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December 17, 2017

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Will your property taxes be raised? How 2005 cap works and how it could be changed


Steve Marcus

A view of residential rooftops near Horizon Ridge Parkway and Gibson Road in Henderson.

Homeowners may not think about property taxes often, but Nevada’s county and city government officials do. During this year’s Legislature, they’re busy asking state lawmakers to change the property tax abatement, or the cap, that limits how much larger your property tax bill can grow from one year to the next.

The cap, enacted in 2005, those officials say, has caused revenues from property taxes to stay at roughly the same levels they were before the recession even though — as the economy improves — the demand for services from local governments has grown.

As they testified before legislative committees, local government representatives listed services they said are suffering from flat revenues, chief among them education and public safety. Representatives from Clark County specifically said emergency-dispatch and emergency-response services were being negatively affected. Representatives from rural counties said repairs needed on streets and parks were being delayed or simply ignored.

A study of the abatement presented to the Legislature by Jeremy Aguero, a principal of the economic analysis firm Applied Analysis, said that “nearly all levels of government are affected, but Nevada K-12 schools are the single largest beneficiary of the property tax by a significant margin.”

So far, there’s only one bill in the Nevada legislative system that directly addresses the property tax cap, Assembly Bill 43.

What the tax looks like now

AB 43 proposes a few significant changes to the cap. But to understand what it does, you have to understand how the abatement works now.

Before the recession, when property values were booming, property owners were afraid property tax bills would boom as well.

So the Legislature wrote a law that said no matter what happened to tax rates or assessed values, property owners would never have to pay a increase larger than 3 percent (compared to the previous year) for homes people own and live in or 8 percent (compared to the previous year) for other properties such as apartment buildings, stores, warehouses, etc.

The Legislature didn’t just put limits on the size of the increases. It also wanted to slow down how fast property-tax bills could rise even before they hit those limits. So it created two other caps based on two economic measures:

1. A 10-year average percentage of change in assessed values of homes.

2. The average percentage of increase in the previous year’s Consumer Price Index (CPI) multiplied by two.

The larger of those two numbers becomes a cap on how much bigger a property tax bill can grow compared to the previous year’s unless either one reaches 3 percent for homeowners or 8 percent for commercial property.

How the current abatement works

Here’s how it works using — to make the math easier — an imaginary property tax bill from last year of $100 and other made-up numbers. (This is a very simplified explanation, and of course there are exceptions and qualifications.)

If the Consumer Price Index number is larger than the 10-year average number, say 2 percent vs. 1 percent, then this year’s property tax bill could never be more than 2 percent larger than last year’s.

If home values spike and last year your bill was $100, this year your bill would be $102.

If the CPI number was smaller than the 10-year number, say 2 percent vs. 3 percent, then this year’s tax bill could never be larger than 3 percent.

Again, if home values spike and last year your bill was $100, this year you would only pay $103.

And no matter how big tax rates or property values or the CPI or the 10-year average numbers get, your bill could never grow by more than 3 percent. If an owner-occupied property tax bill was $100 last year, it could never be larger than $103 the next. For commercial property, the cap works the same way but at 8 percent.

While it’s nice for property owners to have the certainty that their property tax bills can never increase each year more than the 3 percent or 8 percent ceilings, they would obviously like yearly increases to be limited to a smaller percentage.

When it comes to abatements, a smaller number means a smaller tax bill. And in recent years for some counties, the CPI and 10-year average measures, along with the recession ensured that abatement numbers were very small.

Small abatements

For nine Nevada counties in the 2016-17 fiscal year, including Washoe and Clark, tax increases never reached that 3 percent ceiling, according to Aguero’s study.

During the recession, home values dropped so steeply that the 10-year average number remained very low. In some counties, it was lower than the CPI number. And that meant the CPI number, not the 3 percent cap, became the real ceiling on property tax increases.

For the 2016-17 fiscal year, the average percentage of increase in last year’s CPI multiplied by two was 0.20 percent.

With this cap in place, no matter how much a home increased in value, if a tax bill was $100 one year, it could never be larger $100.20 the next. And it’s those kinds of numbers that are having a dramatic effect, according to Aguero.

