Property Tax Reform

A special update was sent out yesterday with news that SSB 3205 appeared to be the deal that was struck on property tax reform. Based on comments by Representative Kraig Paulsen (R-Linn) subsequent to that update, it was apparent the House had ideas about property tax reform that were different. So mid-morning Friday, the House released HSB 676, which contains some of the same provisions as SSB 3205 but a few others, that most counties would not view favorably. The Governor’s office chimed in shortly after praising the beauty of the House plan.  So who really knows where this is going to end up.

 

ISAC is trying to analyze both proposals to evaluate their impacts.  In the simplest terms, the Senate proposal would cost local governments around $110 million over the next five to seven years. Those would be lost revenues from changes in how telecommunications property and multi-residential properties are assessed for tax purposes. The House proposal is much more aggressive in the phase out of these taxes – for example, the Senate phases out up to $20 million of taxable value over five years and the House phases out $150 million of taxable value in five years. The Senate plan would cost local governments about $34 million in tax revenues, while the House plan would cost local governments around $44 million.

 

Multi-residential is another area where the plans differ. The Senate phases in the rollback for apartments and a host of other multi-residential properties over seven years at a cost of $78 million to local governments. The Senate plan then establishes a floor and ceiling for all residential properties between 50% and 60%. The House approach accomplishes this phase-in over 5 years and does not include a floor or ceiling for these properties.  Again, the House documents don’t identify the cost – although it is likely to be in the ballpark of the Senate plan, only at an accelerated pace.

 

The other major difference in the two plans for counties relates to the revenue limitation included in the House plan.  The Senate plan includes an assessment limitation on residential and agricultural property of 3% - a reduction from the current 4% limitation. This is included in the House plan as well. The House plan also includes the revenue limitation that has appeared in every version they have proposed. This is not friendly to local governments. While it allows counties to levy for supplemental purposes, this is not an additional levy amount, so it doesn’t provide a relief valve for unexpected or difficult to predict expenditures.  The revenue limitation limits the increase in base year revenue to a 12 month average increase in the CPI.  If a county needs to exceed the revenue limits for any reason, a special election is required.  The changes to city and county budgeting would take effect with budgets adopted effective July 1, 2013 (FY 2014).

 

Below are documents that were provided by the Legislative Services Agency (LSA), Senate Democratic Caucus and House Republican Caucus that attempt to illustrate the different components of their proposals. 

 

LSA Draft side-by-side bill comparison
Senate bill summary
House bill summary

 

As you are communicating with your Senators and Representatives, it is important to make a couple of significant points:

• First, the changes being proposed are complicated. State agencies and local governments responsible for administering the property tax system should be given sufficient time to implement these changes. 

• Second, if a new revenue limitation is implemented, the effective date should be July 1, 2014. This will prevent any local government that reduced their levies in FY 2013 for specific purposes to re-establish their levies at normal levels. This will prevent them from being put in an arbitrary financial crisis.

• Third, counties must be allowed to levy additional taxes for the supplemental purposes and not be limited to the new revenue base. The supplemental levy was created to allow counties to levy additional dollars for a limited set of special circumstances.

• Fourth, the special election requirements to exceed the revenue limitation for any amount must be eliminated. This is an unnecessary, expensive and time-consuming process that undermines the authority of local elected officials.

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