Vote No on Prop 117!
This is from JLBC’s own fiscal note. It’s clear this will hurt the State General fund and shift more property tax to homeowners.
|BILL # SCR 1025||TITLE: property tax assessed valuation; limitation|
|SPONSOR: Yarbrough||STATUS: As Introduced|
|PREPARED BY: Hans Olofsson|
SCR 1025 would amend the Arizona Constitution, upon voter approval, by limiting the annual growth of locally assessed real property to 5%, beginning in Tax Year (TY) 2014. By way of comparison, current law limits the annual valuation growth of such property to the greater of: (1) 10% or (2) 25% of the difference between the parcel’s full cash value in the current year and the parcel’s limited value in the prior year. In addition, under current law, as well as under the resolution, a parcel’s limited value can never exceed its full cash value.
Under current law, primary taxes are levied on a parcel’s limited value, whereas secondary taxes are levied on its full cash value. Primary taxes are levied to pay for the maintenance and operation of local governments and secondary taxes are levied to pay for debt service, budget overrides, and special taxing districts. SCR 1025 would provide that all property taxes be levied on the limited value.
If approved by voters in the 2012 General Election, SCR 1025 would become effective in TY 2014. Under the state’s valuation calendar, the 5% cap would first apply to 2013 property valuations, which are not subject to taxes until FY 2015. For this reason, the fiscal impact of the valuation growth cap would not occur until earliest FY 2015.
When future property values grow by more than 5%, there could be a relatively small increase in the state’s General Fund cost for the constitutional 1% Cap provision (see discussion below). The timing of this fiscal impact is uncertain, however, since it depends on when residential and commercial property values will begin growing again, which cannot be determined in advance. Additionally, it is also difficult to predict the exact rate at which future values will grow.
According to historical county levy limit worksheets, the statewide annual growth in locally assessed real property values has varied over time. For example, primary assessed real property appreciated at an average annual rate of 4.8% between TY 2000 and TY 2006. This was followed by average annual growth of 9.7% between TY 2007 and TY 2009, and average annual decline of (11.5)% between TY 2010 and TY 2012.
Preliminary notice of value data indicates that real property values will decline in TY 2013. It is still uncertain, however, whether real property values will increase or decrease in TY 2014. It is also difficult to predict exactly when statewide locally assessed valuation growth will first exceed 5%. When this occurs, however, the resolution’s growth cap would result in a higher truth-in-taxation (TNT) rate for the K-12 qualifying tax rate (QTR) and state equalization tax rate (SETR) than under current law. Under TNT, the QTR and SETR are adjusted each year to offset the change in statewide existing property values. For example, if property values grow by 7% under the current law, the QTR declines by 7% to hold the tax levy on existing property constant. Under SCR 1025, the growth will be limited to 5% and the QTR will only decline by 5%.
Unless the Legislature decided to override the automatic rate adjustments under TNT, SCR 1025 would have essentially no impact on Basic State Aid to schools since the higher K-12 tax rates would be offset by commensurately lower property values.
The 5% growth cap would also result in higher maximum allowable tax rates for local governments than under current law. The Arizona Constitution allows counties, community colleges, cities and towns to increase their primary property tax levies on existing property by 2% each year. While levy limits would not change under SCR 1025, the lower tax base under the resolution could result in higher local property tax rates than under current law. These higher local tax rates could potentially raise the cost of the “1% Cap.” Under the Arizona Constitution, the total combined primary tax levied on owner-occupied residential property is limited to 1% of the parcel’s value. When the combined tax rate exceeds 1% of residential property values, the state holds school districts harmless by paying them the amount in excess of 1% that otherwise would have been paid by homeowners. The estimated statewide cost of the 1% Cap was $6.8 million in FY 2012. The increased cost of the 1% Cap under SCR 1025, if any, cannot be determined in advance.
Local Government Impact
Since all property taxes under SCR 1025, including taxes to pay for bonds, overrides, and special districts, would be based on limited value rather than full cash value, the resolution would limit future bonding capacity for local governments in years when full cash value would grow faster than 5%.