“The amount of the abatement will continue to increase,” Aguero said. “The reality is the (assessed values) are increasing pretty quickly. And it will continue to put a strain on the state tax system, especially schools and public safety, and require governments to do more with less.”

AB 43

Assembly Bill 43 still has the 3 percent and 8 percent ceilings. But it prevents the abatement formula from limiting tax increases to less than 3 percent. There is no calculation that would reduce a 4 percent or 5 percent increase to a 2 percent or 1 percent increase.

Because, there’s a 3 percent floor on caps and a 3 percent ceiling on increases for owner-occupied homes, property tax bills could only fluctuate somewhere between zero and 3 percent from one year to the next (although this is a very simplified explanation and there are exceptions).

For commercial property, it’s a little different. It would have the 3 percent floor as well, but because of the 8 percent ceiling, AB 43 (again) uses two economic measures that could set the cap somewhere between 3 and 8 percent.

The two economic measures are:

• The 10-year average percentage of change in assessed values of homes (same as before).

• The average percentage of increase in the CPI for 10 years multiplied by two. (Currently, one year’s CPI multiplied by 2.)

So how could these two numbers work together to raise or lower a caps and, subsequently limit possible increases? Aguero said there are three possible scenarios that take into account how the new rules would work versus how they are working now:

1. Inflation is again very low like it was last year (0.1 percent). In this case, most taxpayers could see slightly higher bills because the 10-year average of CPI calculation would create a higher cap than the current law.

2. Inflation is higher than in recent years (for example, 2.5 percent). In this case, many taxpayers could see lower tax bills because the 10-year average in CPI would be lower due to lower rates in recent years bringing down the average.

3. Inflation in the coming year lands exactly on the 10-year average. In this case, there would be no impact on the taxpayer.

Will AB 43 become law?

The chances AB 43 will become law are iffy even though Democrats, who control both the Senate and the Assembly, agree that abatements are causing problems for local governments.

Senate Majority Leader Aaron Ford, D-Las Vegas, echoed county officials that schools and police services are suffering because of the abatements. And Assembly Majority Leader Teresa Benitez-Thompson, D-Reno, said she also believed local officials were being sincere.

Still, both spoke practically about how the issue might be addressed in the Legislature.

“There are two alternatives,” Benitez-Thompson said. “First, are we looking at a short-term fix … or second, are we looking to take on the bigger issue of reframing it and reconstituting the property tax system in Nevada? The latter is the heavier lift.’’

Ford also said changing the abatement would be a challenge. “The issue really comes down to whether people have the political fortitude to make tough political decisions,” he said. “On this issue, we’re going to need Republican support to do meaningful reform.”

And Republicans have no appetite for changing the tax abatement law to help the counties because they consider all changes suggested so far to be increases.

Senate Minority Leader Michael Roberson, R-Henderson, came out early and strongly in this session against raising property taxes. And his counterpart in the Assembly, Minority Leader Paul Anderson, R-Las Vegas, said his party “paid its tax dues in the last session.”

Anderson said he doesn’t believe abatements are hurting larger counties as much as county officials say. “Our largest counties will survive,” he said. “They have other revenues.”

And while other less populated counties with a smaller tax base may have real complaints, Anderson said changing the abatement might only be discussed “when the rural representatives (in the Assembly) come to table and say they’re willing to vote for it.”

And the short answer, from at least some of those rural Assembly members is they won’t.

James Oscarson, R-Pahrump, Jim Wheeler, R-Minden, and Robin Titus, R-Wellington, all said they would not support changing the tax abatement.

“It’s important to know that the rural legislators are all on the same page,” Oscarson said. “We represent a very unique population of people, and I’ve not had one constituent call me and say we need to do this.”

It is possible, because they hold a majority in both houses, the Democrats could pass AB 43 and send it to Gov. Brian Sandoval. But if he vetoes the bill, they do not have enough votes to override it.

Sandoval declined to comment on AB 43, only saying he’d have to review whatever final property tax bill ultimately lands on his desk.

CORRECTION: An earlier version of this story incorrectly reported the districts of Assembly members Anderson and Titus. | (March 8, 2017)

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