Three property tax plans under review

Kirsten Searer

Wednesday, March 16, 2005 | 11:10 a.m.

CARSON CITY -- Legislators finally have proposals on paper that would limit property tax increases, though leaders are not publicly leaning toward any one.

"Is there any plan here that's perfect? I think every one of us agrees you could find an anomaly in every one," said Assembly Minority Leader Lynn Hettrick, R-Gardnerville.

Legislative Counsel Bureau director Lorne Malkiewich outlined the three plans Tuesday to a joint committee looking to mitigate property tax increases. Legislators hope to come up with a short-term solution by the end of March so that local governments can set their budgets.

The discussion was mostly new twists on old ideas: A cap on assessed values, a freeze on assessed values, and a formula generated by legislative staff members designed to limit revenues -- and thus tax increases -- instead of limiting assessed values.

The proposals are meant to be short-term and all include a study of property tax proposals before the 2007 Legislature convenes.

The staff formula would group properties into the state's approximately 300 tax districts, cap the revenue governments can collect and simulate a reduction in the tax rate to ensure homeowners do not pay more than the cap in revenue.

The cap used in the formula could be based on different criteria, but Malkiewich said Tuesday that staff members are now looking at a cap that would combine population growth with the Consumer Price Index.

The idea is designed to smooth the huge growth in property values now going on in areas of Clark, Douglas, Lyon, Nye and Washoe counties, while allowing for the growth in rural counties.

It meets constitutional muster by giving the same tax rate to all homeowners within a tax district, Malkiewich said. But it would not give as much relief to fast-growing parcels as it would to slow-growing ones, he said.

"A large spike is not reduced as much," he said.

Hettrick said he likes the idea of capping revenue, partly because it would hold government to a spending level and partly it wouldn't affect government ability to sell bonds.

But he also worried that people experiencing huge growth would not get relief. Hettrick represents some of the fast-growing areas around Lake Tahoe, which have seen more than 50 percent increases in property value.

Compared to a straight cap, those homeowners would receive much less relief.

For example, a person with a $100,000 home whose assessed value increased 15 percent would pay $1,208 without any tax relief. The homeowner would pay $1,113 under a 6 percent cap and $1,023 under the formula.

But an owner of a $100,000 home that grew 45 percent would pay $1,113 under the 6 percent cap and $1,290 under the formula.

Tax expert Marvin Leavitt, who works with local governments on the property tax issue, said he had some concerns about controlling the taxes through revenues rather than assessment values.

For example, if voters approved new bond measures during the short-term fix, governments could be forced to lower operating rates to accommodate the new bond issue, he said.

And homeowners get a more clear guarantee of what their taxes will be if government limits assessed values, he said. He also expressed concern that people with the highest growth rate would see less of a break.

"Those who went up the most are getting the smallest benefit, and I think that's a problem," he said.

Senate Minority Leader Dina Titus, D-Las Vegas, also had a chance to present her idea to freeze assessed values this year, and then cap them at the level of inflation next year. Sen. Joe Heck, R-Henderson, also supports the idea.

While noting some local governments have expressed concern that revenues would plummet under the measure, Titus said it would be better to endure a short-term reduction in revenues and give the public an idea they can understand and support than to provoke an initiative similar to California's Proposition 13.

Her bill also would cap government revenue, although it would give governments a chance to raise their rates if they clearly detail it on tax bills and justify it in public meetings.

While some legislators said they worried the freeze and cap on assessed values could affect local government's ability to float bonds, Titus reminded them that property taxes make up between 18 and 40 percent of total revenues a county receives.

And she pointed out that other county revenues, such as liquor and cigarette taxes, are up, which could supplement revenues until legislators come up with a long-term fix.

"It gives immediate relief to taxpayers that they can see," she said. "It also allows local governments enough revenues and leeway to provide services."

Her bill is different from a cap because governments would have to justify to the public why they need any increase in funds, she said. A 6 percent cap, for example, would allow the government grow by 6 percent each year without explaining their new needs.

"Start with a freeze and make them justify an increase," she said. "Don't start at the top because they'll never go down from there."

Hettrick said he worried the governments couldn't make it through the freeze, though.

"The impact on the counties and schools would be huge and you have to make it up somewhere," Hettrick said.

All three bills make it clear that legislators are looking at short-term solutions to an unexpected problem. That way, Malkiewich said, they are more likely to hold up during a court challenge.

"We are putting into effect a short-term, stop-gap limitation, which I believe makes it more defensible," Malkiewich said.

The bills also state that the Legislature will form an interim committee to work on a long-term constitutional fix to smooth out property taxes.

Members of the joint committee, which includes the Assembly Growth and Infrastructure Committee and the Senate Taxation Committee, will meet again Thursday to hear input from other legislators.

Perkins pointed out that the idea of incorporating a hardship exemption for homeowners is also still alive, though he said it likely would be implemented into one of the three ideas now on the table.

Hardship exemptions are already allowed in the state constitution and would target homeowners rather than commercial properties or real estate speculators. A new proposal from a professor at UNLV's Boyd School of Law argues that the exemptions are the best way to provide relief to homeowners.

Steve Johnson, who specializes in tax law, and is a former senior attorney for the Internal Revenue Service and a special assistant U.S. attorney, prepared an analysis that argues the Legislature can use the clause that allows Nevada's tax law to relieve "severe economic hardship" to lift property taxes for homeowners.

Johnson has proposed a 6 percent cap that would only affect residential properties.

"If this thing gets challenged constitutionally, the (Supreme) court has to have some feeling that the 6 percent wasn't just picked out of the air," he said.

The figure not only closely matches Clark County's historic increase in property taxes, but would be an increase that a typical family might budget for their annual property taxes, Johnson said. Increases of an average 35 percent, and in some cases much more, would hit families hard -- and thus, a remedy could fall under the "severe economic hardship" clause.

Johnson said he prepared the analysis at the request of the Service Employees International Union, which has offered to pay him for the work, but he has not accepted any payment. He said the analysis does not represent a particular stakeholder's interest in the issue, but one way to bridge the need for tax relief for homeowners with the needs to provide stable funding for state and local governments.

"This is way too important to mess around with in terms of personal economic agenda."