Rise in taxable value of homes in Georgia would be capped if voters approve
BY JEFF AMY Associated Press Updated 10:45 PM PDT, March 28, 2024
ATLANTA (AP) — Georgia lawmakers gave final approval Thursday to a package of legislation they hope will limit property tax increases, in what could be Republicans’ signature tax cutting effort of the 2024 session. The measures include a state constitutional amendment that will need voter approval in a November referendum before it can take effect.
The plan would limit increases in a home’s value, as assessed for property tax purposes, to the rate of inflation each year, unless a city or county government or local school board uses a one-time escape hatch to opt out in early 2025.
Senate Finance Committee Chairman Chuck Hufstetler, a Rome Republican, called it a “tremendous piece of tax legislation to relieve taxpayers in the short term, and over the cap, in the long term, keep their taxes down.”
Lawmakers say that would prevent “back door” tax increases by governments that pocket more revenue when home values go up, by failing to lower tax rates. Many rank-and-file lawmakers say discontent over rising property tax bills is the top concern they hear from constituents. Statistics show overall Georgia property tax collections rose 41% from 2018 to 2022, with total assessed value rising by nearly 39%. Those figures represent not only existing property but also new buildings.
House Resolution 1022 and House Bill 581 passed the House and the Senate, easily clearing the two-thirds majority needed. Lobby groups for cities and counties had agreed to the measure. School boards still opposed it, warning that the cap could starve schools of needed revenue in the future. That’s especially true because most school districts can’t raise tax rates above a certain amount, limiting their ability to raise new revenue.
Senators had wanted to mandate the cap for every city, county and school district that doesn’t already have a more restrictive cap, while House members had proposed allowing governments to choose to opt in. At least 39 Georgia counties, 35 cities and 27 school systems have adopted local laws limiting how much assessed values can rise, according to the Association of County Commissions of Georgia. Some of those limits only benefit homeowners 65 or older.
Georgia is far from the only state where lawmakers are reacting to voter discontent over higher levies, with states including Texas, Kansas, Colorado and Pennsylvania seeing the issue take center stage over the past year.
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Comment:
It’s baffling to see state after state, mostly under conservative leadership, fueling populist tax revolts, despite the evidence clearly showing the inequities that result from unwise approaches to tax limitations.
Beginning in the 1970s, several states adopted new tax by capping property taxes. As a result, local governments have cut services, and now rely more heavily on regressive taxes such as sales taxes and fees. Tax caps also result in racial and economic inequities by depending on revenue sources that fall harder on lower-income people.
As of 2018, sixteen states had adopted assessment limits on property taxes. One of the recent examples of this comes from Montana, where during the state legislature’s tax policy committee meeting conservative activists advocated a taxpayer revolt, voicing support for Constitutional Initiative 121. Modeled after California’s landmark Proposition 13, the proposal would amend Montana’s Constitution placing a hard cap on how fast homeowners’ property taxes can grow. The initiative would limit the total value-based property taxes on residential properties to 1% of assessed value. It would also roll back tax assessments back to 2019, and cap the annual assessment change at either 2% a year or the rate of inflation, whichever is lower. That growth limit would reset to the current market value whenever a home is sold or “significantly improved” by renovation or new construction.
A fiscal analysis prepared by the Montana’s budget office estimates that CI-121 would immediately cost local governments roughly $150 million a year in tax revenues and depress future revenue growth over time. The initiative’s opponents generally acknowledge that the state needs to explore property tax relief, but say they’d rather enact narrow measures that help low-income residents and seniors who most need help than adopt a sweeping change that limits taxes on all homes alike.
California’s Prop 13, passed by voters there in 1978, resulted in decades of public budget shortfalls, litigation and subsequent ballot initiatives attempting to undo the damage. Immediately following the passage of Prop 13, California property tax collections dropped by 60%, forcing state leaders to backfill local government funding from the state budget. Prop 13 prompted a surge of initiative-driven tax revolts in other states, such as Oregon…
Measure 50, the outcome of Oregon’s property tax revolt in 1990, separated property taxable assessments from real market values. It also limited the annual growth rate of taxable property value to 3% of the assessed value, well below average rate of inflation. By setting assessed values based on 1995-96 market levels and capping the annual rate of growth, Measure 50 permanently locked into place assessed value imbalances, allowing similarly valued property to pay dramatically different property tax amounts. The assessment limits do not reset when a property is sold but instead are permanently attached to the property.
In 2018 our organization Common Ground OR/WA, engaged the Northwest Economic Research Center (NERC) to conduct an analysis of the incentive and equity effects of LVT in Portland. The finished report confirmed expectations – that the gap between taxable values and real market values continues to widen, resulting in horizontal inequities across the city. Caps give tax breaks to anyone whose home value increases rapidly, reserving the biggest tax breaks for those (typically more affluent) homeowners whose home values grow fastest, and shifting the tax burden onto low-income homeowners whose assessed values remain sluggish.
According to the League of Oregon Cities, one county tax assessor said: “The present system is extremely complex to administer and very difficult to explain. When I am giving educational presentations in town halls, it takes an hour just to give a good 30,000-foot overview of how the system works. It’s unfortunate that we have that complex of a system.” Constitutional and statutory reforms of M-5 and M-50 has been a longstanding priority of the LOC.
The preponderance of literature raises serious problems with assessment limitations. Tax experts throughout the country have examined the state’s various approaches to limiting property taxes, and concluded that of all methods, limitations on assessments is the most flawed.
It is also advisable not to place limits on tax rates, as Oregon did by passage of Measure 5, and that Texas does by preventing most school districts from raising tax rates above a certain amount. This has seriously harmed the state’s school systems. A better method is to place a limit on revenue growth. The Georgia Association of Property Tax Professionals, Inc. recommended using a calculation of levy limits unique to each county using the Consumer Price Index (CPI) plus a factor using population growth.
Since 1995, the cost of government services in Oregon has regularly exceeded growth limits, resulting in the slow strangulation of city finances. The growing frustration with the numerous inequities embedded in the property tax system have leaders throughout the state advocating for changes. The NERC report concluded that changing to a land value tax will enhance both the fairness and the efficiency of Oregon’s property tax system.
Land Value Taxation is a conceptually simple approach that places a high tax rate on each property’s assessed land value, while taxing improvement value at a low rate. Economically LVT makes sense because, it does not distort market mechanisms or otherwise burden the economy the way most other taxes do. It is a cheap and efficient tax to administer at the county level.
As a result of placing higher taxes on land, it would become more costly to hold onto vacant or underutilized centrally located sites. A trend would emerge by opening sites for infill development, a gradual re-centralization of urban development. The general effect would be a restraint on rising land prices, leading towards greater housing affordability.
A final word from Georgia: Protagonist lawmakers say the tax cap would prevent “back door” tax increases by failing to lower tax rates. This is a problem that proponents of LVT in Oregon directly address by insisting on revenue neutrality when introducing the new tax system. Because limited assessments lag behind true market assessments, the LVT tax rate, based on true market assessments, should be lowered proportionately. If assessors’ property valuations are kept up to date and accurate, there is less motivation to sequentially raise tax rates.
The time has come for states to reconsider blunt and poorly targeted limits that erode local governments’ ability to deliver the services that their residents expect and need.
Tom Gihring, Research Director
Common Ground, OR/WA
