Property-Tax Rise Triggers
Backlash in Some Areas
Homeowners,
Legislators
Move to Limit Big Increases
Used for Funding Shortfalls
By
RAY A. SMITH
Staff Reporter of THE WALL STREET JOURNAL
July 13, 2004 10:49 p.m.; Page A1
In an election year in which national
candidates have focused on issues such as jobs and the war in Iraq, many voters are rebelling over an issue closer
to home: a huge jump in their property taxes.
In many parts of the country
in recent years, strapped local governments have imposed big increases in
property-tax rates, as well as in home assessments, to fill budget shortfalls.
In response, voters have organized efforts to repeal or slow property-tax
boosts in states from Virginia
to Oregon, in some cases with the support of frustrated local
officials.
Governments give a range of
reasons for the increases, from gaps caused by cuts in federal revenue to
declining commercial bases, rising health-care and pension costs and demands
for more school funding.
"There's been a complete
devolution of fiscal responsibility onto the backs of the cities and
municipalities and taxpayers," says Charles Lyons, one of five selectmen
-- who handle the functions of a mayor and city council -- in Arlington, Mass.,
a suburb of Boston.
While state funding to Arlington
has dropped in recent years, he says, his town raised property taxes 4% in the
fiscal year ended June 30, following increases of 3% and 2.5% in the last two
years, and he expects taxes will go up a further 4% in this fiscal year.
Meanwhile, he says, the town
"cut the number of teachers, police officers and fire-department
employees. We were in this inevitable position."
Nationwide, property taxes --
used to fund everything from police and fire departments to schools and
recreational services -- rose an average of more than 10% between 2001 and
2003, estimates Joseph M. Mulcahy, a national deputy
managing principal at Deloitte & Touche LLP's Property Tax Services Group. In some municipalities,
he says, home assessments have gone up between 20% and 50%.
Particularly hard hit have
been some desirable and growing suburban areas outside major metropolitan
areas, where home prices and assessments have been on the rise. In a survey of
such suburbs outside 12 major cities across the country, Runzheimer
International, a management consulting firm based in Rochester, Wis.,
found that property taxes rose an average of 23.3%
between 2000 and 2004.
The survey, conducted for The
Wall Street Journal, found that property taxes rose a whopping 56.9% in the San Francisco suburb of Danville, Calif.,
the single biggest jump.
In the Washington suburb of Alexandria, Va.,
they jumped 53.1% over that span, while in Yorba Linda, Calif.,
outside Los Angeles, they increased 48.7%. Only two of the suburbs
in the survey showed declines. Property taxes in Littleton, Colo.,
fell 1.6%, while those in Redmond, Wash., were down 0.5%.
For many homeowners, the
increases have eaten into benefits they gained from President Bush's cuts in
federal income taxes. Mark Zandi, chief economist at Economy.com
Inc., a research firm in West Chester, Pa., estimates that nearly a fifth of
the income-tax benefit Americans are receiving from federal tax cuts this year
is going to pay for higher property taxes. Mr. Zandi
says he expects property taxes to continue rising "very rapidly."
While many homeowners took
advantage of low interest rates to get good deals on mortgages, the median
monthly mortgage payment, including principal and interest, on a median-priced
single-family home rose slightly between 2001 and 2003, to $793 from $789,
according to the National Association of Realtors. Over the same period,
assessments rose rapidly, thanks to the housing boom. The median price of an
existing single-family home rose to $170,000 from $147,800.
Alexander J. Aitken, a 56-year-old pilot for American Airlines, says
that taxes on his four-bedroom, two-story home in Culpeper County, Va.,
rose 45% in 2003 from the year before, to $6,000. The
2003 figure was 237% higher than it was when he bought the house for about $450,000
five years earlier, he says.
A big culprit, he says, was a
boosted assessment. In March of last year, his house was reassessed at
$625,000, an increase he blames on an influx of newcomers who have heated up
the local market. "People have been moving out here from Washington, D.C.,
to get away from the hustle and bustle and have been willing to pay $600,000
for a home," he fumes. "That has nothing to do with me."
Mr. Aitken
has helped start a group called Virginians Over-Taxed on Residences, or VOTORS,
that is pushing for a range of state measures that would cap property taxes,
including a constitutional amendment that would reset property values to their
January 2000 level.
Similar movements have taken
off in other cities and states, putting pressure on politicians to stem the
tide of increases and inspiring legislative measures and even a few taxpayer
proposals that may be on ballots this November.
They are the
latest in a wave of modern tax revolts that began with the 1978 passage of
Proposition 13 in California, which
rolled back property taxes and limited the ability of municipalities to raise
them. Even Californians, though, have seen big increases in recent years, since
properties there can be reassessed when sold or transferred and there has been
a flurry of such transactions. Property taxes "have grown very
vigorously," says Marianne O'Malley, an analyst at the state's Legislative
Analyst's Office in Sacramento, which
provides nonpartisan fiscal and policy advice to the legislature.
Earlier
this year, voters in Oregon recalled an
$800 million tax boost, which included increases in property taxes, passed by
the state legislature last August to plug a hole in the state's budget. Led by antitax activists, voters collected more than twice the
number of signatures needed to force a recall referendum.
