Issue No. 24-011 | August 16, 2024
Property Tax Reforms for Policymakers
From Nebraska to Colorado to Indiana, property tax is top of mind for policymakers and political candidates. The following is a set of common-sense reforms for policymakers seeking to create a fair and equitable property tax system.
Property tax relief should be broadly distributed to both residential and commercial property taxpayers. Policymakers should end assessment ratio and tax rate preferences for residential property. These preferences may make for good kitchen-table politics, but the preferences leave taxing jurisdictions susceptible to risk from volatility in commercial property values, e.g., Boston's current troubles amid a slump in commercial property valuations.
Shift property tax assessment methodology from a focus on the sales comparison and income approaches to value to the cost approach. The cost approach to value is less susceptible to the ups and downs of the broader market. States should adopt the Nevada approach to property tax assessment to remove the volatility associated with business cycles.
Adopt a taxable value, a cap on taxable value growth, and a taxable value factor to manage equity over time. Shifting to a cost approach to value is only one step in reforming a property tax system. States should also adopt a taxable value (a value that is the product of the cost approach value conclusion and the current taxable value factor) and a cap on taxable value growth (e.g., Arizona's 5% cap or Oregon's 3% cap).
This type of system will almost always result in the net assessed taxable value growing year-on-year which provides tax rate setting authorities the political room to increase the overall levy while decreasing the tax rate or holding it flat. This is particularly useful during downturns in the business cycle. For example, Maricopa County was able to reduce its tax rate this year despite a reduction in market values since the net assessed taxable value increased year-on-year.
The last piece, a taxable value factor to manage equity over time, is crucial. Maricopa County, AZ does this well, especially when considering equity across a property category, construction class and rank, and effective age.
These reforms create an equitable distribution of the property tax burden across all taxpayers and provide a predictable path for assessments and tax bills, thereby creating a climate for private sector investment and the resulting growth in the property tax base.
Property Tax
Notable property tax developments:
- Texas > The City of Austin is raising the city's property tax by 7% to accommodate its almost $6B budget for the upcoming year. Read more from
John Brusniak
here.
- Indiana > Candidates for the office of the Governor of Indiana unveil their property tax reform plans. Read more here.
- Texas > The cities of Dallas and Fort Worth take different paths in setting property tax rates. Read more here.
- Colorado > Governor Jared Polis has called a special legislative session to address property tax cuts ahead of the November election. The special legislative session will start on August 26th. Read more here and here (announcing the special legislative session).
- Minnesota > The Mayor of Minneapolis is proposing an 8.1% tax levy increase in 2025 and a 9.8% tax levy increase in 2026. This follows a 7.9% tax levy increase proposal from the Mayor of St. Paul. Read more here.
Multifamily Housing
Notable multifamily developments:
- Affordable Housing > Great observation from
Jay Parsons
on the severe shortage of affordable and attainable housing. Read more here. I will add to Jay's observations that residents will benefit from building new affordable and attainable housing. This will provide residents with the latest amenities and living accommodations and make naturally occurring affordable housing (NOAH) that much more affordable as supply pressures bring down rents on existing NOAH.
- Florida > The Florida Housing Finance Corporation will be hosting a webinar on September 5th at 2pm ET to review the Multifamily Middle Market Certification process under the Live Local Act. Read more here.
- California > The Bay Area Housing Finance Authority has withdrawn a $20 billion affordable housing bond from the November ballot due to a clerical error and a related lawsuit. The bond aimed to fund up to 90,000 new subsidized housing units across nine counties. Advocates are now focusing on future elections to pass the measure. Read more here.
- Florida > The City of Ocoee, FL approved an ordinance to amend its Housing Development Code in line with the Live Local Act. This change aims to facilitate affordable housing by reducing zoning restrictions and streamlining approval processes for qualifying developments. The ordinance ensures that affordable units are integrated seamlessly with market-rate units, maintaining architectural cohesiveness and access to amenities. Read more here.
- Oregon > The City of Bend is seeking applications from landowners for a one-time, accelerated urban growth boundary expansion of up to 100 acres to boost affordable housing. This initiative aims to address the housing shortage by expediting the development process. Read more here.
- Florida > Ability Housing, a Jacksonville-based nonprofit, launched a new fund to enhance its affordable housing initiatives in Northeast and Central Florida. The fund, supported by an initial $3.75 million investment from the Capital Magnet Fund and $950,000 from the State of Florida, aims to provide low- or no-interest predevelopment loans. Read more here.
. . . and Much More
- Interesting Tax Fact: The Rosetta Stone discussed tax policy. Read more from the
Tax Foundation
here.
- A great listen with Patrick O'Shaughnessy interviewing Vlad Tenev, the CEO and co-founder of Robinhood. Listen here.
