Sunday, March 2, 2014 | 2 a.m.
Thanks to a 2005 state law that protected Southern Nevada homeowners from knee-buckling property tax increases during the housing boom of that era, residents and business owners have saved about $3.8 billion.
But the savings have come with a consequence. You can feel it every time you drive over a pothole or send your child to a crowded school.
The law capped year-over-year property tax increases at 3 percent for residential and 8 percent for commercial properties, a huge relief at a time when housing prices were rocketing out of control amid the reckless lending practices and consumer greed of the 1990s and early 2000s.
But now that property values are again on the upswing after the crash of 2008, an unintended consequence has occurred. Not only did local governments suffer a decrease in operating revenue as property values plunged during the downturn, the caps are now choking off funding for schools, police, road repairs and more.
The result is a dim forecast for revenue growth.
“Now that we’ve started to come up, the caps are clearly impeding our ability to recover what we’ve lost,” Clark County Manager Don Burnette said. “Even though it took six or seven years to drop $127 million (in property tax revenue), it’s going to be a much longer period of time before we get back to where we were in 2006.”
The caps rode into existence on a wave of broad bipartisan support when land and home values were skyrocketing by 20 to 40 percent per year, leading to equal-size jumps in property tax bills.
The caps put an end to the sticker shock — any tax owed above the 3 and 8 percent limits set in statute was abated, meaning property owners didn’t owe it.
The measure worked as intended initially, with more than 80 percent of properties in the county qualifying for tax relief in the first four years of the program, saving taxpayers $3.2 billion.
But things went sour when the market turned upside down, something supporters of the law never anticipated. Taxable property values have fallen by more than half since the peak in 2009, crippling government revenue.
Values are finally starting to climb, but the tax caps originally meant to stabilize local government revenue in the face of runaway growth will actually hinder recovery. While property values can grow at rates of 10 and 20 percent, government revenue will inch along at diminished rates.
“Because there was the overcorrection that followed the boom, it led us to this condition where property values can recover for individuals or owners of commercial developments, but local governments, state governments and school districts don’t benefit proportionally,” said economist Jeremy Aguero, principal at Applied Analysis.
Over the past three years, $142 million in property tax revenue has not been collected due to the caps in Clark County, coinciding with cuts in services and reduction in staffing at government agencies across the valley.
In response, proposals to increase several taxes have been floated by agencies to try to replace some of the missed revenue.
At Metro Police, which funds a fifth of its budget with property taxes, Sheriff Doug Gillespie has warned that staffing has reached a dangerous low point, recently announcing that officers would stop responding to minor traffic accidents to free up time for other duties. With only modest gains in property tax revenue projected in coming years, Gillespie turned to a 0.15 percent increase in the sales tax, but the proposal was repeatedly voted down by county commissioners.
Despite cutting $127 million from its budget since 2009, Henderson is still struggling to make ends meet, leading officials to look for new revenue to address a $17 million capital shortfall and the city’s “crumbling infrastructure.”
During a presentation to the city council last month, members learned that because of property tax caps, it would be 20 to 25 years before revenue from parts of Henderson returns to pre-recession levels, even if home values grow at a quicker pace.
One solution the council is considering is a 20-cent property tax rate increase that would generate $16.5 million to maintain the city’s streets, sewers, buildings and parks.
Clark County, Las Vegas and North Las Vegas face budget woes of their own, especially when it comes to paying for infrastructure and capital improvements.
Demand for services is increasing as the population grows, but after years of cuts, governments are left with few options to improve their financial outlooks besides waiting for the economy to improve or raising tax rates.
For help, they’re turning to the state, urging legislators to re-examine and possibly tweak the property tax cap system.
“Even with a slight uptick, the bad part is our property taxes don’t generate that much revenue,” said Commissioner Chris Giunchigliani, who voted for the caps as a member of the Assembly in 2005. “Property tax is your stable source of funding. Overall, it’s the proper tax to look at.”
Giunchigliani said she’d like to see a broad look at tax policy, including the sales tax.
“Everything ought to be on the table,” she said. “You should review your tax policy every five to 10 years anyway to see if it’s working or if there are unintended consequences.”