Home sweet tax bite
Rising property taxes have some homeowners irate
By Christopher H. Schmitt
usnews.com
Robert Ervin, superintendent of the 4,100-student school system in Bangor, Maine, has become a prophet of doom lately. Next month, Maine voters will consider a ballot measure proposing to sharply curtail property taxes, and Ervin reels off cuts that he says will follow if it passes. Most school buses will be gone. There will be virtually no physical education. No performing or visual arts. All extracurricular activities, including sports programs, will be history. A quarter or more of the teaching staff of 400 are likely to be fired. Class sizes will bulge by half or more. "The school system is exceptional, and this will gut it," Ervin laments.
Tax-cut supporters in the Pine Tree State decry such predictions as scare-mongering from public workers bent on maintaining costly empires. Whatever the rhetoric, though, Maine's strict measure is now the headliner in a series of similar questions to be decided across the nation this fall, at both the state and local level.
As home values have risen at a rapid clip, property-tax bills--and local government budgets--have marched up with them. Even though, in many cases, personal incomes have kept pace with the higher bills, there has nevertheless been growing antitax sentiment from coast to coast. "We are chasing fishermen off the shore," complains Phil Harriman, a financial planner and former state and local government official in Yarmouth, Maine. "We're seeing farmers forced to subdivide their land; our young people are leaving."
Backtracking. As a result, the effort in Maine--and others in Texas, Maryland, Ohio, and elsewhere--look to prune back one of the most vital, if not especially popular, sources of money for local government services, chiefly schools. "Of all the taxes folks are contending with, property tax appears to be most out of their control," says Peter Sepp, vice president of the National Taxpayers Union, which opposes tax increases.
Many states have already corralled property taxes, with California's Proposition 13, passed in 1978, being the granddaddy of the modern era. What distinguishes this latest wave of protest, however, is that backers are weaving in features designed to keep the lid firmly fastened once it's been clamped on. That's because in some places, wiggle room has allowed officials to replace lost revenue from other sources, such as new fees.
Because taxes are levied based on a property's value, the main force propelling higher property-tax bills has in many cases been the steady climb in home values. Median home prices are up 28 percent nationally since 1999, and more than triple that in some regions, such as Long Island, N.Y., and Sacramento, Calif. But local politicians can lower the tax rate to offset higher values.
On a per person basis and after adjusting for inflation, local property-tax collections are up in 46 states and the District of Columbia from 1996-97 to 2001-02, the latest year for which information is available, according to a U.S. News analysis of census data.
Yet at the same time, people's incomes have risen, in many cases offsetting the increase in taxes. In fact, the portion of personal income handed over to local property taxes is flat or down in 30 states and the District of Columbia. Nationally, this broad measure of property-tax burden has held nearly steady at 3 percent of personal income. Also, in 32 states and the District of Columbia, the property-tax portion of all local taxes raised has actually declined.
Still, there's something about the property-tax bill that gets people riled. Sales-tax increases are a nickel-and-dime proposition on a daily basis, but property-tax bills are infrequent, big hits. Indeed, property taxes can be a natural bull's-eye in edgy economic times, says David Bradley, policy analyst for the Center on Budget and Policy Priorities in Washington, D.C. "The property tax is a riper type of target," he says. "Instinctively, people say, 'Let's stop the property tax from eating up more and more of our income.' "
That sentiment can certainly be found in Maine. Local property-tax collections have swollen by 26 percent since 1996-97, although incomes have risen slightly faster. Still, the state's property-tax burden is the highest in the nation, consuming about 5.1 percent of income. The backlash: a full-bore, Proposition 13-style measure that's even tougher than the original. It would roll back property values to 1996-97 levels and then limit taxes to 1 percent of that amount. Even if the local real-estate market were booming, a property's value for tax purposes could grow no more than 2 percent a year. There is an out: Localities can raise more money through special taxes. But the rules are strict. However, the rollback to 1996-97 values could be vulnerable, as the Maine Supreme Judicial Court has issued an advisory opinion saying that feature would violate the state Constitution.
Chicken Little? As for dire predictions about drastic cuts in services, Harriman, who's a leader in the campaign supporting the measure, says it's unfortunate public officials have "chosen to portray a worst-case scenario."
In Indiana, tax foes are contemplating not just limiting property taxes but even eliminating them. A ballot measure would, among other things, authorize the legislature to exempt homes from property taxation. State Sen. Lindel Hume, coauthor of the attempt, calls the property tax antiquated and unfair, saying it sometimes forces people out of their homes. "It's one that served its purpose back when we didn't have the means of determining people's ability to pay," he says. But today, the income tax provides that yardstick, he says, and he wants a tax based on ability to pay to underwrite more of what the property tax now funds. That would very likely mean higher taxes for those with greater incomes, he says, but he views that as fairer.
In Washington State, antitax crusader Tim Eyman, not content with winning voter approval of four earlier tax-limiting measures, is back again with what he calls a no-cost solution. This time, Eyman, who runs a mail-order business selling fraternity and sorority watches, sees gambling as the ticket. His initiative would legalize electronic slot machines, tax the proceeds, and use the windfall--$400 million annually, he says--to cut property taxes. Currently, Indian tribes can have the machines. "This would level the playing field" on who offers such gaming, he says, while also attacking the state's "obscene and unsustainable property-tax burden." Opponents criticize creation of more gambling, and state officials say the payout is likely to be much lower, around $250 million.
Houston, meanwhile, illustrates anti-property-tax forces on the march at the local level but with a twist: Local officials are trying to outflank them with a less restrictive competing measure. The citizen measure would require voter approval before the city adopts any budget with revenues that are up, regardless of source, by more than population growth and inflation. Like the Maine activists, the Houston advocates are trying to prevent an end-run. "Houston [is] prospering since it went through the bad times and the big wring-out in the '80s," says Barry Klein, president of the Houston Property Rights Association, which gathered signatures to put the measure on the ballot. But "there was not a commensurate decline in the tax rate," he says. At the mayor's urging, the city council approved a rival plan to cap property taxes plus utility rates.
The specter of service cuts is almost universally invoked when tax caps arise. But today, there's more pressure on localities, in the form of state and federal mandates to improve education, says Dwight V. Denison, associate professor of public and nonprofit finance at New York University. "The dollar amounts for [reform] are becoming staggering," Denison says. "Where are they going to look for this money?"
Of course, there's one quick fix for rising property-tax bills: a housing recession that would cause values to tumble. Few, though, are likely to pronounce that cure as better than the disease.
On the rise
Top 10 states with the biggest change in per capita property tax 1996-1997 to 2001-2002
Change in property tax
Wyoming 36.4 pct.
Tennessee 33.9 pct.
South Carolina 33.9 pct.
Texas 32.9 pct.
Alabama 32.5 pct.
New Mexico 32.2 pct.
Maryland 32.1 pct.
Nevada 32.0 pct.
California 31.6 pct.
Kentucky 29.3 pct.
U.S. TOTAL 19.4 pct.
Note: Adjusted for inflation.
Source: USN&WR from Census Bureau data |
