NTF Issue Paper: Taxplan doc. 7-06.
NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
PROPERTY VALUATION RELIEF PLAN.
BACKGROUND. Valuations of residential and commercial property spiral upwards because of laws passed by the legislature and rules and regulations promulgated by the NE Dept. of Property Assessment and Taxation (PAT). County assessors must abide by these decrees or face criminal penalties. Moreover, several factors in the formula to determine valuation appear capricious and arbitrary, both among properties in the same classification, e.g., urban commercial, and between properties in different classifications, e.g., urban residential and ranchland. Levying taxes on properties continually evaluated by this skewed system only aggravates the unfairness. Although we must lobby elected officials of local taxing authorities to ratchet down our property tax rates, we must first reconstitute the valuation system whose present arbitrariness allows taxing authorities to reap additional windfalls in property tax collections when a tax rate factors in rising valuations. Reform must include all classifications of property to prevent burden shifting.
RESIDENTIAL PROPERTY. County assessors will assess all real property at its base market value at the same time during one or two calendar years. Each county assessor will record all base values he/she assigns in a county. The assessed value of an existing home purchased after January 1 of the target year will equal the base market value, determined by the assessor, divided by the total number of square feet of the structure as of January 1 of that assessment year. The assessed value of a new residential structure will equal the base market value of the structure, determined by the assessor, divided by the total number of square feet of the structure as of January 1 of that assessment year. Residential property taxes will base on this formula of assessed value, e.g., a residence assessed at $100,000 and having 2,000 square feet would have a square foot valuation of $50. County assessors will assign new base values only when ownership changes (value at acquisition) or when new construction or alteration occurs that substantially increases the square footage of a house. Only those additional parts of a property newly-constructed or that change ownership become subject to reassessment in this manner. The valuation of a structure will increase if the square footage increases. The increased valuation equals the amount of increased square footage times the value per square foot of the structure prior to the addition or modification. Property owners implementing additions or modifications will notify the county assessor on supplemental forms provided.1 A property may have multiple base year market values for both land and improvements assigned to it. The total assessed value of a property is its factored base year value. The law will allow an increase in base market value only of the per year inflation factor notated on the Consumer Price Index or comparable index. The law also will allow for a decrease in base market value, if something catastrophic affects a property, such as a tornado or fire. Surrounding home valuations will not continually rise based on home sale prices in a neighborhood, satisfying neighbors who otherwise would suffer if a house in close proximity sold for a higher than average price. Homeowners who plan to reside in their homes for many more years care little about the market value for purposes of selling their homes. From setting valuations at new ownership, buyers will see predictability and know if they can afford the property tax. Annual differential assessments will disappear, greatly easing the workload on county assessors.
CRITERIA FOR VALUATION. Criteria proposed to peg base market value include the following: physical property size, current fair sale price, previous sale price not too distant, sale prices of neighboring homes of the same type, construction price, quality of and materials used in building construction, square footage, finished basements/attics, number of bathrooms and fireplaces, square footage added on according to building permit, location, and age and condition of home. The objective is to remove subjectivity as much as possible. Assessors should capture new growth for valuation as soon as possible and avoid favoritism in appraisals. Valuation smoothing would mitigate the tax shock experienced by taxpayers whose property valuations have spiked greatly.
COMMERCIAL PROPERTY. The assessed value of a commercial (including apartments) or industrial structure built after January 1 in a target year will equal the amount equal to the base market value of the structure determined for the assessment year beginning January 1, divided by the total number of square feet of the building as of January 1 of the assessment year. The assessed value of an existing commercial or industrial structure purchased after January 1 in a target year will equal the purchase price of the building, divided by the total number of square feet of the structure as of January 1 of the assessment year. The valuation of a structure will increase if the square footage of a structure substantially increases. The increased valuation equals the amount of increased square footage times the value per square foot of the structure prior to the addition or modification.
AGRICULTURAL PROPERTY. Agricultural land will assume a value determined on the basis of productivity and net earning capacity of the land determined on the basis of its use for agricultural purposes capitalized at a rate of 5 % and applied uniformly among counties and classes of property. A differential assessment program for rural areas will permit assessors to assess farmland and ranchland at its agricultural use value, rather than market value, which is usually higher. Ag use value is what farmers would pay to buy land determined by the net farm income they can expect to receive from it. Differential assessment has 3 purposes: 1) to help farmers remain in business by reducing real property taxes; 2) to tax farmland based on its value for agriculture rather than on fair market value, as if ready for a housing development, and 3) to protect Nebraska farmers and ranchers by easing financial pressures that force them to sell land for development. Spiraling land values make it more difficult for farmers to increase profits by expanding their operations. The combination of expensive real estate and high property taxes creates strong economic incentives for farmers to stop farming and sell land for other development. Country dwellers would not see their homestead valuations skyrocket when city folks from other states buy rural properties at inflated prices. Differential assessment helps to insure that farmers who wish to continue farming will not have to sell land to pay tax bills. Differential assessment also helps to rectify inequities in the local property tax system, because property taxes assess on a per-acre basis, and farmers often are the largest landowners in rural areas. The amount of land a family farm owns does not reflect income earned. Farm and ranchland owners pay more in property taxes than the value of public services received from local government.2
OTHER STIPULATIONS. Regional and unelected authorities could not collect property taxes or amounts in lieu of property taxes on valuated property. Barred are benefit assessments, fees, or special taxes assessed directly on those real parcels benefiting from a particular service or improvement provided by a local “special” taxing authority, like an improvement district. In other states, taxing authorities have used benefit assessments as fees for specific purposes to overcome base market values. The land value of all privately-owned currently tax-exempt properties will become valuated and taxable, the value of improvements remaining exempt.
