Thursday, February 12, 2009

Property assessment cap is out, then in

Posted By on Thu, Feb 12, 2009 at 11:52 PM

The subject of property assessment caps has been knocking around Georgia for some two decades, but has yet to be embraced. Today's highly anticipated showdown over caps ended with something of a split decision in the House. A resolution to change the state Constitution was defeated after three hours of spirited debate, but a bill to accomplish essentially the same thing passed.

Despite the mostly partisan vote – GOP for caps, Dems agin 'em – this was not strictly a partisan issue. There's a compelling argument to be made for capping property assessments: Under the current system, if you buy a house and remain in it, you'll likely pay increasingly higher taxes – which you can't recoup until you sell the house. Rep. Ed Lindsey, R-Atlanta, who sponsored both measures, calls that a "tax on unrealized gain." In some cases, retirees have been forced to move because they couldn't afford the rising property taxes.

Assessment caps would prevent that from happening. Under HR 1, if you bought a house for $200,000, your assessments couldn't go up more than 3 percent a year. Then, when you eventually sell the house for, say, $400,000, the process would start over with the buyer being taxed on the new value.

Now, none of this would prevent you from paying more in taxes. But the local taxing jurisdictions – cities, counties, schools – would need to hike up the tax rate to recover the lost revenue. After several years, you'd end up with neighbors living in identical homes paying wildly different taxes simply because one had moved in more recently.

Critics have attacked that scenario as evidence that caps are unfair. But it's arguably no less fair than New York's famous rent-controlled apartments.

The argument that resonates most strongly against caps is that they would hurt economic development. As with rent-controlled apartments, property assessment caps would create a real disincentive to move, so home sales would take a hit. (This is assuming the housing market recovers from its current slump – if it doesn't, then we're screwed anyway.)

But even more importantly, new industries and businesses might think twice about relocating to Georgia because they'd automatically be at a tax disadvantage relative to existing companies. Or, they simply would find a way around paying taxes based on the actual value of the property they just bought. I don't claim to know a great deal about commercial real estate, but I suspect there are a myriad of loopholes and tax shelters available to coporations that would end up shifting the tax burden to homeowners.

The resolution called for a statewide referendum to let voters decide whether they want property assessment caps. When that measure failed, Lindsay came right back with HB 233, which would simply change state law without the voters having a say-so. In addition, it would freeze property assessments immediately for the next two years – presumably so local governments worried about assessment caps couldn't perform quickie revaluations to collect more taxes, although GOP lawmakers claimed the reason was to save Georgia homeowners money. Awww…

So, are assessment cap opponents crying over the House success of HB 233? Not altogether, because many of them believe it isn't, well, legal. There's a reason the preferred vehicle for enacting the caps was a constitutional amendment, I was told by a spokesperson for the Georgia Municipal Association, the measure's main opponent. That's because the state Constitution requires "uniformity of assessment" between similar properties. In other words, the Constitution explicitly prohibits two neighbors with identical homes from being charged wildly different taxes. Unless the Constitution is changed, HB 233 will be thrown out in court, the argument goes.

If the Senate passes the bill, we may get to see for ourselves.

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