Prop. 117 will help ensure restraint in property taxation

The Arizona Republic
Tuesday, September 25, 2012
Robert Robb

I used to be a purist when it comes to property taxation. All property should be on the rolls at its market value. That's the only way to ensure an equitable distribution of the tax burden.

I scoffed at those who wanted to limit the increase in property values, equating that to increases in taxation. Values are just about distributing the burden, I would confidently assert. The size of the burden is determined by spending decisions and property-tax rates. Concentrate on controlling them.

As it turns out, the rubes who wanted to control property taxation by limiting increases in property values had a significantly keener insight into political behavior than I did. As a practical matter, increases in property values did result in increases in taxes because of the craven behavior of local politicians.

The politicians in charge of local government would hold the line on the tax rate, claiming fiscal conservative virtue. And then pocket the largesse from applying that rate to increased property values.

From 2006 to 2008, property values in Arizona increased 58 percent. Property taxes collected increased a jaw-dropping 26 percent. While claiming virtue by holding the line on rates, politicians throughout the state pocketed more than half a billion more in property taxes.

Now that property values in Arizona are in the tank, local politicians are reversing the spin. They are increasing rates but claiming not to be increasing taxes because levies aren't going up.

For the politicians, the game is clearly heads they win, tails taxpayers lose.

Proposition 117, on the ballot this November, provides a sensible limit on increases in property values for tax purposes.

Right now, Arizona has a complicated property-tax valuation system. Property is valued at market. That value is used primarily for the purpose of servicing debt.

There is another limited value used for purposes of raising money for general operations. The increase in that value is limited to 10 percent a year, or 25 percent of the extent to which it lags the market value.

Proposition 117 would simplify that by creating one value for all property-tax purposes. That value would be either market or 5 percent more than it was the previous year, whichever is less.

The 5 percent limit happens to pretty much match the historical rate of growth prior to the housing bubble. So, taxable value shouldn't get wildly divergent from market.

And because the limit mirrors historical growth, it shouldn't really crimp the ability of local governments to keep up with the demand for services. But it would keep them from pocketing a bonus in a period of rapid appreciation.

Surprisingly, local governments, which kick about virtually everything, aren't really mounting much of a fight against Proposition 117. Perhaps they realize that the jig is up. And perhaps, in retrospect, they realize they made a serious mistake in riding the housing bubble so high. That made coping with the bust that much harder.

While there are still some property-tax valuation purists muttering about Proposition 117, the primary vocal opposition is from those who want a more stringent limit on increases in value, similar to California's Proposition 13.

Proposition 13 limits increases to 2 percent a year, but property goes back on the books at market when it is sold. That creates gross disparities between similarly situated taxpayers, depending on when their properties were purchased. It also shifts the burden to residential property from business property, which doesn't turn over as frequently. And it creates a drag on the real-estate market.

Proposition 117 avoids all those pitfalls. Those who want to turn up their noses at its more modest annual limit in favor of a more restrictive one may have a very long wait. Arizona voters rejected a Proposition 13 clone in 1980 and supporters haven't had the political wherewithal to get it back on the ballot since, despite several tries.

Proposition 117 was crafted and is championed by the experts at the Arizona Tax Research Association, who are also reformed tax purists. Proposition 117 may not establish the property-tax system an academic would prescribe. But in the real world in Arizona, it will provide more honesty and restraint in property taxation.

Read more: http://www.azcentral.com/arizonarepublic/opinions/articles/2012/09/25/20...