and the
Citizens Economic Research Foundation

December 20, 2004

Upcoming stories on property tax increases

As communities announce their new tax rates, many of your readers, familiar with the existence of Proposition 2½, will be wondering how it is possible for their taxes to go up more than 2.5 percent in one year. This can be explained in one sentence:

"Although Proposition 2½, the property-tax limiting law passed by the voters in 1980, does limit the local property tax levy, it applies to the community as a whole, not to individual homes and buildings."

Without this explanation, assessors get blamed for cheating, or local officials for "tampering with Prop 2½." For further elaboration, or just for your information:

The local levy can increase only 2.5 percent over the previous year’s allowed levy, plus a factor for new growth (i.e, new construction and improvements can be added to the tax roles and the tax rate applied to them for a higher total levy), and the amount of any overrides or debt exclusion that local voters have passed.

Revaluation, with its usually higher assessments, does not count as "new growth." For instance, if the value of a community were to suddenly double because of the market, the tax rate would be cut in half before the allowed 2.5 percent increase was applied. But as some properties increase in value more than others, there can be a shift from lesser-increase-value properties to higher-increase-value properties, with the latter now paying more of a share of the total taxes.

In a recession, business properties can lose value or appreciate more slowly than residential property. In a hot housing market, residential property can increase much faster than commercial/industrial; there will then be a transfer of some part of the allowed local taxes onto the homeowners. Even if a community uses classification and taxes business property at a higher rate, the transfer can be significant.

The only thing that would make these higher property taxes harder to bear would be the loss of Proposition 2½, which at least limits the total amount to be taken from taxpayers each year.

Prop 2½ will be 25 years old in November 2005. For reporters and editors who weren’t here in 1980, Proposition 2½ was a ballot question created by Citizens for Limited Taxation.

Call me anytime. Or just feel free to quote me on any of the above, or use it without attribution.

Barbara Anderson – 508-384-0100

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