Property Tax Bills Threaten To Undermine Local Taxing Capacity
When it was initially introduced, the state budget for next year left a large healthcare funding gap in spite of considerable belt-tightening. However, there was not the sense of crisis and urgency that has often accompanied the budget presentation. The reason soon became apparent as the state’s fiscal prospects brightened considerably. With improved revenue estimates and the emergence of other potential revenues, the initial fiscal restraint has weakened as the Legislature has become more heavily involved in the spending game.
The improvements in the state’s fiscal situation, both potential and realized, include the following:
- The Revenue Estimating Conference met on May 16 and found an additional $169 million in general fund revenues available for next year. This was good news for a budget that was reported to be shy $200 million in state support for health programs. Yet, not all of the newfound money went to fund health services. Legislators dipped into the pot to restore $8 million in urban and rural slush fund cuts and add $16 million in pet projects to the budget bill.
- The $87 million hospital provider fee was reported favorably out of the House Ways and Means Committee by a unanimous vote this week. This will attract a $203 million federal match for a total of $290 million. Of this amount, $169 million will go to hospitals to help pay for un-reimbursed care, leaving another $121 million available for the state to spend on the Medicaid Program.
- Many homeowners were shocked last year upon receiving their property tax bills, which were based on more realistic appraisals of their home values. The increased appraisals resulted from the 2004 statewide effort to produce more equitable property tax assessments. Most homes had long been appraised at well below their market values, and many had not been reassessed since their last sale. In short, many assessors had not been doing their jobs.
This session more than 50 bills dealing with the property tax have been filed. With a few exceptions, they would limit local governments’ tax capacity and ability to fund local services. Proposals to cap property tax assessments, liberalize assessment freezes, increase the homestead exemption and eliminate taxing bodies’ authority to roll up millages following mandatory roll back after reassessment would all be extremely detrimental to local self-government.
As the state faces yet another year of fiscal constraints, local governments must continue to become more self sufficient. The state must keep pressure on the assessors to achieve and maintain accurate and equitable property valuations; this is no time to undermine the recent assessment reforms. State law already severely limits local taxing authority, and the legislature should avoid taking any further actions to weaken local fiscal capacity.
A particularly troublesome proposal this session would convert the Tax Commission to an elected body. The commission has begun asserting its proper role in overseeing local assessors and enforcing the tax laws. It should not be further politicized.
Other bills to weaken local governments’ use of the property tax include proposals to:
- limit assessment increases to the inflation rate, thus locking in existing inequities in the tax rolls;
- increase the homestead exemption by varying amounts (from $7,500 of assessed value to $15,000 or tied to inflation);
- eliminate total tax increases due solely to reassessment (the millage “roll up” practice);
- require voter approval to roll up millages;
- require a unanimous vote by the taxing body to roll up millages;
- limit increased revenues from a millage roll up to the inflation rate;
- remove the income cap for those 65 and older whose property taxes are frozen; and,
- freeze or eliminate the property taxes for disabled people and veterans (defined various ways).
A proposal deserving support is SB 316, which would expand the state requirement for online posting of the tax rolls from 46 parishes to all 64 parishes in the state. This bill would also add the requirement that property owners’ names be published along with the other information currently being published such as addresses, exemptions, assessed values and amounts billed. Additionally, this bill would require that reassessment lists be made available online during the inspection and appeal period. These changes would strengthen the cause for more equitable assessments as well as increase taxpayer access to this public information.
Taxpayers are already protected from unreasonable property tax increases in two ways. First, most tax increases or renewals require voter approval. Second, after each reassessment, millages are automatically rolled back to prevent increased collections due to the higher property assessments. The taxing body may roll the millages back up to their former level only after a public hearing and by a two-thirds vote. Thus, higher assessments will not always translate into higher taxes.
Lawmakers should not cave in to public pressure to undo gains made by recent assessment reforms. Property tax revenues are generated locally to fund local services. State laws that would reduce local revenues would increase local dependencies on already scarce state dollars.
- A proposal by the senate president to lower the cap on the Rainy Day Fund would redirect an additional $200 million, or so, in mineral funds into the general fund next year. The bill has passed out of committee but is temporarily being kept on hold while the administration seeks the advice of the state’s financial advisor and the bond rating agencies. It could, however, spring back into life at any time.
- The administration proposal to increase the cigarette tax by $1.00 a pack would raise an additional $182 million next year and $292 million the following year. The tax would fund most of a $3,300 pay raise for teachers over the two years and give a 5% raise to college faculty and a $500 raise to school support workers. School districts would still have to fund $500 of the teacher raise from their MFP money. While most of the new tax money would go to the education-related pay raises next year, the tax would provide approximately $40 million more than is needed for the raises in the following year.
In only a few weeks, the state has moved from a position of fairly severe fiscal stringency to the possibility of being able to fund significant pay raises for teachers, faculty and support workers. At the same time, Legislators are adding their pet local projects to the operating and capital outlay budgets.
Considering the additional revenues available – or potentially available – to the state, it is incumbent upon the administration to provide a stronger fiscal justification for its proposed increase in the cigarette tax than has been made thus far. In addition, the administration should be prepared to scale back its proposal or indicate how it would use the additional revenue that might be generated the following year.
The administration also should firmly reject lowering the cap on the Rainy Day Fund, either by persuasion or by veto, if necessary. Not only is the proposed lower cap inappropriate fiscal policy, its adoption would render further discussion of a cigarette tax increase entirely irrelevant.