(Update) A really bad idea: Prop. 13 Arizona

Posted by AzBlueMeanie:

The Prop 13 Arizona web site has a scrolling box at the top of the page that focuses heavily on school district taxes (secondary property taxes). Here are screen shots of what is currently displayed on the web site.

Our knowledgeable education policy readers here at Blog for Arizona will find fault with some of these assertions. Have at it.

There is an additional "bullet point" further down the Prop. 13 Arizona web page:

Highlights of Prop. 13 Arizona

• Simplifies the Arizona Property Tax Code so everyone can understand it.
• All Arizona Property Owners will benefit from out of control rate hikes.
• Arizona has the 4th highest property taxes on businesses, the passage of Prop. 13 will encourage businesses to relocate to Arizona.

In Arizona, it is county supervisors who set property tax rates. County supervisors also set county excise tax rates.

What about this assertion of "out of control rate hikes"?

In Pima County, The Board of Supervisors on May 17 approved a tentative 2011-2012 budget, to begin July 1, that reduces Pima County property tax collection by $18.3 million. From Supervisor Richard Elías' District 5 News (emphasis mine):

As a result, most homeowners will pay a bit less to the county next year than they paid this year.

This figure consists of a $12.2 million reduction in primary property tax collections for the General Fund and a $6.1 million reduction in secondary property tax collections for debt service, the Library District, the Flood Control District and the Fire Assistance District.

Overall, the county will collect $284 million for the General Fund and $119.4 million for the secondary categories.

In the 2011 session, the Arizona Legislature and Governor Jan Brewer enacted measures shifting $8.3 million in state costs to Pima County for the upcoming year. As a result, the Board approved a tax-rate increase of 10.45 cents per $100 assessed value to raise $8.2 million so critical programs will not be cut. Overall, the assessed value of Pima County’s private property went down for the 2011-2012 year by 7.04 percent.

* * *

The Legislature began shifting costs to and diverting revenue from the county in the fiscal year before this one, in 2009-2010. Over the three years counting 2011-2012, state lawmakers have shifted $19.3 million in state costs to the county and redirected $15.7 million in tax revenue from the county back to the state. Overall, the county has lost more than $35 million. When that is added to the amount the county traditionally contributed to state programs, the total comes to $92.6 million.

The overwhelming majority of county-operated programs and county-provided services are paid for with federal or state funds, so the overall 2011-2012 county budget will be just under $1.3 billion, a 9.53-percent reduction from this year.

While Pima County did slightly increase its tax rate, due to substantially lower assessed values of property in Pima County, the overall property tax burden for most homeowners is a little less than in the previous tax year.

Prop. 13 Arizona does not even attempt to address the fact that the Arizona legislature is shifting state expenditures to Arizona counties, which the counties then must find a way to pay for, all so that the Arizona legislature can claim it balanced the state budget without raising state taxes. This legislative gimmick shifted state tax liabilities to local jurisdictions, which raise tax revenue through property taxes.

Nor does Prop. 13 Arizona even attempt to address the fact that the Arizona legislature has been sweeping state revenue sharing funds from Arizona counties and incorporated cities to balance the state budget, again so that the Arizona legislature can claim it balanced the state budget without raising state taxes. This loss of revenue sharing funds from the state has to be made up somewhere to avoid critical cuts to essential government services for health, safety and welfare.

Prop. 13 Arizona's focus on secondary property taxes for school districts belies their true purpose. Many school districts have scheduled override elections in the past two election cycles for capital improvements or classroom funding. Some have passed, many more have failed. The Arizona legislature has substantially reduced education funding in the past few years, and they will be back in January with more cuts to K-12 and university funding. The temporary one-cent sales tax increase approved by voters in May 2010 ostensibly for the purpose of preventing cuts to education and public safety funding will expire in May 2013. This will only put more pressure on school districts to pursue override elections, which Prop. 13 Arizona opposes.

Arizona adopted an assessment increase limit in 1980. Each parcel of property has two separate values, a fair market value (FMV) and a Limited Property Value (LPV). The statutory annual growth limit for the LPV is the greater of 10 percent and 25 percent of the difference between last year’s LPV and this year’s FMV. (In no case can the LPV exceed fair market value.) Although Arizona has a limitation on assessment increases, it does not have an acquisition value assessment system. Instead of basing taxes on market value in the event of new construction, improvements, or change in use or ownership, the LPV for such property is recalculated based on the ratio of LPV to FMV for like properties in the surrounding geographic area. This ratio is then applied to the property's FMV to find the LPV. See, "Property Tax Limitations," by John V. Winters, Fiscal Research Center (June 2008) http://aysps.gsu.edu/Rpt_179FIN.pdf.

What about this notion that property taxes are "out of control" in Arizona? They are not. Here is what the Tax Foundation has to say about Arizona. The Tax Foundation – Tax Research Areas - Arizona:

Arizona's State and Local Tax Burden Below National Average
Arizona's 2009 state and local tax burden of 8.7% of income is below the national average of 9.8%. Arizona's tax burden has decreased overall from 10.3% (18th nationally) in 1977 to 8.7% (38th nationally) in 2009. Arizona taxpayers pay $3,140 per capita in state and local taxes.

* * *

Arizona’s 2011 Business Tax Climate Ranks 34th
Arizona ranks 34th in the Tax Foundation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. The ranks of neighboring states were as follows: California (49th), Nevada (4th), Utah (9th), Colorado (15th) and New Mexico (33rd).

These Prop. 13 type initiatives over the years have focused on residential homeowners, which makes Prop. 13 Arizona's bullet point "Arizona has the 4th highest property taxes on businesses, the passage of Prop. 13 will encourage businesses to relocate to Arizona" all the more curious.

As I pointed out yesterday, the so-called "jobs bill" (HB2001) included historic business property tax relief that, when fully implemented (going from 25 percent down to 18 percent Class 1 ratio in 2016), will mean a 28 percent reduction in the business property tax assessment ratio.

This initiative is a solution – a really bad solution – in search of a problem that does not exist. It is bad public policy and has always been bad public policy. (Expect to see the Arizona legislature come back with the "Flat Tax" bill and the TABOR bill again in January). This is an element of the ideological anti-tax conservative movement that wants to "drown government in the bath tub," as Grover Norquist says.

To read this proposition, Click here for full text of initiative: PDF. Description: PROP 13 ARIZONA limits property taxes. Prop 13 Arizona caps the total property tax rate at 0.5% for all residential property and 1.0% for all other real property, eliminates all exceptions to the tax caps, and limits valuation increases to 2% or less per year.