by Howard Stephenson
Many Utah school districts are using the current state budget crisis as an excuse to raise property taxes, despite the fact that education has been virtually held harmless from legislative budget cuts that would affect the classroom. With the legislature expected in the coming weeks to deal with a $173 million shortfall in the 2003 budget (which begins on July 1), school districts are holding their breath about further cuts. Many districts are waiting for legislative action before deciding whether to hike property taxes.
The Salt Lake Tribune recently reported the results of a telephone survey of Utah’s 40 school districts which showed that already, five districts plan to hike property taxes. A more thorough analysis by the Utah Taxpayers Association reveals that at least 13 districts are budgeting to increase tax rates.
Why the different results? It depends what the meaning of “tax increase” is. Because local governments, including school districts tend to want to avoid public scrutiny they’ll tell a newspaper reporter they’re not increasing taxes when, within the definition of state law, they are in fact planning to exceed the certified tax rate.
The certified tax rate ensures taxing entities the same property taxes as the previous year plus new growth. Some local officials believe they ought to also be allowed an inflation factor in property taxes. These things are spelled out very clearly in Utah’s state law known as “Truth-in-Taxation.” Many mayors, city councils, school boards and county commissioners hate this law which they feel unduly restricts their ability to raise property taxes.
But Utah’s Truth-in-Taxation law is working exactly as it was intended according to former tax commission chairman and noted tax attorney Mark Buchi. Mr. Buchi recently addressed the issue of protecting property taxpayers at the 2002 Utah Taxes Now Conference, sponsored by the Utah Taxpayers Association. He noted that local governments have attempted to dilute Utah’s Truth-in-Taxation (TNT) since its passage in 1985 because property tax revenues are not allowed to grow at the rate enjoyed by the other two legs of our tax system’s so-called three legged stool; income taxes and sales taxes.
Buchi defended Utah’s frequently misunderstood Truth-in-Taxation law. He said the essence of TNT is notification, disclosure, and the elimination of automatic property tax increases. Prior to TNT’s enactment, local governments received an automatic tax increase when property valuations increased. The Utah Taxpayers Association had argued that local governments should not receive an automatic 12% revenue increase simply because property valuations increased 12%. Taxing entities had been claiming that taxes were not increasing if the tax rate was not increasing even though the actual tax bill was increasing due to the increased valuation.
TNT corrects this problem in two ways. First, property tax rates are recalculated every year. As property valuations increase, the tax rate is reduced accordingly so that the local taxing entity does not receive an automatic revenue increase.
Second, if the local taxing entity wishes to increase the newly calculated rate, known as the certified rate, TNT requires the local entity to publicly disclose its intention to increase property taxes in two quarter-page newspaper advertisements, and a mailed notice showing the specific impact of the tax proposal on each property in the county . The local government must then conduct a public meeting to hear public reaction to the increase. Local taxing entities can still increase property taxes, but at least they must now go through the notification and hearing process. Mr. Buchi cited data showing that statewide property collections had been increasing 12% annually prior to TNT, but since then the growth has decelerated to an average of 5.5%. Buchi’s advice to policy makers regarding TNT was to follow the advice of the Beatles and simply, “Let it be”.
Mr. Buchi said the 2002 legislature considered two additional bills to protect property taxpayers. HB305 was passed by the legislature to prevent counties from placing onerous disclosure requirements on primary residence owners. Utah grants a sizeable 45% property tax exemption for primary residences. Buchi stated that this exemption poses unique problems to assessors in counties like Summit and Washington since both counties have a large number of secondary residences located in neighborhoods that are comprised basically of primary residences.
Consequently, counties have been requiring homeowners to submit annual affidavits stating that the property serves as a primary residence. HB305 permits counties to require primary residence affidavits only under certain conditions, such as when property ownership changes hands.
The legislature failed to pass SB84, which was an attempt to address the issue of non-certified “tax reps” providing services to property owners who believe their property appraisal is too high. Buchi noted that while the mass appraisal system used by counties to assess property valuations is very efficient and accurate, it is by no means perfect. Since a certified residential appraisal can cost more than $500 and a certified commercial appraisal can cost thousands of dollars, many property owners are discouraged from contesting the assessor’s valuation. Therefore, tax reps provide a valuable service by operating on a contingency fee basis instead of charging an up-front fee like certified appraisers do.
The legislature did not pass SB84, but, hopefully the 2003 session will act to ensure that tax reps can continue to play an important role in ensuring that valuations are accurate.