In
Maine, where property taxes assessed rose an average of 7% in 2002 and another
5.51% in 2003, a group called the Maine Taxpayers Action Network, led by Carol Palesky, an accountant and grandmother in her mid-60s, is
pushing to get an initiative for a 1% property-tax cap on the November ballot.
Meanwhile,
state legislatures in Illinois and South
Carolina, in response to citizen outrage over
high taxes, recently passed bills limiting increases in property-tax
assessments. On Monday, Illinois Gov. Rod Blagojevich signed legislation
intended to slow the rate of increase in assessments.
In
Clark County, Nev., which
includes Las Vegas, Tax
Assessor M.W. Schofield has called on the state legislature to limit to 6% the
maximum annual increase in assessed home values. Land prices are rising so fast
in the county that, without a cap, property tax bills next year are likely to
shoot up 20% to 50%, depending on the neighborhood, says Michele Shafe, assistant director of the assessor's office.
"That's
enough to put somebody out of their home, especially senior citizens," she
says.
With
the economy improving, some municipalities have moved to offer a bit of relief.
New Jersey's recently
signed $28 billion budget includes increased taxes for the state's wealthiest
residents to fund property-tax rebates. But that followed several years of
heavy increases in property-tax bills. In 2003, the average bill was $5,269, up
from $4,958 in 2002, and $4,651 in 2001, according to
the New Jersey Department
of Community Affairs.
Some
local governments, meanwhile, have sought other sources of revenue to offer
some relief. In Pennsylvania, for
instance, state lawmakers passed legislation this month permitting 61,000 slot
machines, the most in any state east of Nevada, in horse
racetracks, resorts and gambling parlors. Within three years, the machines are
expected to generate $3 billion annually. About $1 billion of that is earmarked
to reduce local property taxes throughout the state.
Nationally,
Democrats have tried to seize on the rising anger over property taxes and
shortfalls in municipal budgets to attack the Bush administration for tax cuts
that reduce funds available to local governments, contributing to what
presidential candidate John Kerry has dubbed a "middle-class
squeeze." Sen. Kerry has proposed an economic stimulus package that
includes payments to state governments to help them avert spending cuts and tax
increases.
"Sen.
Kerry has long recognized that the decision to focus on tax relief for the
wealthy over any form of state fiscal relief has led to many backdoor tax and
tuition increases at the state and local level," says Gene Sperling, a Kerry economic adviser, who headed the White
House's National Economic Council during the Clinton administration.
Tim
Adams, policy director for the Bush-Cheney campaign, counters, "The effect
of the Bush administration's tax cuts on state revenues is minimal compared to
the impact" of the economic downturn. He adds that some of the states'
budget problems can be traced to spending sprees in the 1990s, as well as other
broader economic shocks.
There's
no doubt that many state and local governments experienced big shortfalls with
the economic downturn that began in 2000 after the flush years of the 1990s
boom. Sales taxes, which had been rising rapidly, suddenly tumbled, while
revenue from corporate taxes shrank. Tax cuts spurred reduced federal spending.
Many states, feeling the pinch, cut back their funding to local governments,
dealing them a double whammy.
At
the same time, local expenses have increased for everything from infrastructure
to public safety, especially in areas with fast population growth, says Chris Hoene, research manager at the National League of Cities, a
Washington lobbying and membership group representing more than 18,000 local
communities.
In
2003, 62% of cities said they were increasing public-safety spending, in part
to respond to terrorism concerns, he says. More than a third also were increasing spending on such items as health care,
pensions and roads, he says.
School
funding, which generally absorbs the largest share of local-tax revenue, also
has surged. Since the 2001-2002 school year,
local-school funding rose an estimated 6%, or between $11 billion and $13 billion,
with probably about $8 billion to $10 billion coming from property taxes,
estimates Steve Smith, senior policy specialist at the National Conference of
State Legislatures, a Denver-based bipartisan organization that serves local
legislators and policymakers.
"It
may have been more since localities have had to take on a larger share,"
he says. "The budget crisis has been so severe,
there's been a lack of significant increases in state funding."
During
that time, schools have seen costs rise for everything from upgrading
facilities to increased employee health-care costs. Some districts have also
had to accommodate a growing population of students. The number of children in U.S. schools in
2005 is expected to rise to 54 million, up from 50 million in 1995.
Another
factor has been new education standards mandated by the federal government. Dan
Fuller, director of federal programs for the National School Boards Association
in Alexandria, points to a federal program designed to improve education for
disadvantaged students called Title I. While Congress originally said it would
provide $18.5 billion in funding for the program in fiscal year 2004, it ended
up giving only $12.3 billion. For fiscal year 2005, the amount is slated to be
$13.3 billion, down from original projections of $21.5 billion, Mr. Fuller
says.
"Communities
are paying because the federal government won't," he says. "A portion
of the property tax is essentially a federal government tax."
In Texas,
school costs ate up much of the approximately 78% increase in property taxes
between 1997 and 2002, says George Zodrow, an
economics professor at Rice University. The property-tax share of schools'
finances in Texas
increased to 55% in 2003, up from 45% in 1999, he says. The national average is
about 27%.