there.

The hope was that increasing the TNT rate would be considered a tax increase, resulting in appropriate public attention and reticence by elected officials. It hasn't worked out that way.

The state Legislature is the only one to have taken TNT seriously, steadily reducing the school district tax rate used to calculate state aid. Otherwise, politicians in local governments have routinely restored the previous rate, pocketed the increased revenue from appreciation, and claimed to be a friend of the taxpayers.

Statewide, although the average tax rate has declined slightly, property-tax collections are increasing at about 8 percent a year.

This year, ATRA has proposed to put some teeth in Truth-in-Taxation, requiring voter approval of any increase to the rolled-back rate every two years. The Legislature is taking that seriously, as well as reducing the property-tax rates it controls.

Tax wonks prefer to control rates rather than values. Limiting the growth in property values, as California did with Proposition 13, results in inequities in tax burdens over time. Let the market set the value, urge the wonks, and control taxes by controlling the rate.

As a matter of tax theory and tax equity, the argument is unassailable. As a matter of practical politics, there's a substantial problem with it: So far, it hasn't worked.

Most of the property-tax action rests with local governments. The state controls only about 5 percent of property-tax collections.

Perhaps requiring voter approval of increases in the TNT rate will put an end to the con game. Local governments, however, specialize in low-turnout, low-profile elections, in which the spending lobbies have disproportionate influence. So, even this isn't a surefire control.

Taxpayers are beginning to intuit the relationship between increasing property values and increasing property taxes. Despite the adverse consequences from a systemic perspective, they may despair of mitigating the tax effects indirectly by controlling rates. Instead, there may be a renewed push to control values directly.

That will require a state constitutional amendment. There's been some support for that in the Legislature in the past, which these sticker-shock valuation notices may rekindle. An initiative freezing values at their 2003 level, to be reappraised when property is sold, has already been filed.

In any event, the con game has been exposed. Despite the claims of local politicians, holding rates steady is a tax increase on any property that is appreciating.

Reach Robb at or (602) 444-8472. His column appears Sundays, Wednesdays and Fridays.