STATE SITUATION. Limitations on local taxing authority ability to increase revenues during a time of devolution that shifts program and financial responsibilities from the federal government to states and from states to local governments finds some local taxing authorities rapidly implementing reforms in their welfare and personnel systems and urgently discovering the means to streamline, consolidate, and merge. However, housing prices are skyrocketing in NE far higher than our national inflation rate, and assessed valuations climb along with prices. As the PAT forces county assessors to reassess property constantly, many property owners see their property tax bills annually skyrocket. Sheridan County ranchers saw a 23% hike in ag valuation; 18.5% for the whole county. Custer Co. rural homeowners received 45% raises; Holt county suburban homeowners 29% hikes. In 2004, about 1/3 of homeowners in 6 counties around Omaha saw valuations climb 15% or higher. 1 of each 5 homes in Douglas County saw 15-25% jumps, particularly in Happy Hollow, Fairacres, and Country Club neighborhoods in 2004. Including new construction, this county witnessed a 7% hike in total valuations in 2004 and 6% in 2005. Sarpy County raised total valuations 8.9%, hitting almost all homeowners; 6.9% in Dodge County in 2004. Fremont-vicinity residents saw an 8% increase. Homeowners, businessmen, farmers, and ranchers are angry! Our property taxes have risen faster than our personal incomes. Counting property, income, sales, and fuel taxes, Nebraskans are among the highest-taxed in the entire Midwest, higher than in every adjacent state. The Unicameral has tinkered with tax and spending lids porous as Swiss cheese and offered only temporary property tax abatement through state aid to local subdivisions but has not offered substantive property tax relief. LB 1114, passed by the Legislature in 1996, is worthless, because it did not control valuation of property. LB 1114 was a big smokescreen generated by legislators to fool people into thinking that their property taxes would fall. Higher valuations on current property totaled about 62% of the statewide increase in the 2003 tax base. NE homes, businesses, farms, and ranches have suffered double-digit valuation increases in 2005, forcing people to pay higher taxes, even while property tax rates levied by local taxing authorities fall or remain constant. Do not blame county assessors or county boards of equalization; pressure and threats under law from the PAT and the Tax Equalization Review Commission force up valuations, sometimes twice in l tax year. Only the prospect of a taxpayer revolt will impress our legislators, lobbied by the special interest money and support steamroller that considers angry Nebraska taxpayers bugs on the road.
LOCAL SITUATION. Current criteria used by county assessors sometimes do not appear equitable, particularly spot revaluations or revaluations upon appeal. In 2003, 7 parcels belonging to the posh Happy Hollow Country Club in Omaha won decreased revaluations of 37%, totaling $2,491,300. Homeowners complain that neighbors have won appeals to lower valuations on homes, whereas residents in similar homes have not won appeals. The local appeal process is so convoluted and tedious that many decline to appeal valuation hikes. Our relief plan would greatly negate the need to appeal.
OPPOSITION. Every winter, NE property taxpayers receive
their new property tax assessments, and an annual cry arises about the hefty
increase. This anger has prompted officeholders and
associations of public officials to thwart a taxpayer revolt with scare tactics
by squawking that libraries will close, our educational institutions will
crumble, our infrastructure services will collapse, e.g., police and fire
protection, streets, sewers, and garbage pickup. The Nebraska State Education Association
issues dire warnings about public education collapse for our children should
staff and program cutbacks occur. Opponents
warn that subsequent less property tax revenue will cause our state income and
sales taxes to double or triple.
POSITIVE EFFECTS. The NTF Property Valuation Relief Plan will level off and slow the acceleration of property valuation hikes, saving homeowners, businessmen, and the rural sector millions. All will see predictability in the increase in property assessments. Elderly homeowners and young professional singles and families will stop fleeing Nebraska for lower tax states. This proposal will make the Nebraska economy more prosperous and inviting, as more corporate entities will locate branches and subsidiaries here, with their complements of employees. Small businesses will gain an incentive to start or employ additional people. Local taxing authorities will become more efficient from necessity, relying on performance-based accounting to cut waste and fat in the services provided. They will feel impelled to cut their bureaucracies and overlapping functions by merging with other taxing authorities, consolidating offices and services, and streamlining every department through computerization and efficient management controls. Local governments will privatize, severely reduce nonessential services, and end or restrict access to services. Increases in property taxes primarily will result from the direct action of property taxing authorities, like school districts, setting budget amounts, allowing taxpayers to focus their attention on these officials to not raise their tax levies to accommodate slower valuation increases. We can dissolve a then unneeded Tax Equalization Review Commission.
TAKE ACTION NOW. High taxers for years have urged the state to assume greater authority over local governments, in order to more tightly control our property tax system. Local control and home rule may become extinguished, as state government aggrandizes with its spending largesse and mammoth and growing bureaucracy. We must lobby current state senators and challengers in the 2010 legislative races to press ahead with this property valuation relief legislation. Don’t tinker. Erase the outdated system and promulgate our new plan. For lobbying contact information for your state senator, email NTF at firstname.lastname@example.org or call (402) 551-0921.
Research, analysis, and documentation for this issue paper done by Lois McCoy, Willis Kroger, and Doug Kagan. This material copyrighted and notarized by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by Citizens for Local Control, Cherry County Taxpayers, and Dawes County Taxpayers. C 7-06.