Nevada tries again to tweak property tax caps
(Nevada Current) A bill before lawmakers to add a 3% floor to the existing 3% cap on annual property tax fluctuations would provide local governments in Nevada the stability to maintain services in the wake of an economic downturn, but is not expected to increase taxes over the current formula in the near future, according to state fiscal experts.
Senate Bill 96, sponsored by the Senate Committee on Economic Development and Revenue, would not increase taxes over the current formula unless the Consumer Price Index for a calendar year dropped below 1.5%, according to Michael Nakamoto, chief fiscal analyst for the state’s Legislative Counsel Bureau, who presented the information Tuesday to the Senate committee. ‘
“Looking at inflation calculations or forecasts going forward for the next several years, this is not something that is contemplated,” Nakamoto said. The CPI rose 6.5% in 2022.
The property tax cap is calculated via a complicated formula determined by two times the annual CPI or the percentage change in assessed value in the county over the past decade, whichever is less. Current law allows the tax cap to drop to zero.
State Sen. Dina Neal, chair of the Senate Committee on Economic Development and Revenue, says the measure won bipartisan support from lawmakers in the legislative interim.
“I also want to refute the fact that this will affect the person buying a home because it has no relationship to them buying a home,” Neal said in response to testimony in opposition to the bill, which ran the gamut, from admonitions that government live within its means, to suggestions the state increase the gross gaming tax rate of 6.75%, the lowest levy imposed on casinos in the nation.
“How much is enough? There will never be enough,” Lynn Chapman of the Independent American Party testified in opposition, noting retirees on fixed incomes are finding it hard to remain in their homes.
Alida Benson, speaking on behalf of the Nevada Republican Party, suggested governments cut “inflated employee salaries and four-day work weeks.”
Gov. Joe Lombardo, a Republican, is proposing raises for state employees.
Annual property tax increases on property other than primary residential would still be capped at 8%, with a floor of 3%.
“We believe that SB 96 helps local governments maintain our service delivery to our constituents, especially in times of recession or severe economic downturns,” testified Vinson Guthreau of the Nevada Association of Counties, which represents the state’s 17 county governments. “Local governments rely on stable sources of revenue to provide consistent local services to our communities.”
In 2021, NACO spearheaded the same measure, which was rejected by legislators.
Lawmakers capped annual property tax increases on residential property at 3% and other property at 8% in 2005, as pre-recession land and home values skyrocketed. Since then, caps have saved tens of thousands of dollars for individual property owners while costing the state’s cities and counties billions.
Assessed value in Clark County has increased by more than $30 billion in the last decade. Property tax revenue in the same period has not kept pace.
Without caps, Nevada counties would have collected about $3.1 billion in property tax in FY 2016. Instead, more than half a billion of that – $549 million – was abated, according to Applied Analysis, a fiscal consulting firm hired by the Legislative Counsel Bureau in 2019.
In that same year, Clark County generated $2.2 billion in property tax revenue, reduced to $1.8 billion after abatements.
The abatements have caused Clark County and other governments to turn to other sources, such as sales taxes and fees, to pay for public safety. Both place a disproportionate burden on low-income residents.
Assessed value is calculated in Nevada by multiplying taxable value – the value of land and improvements (which must be less than market value) by 35%.
A new home with a taxable value of $250,000 would have an assessed value of $87,500 and taxes of $2868.43 in its first year. An increase in taxable value in the second year to $296,700 would result in a tax bill of $3404.25, but the 3% cap reduces the tax to $2954.48, a savings of $450.
In the 18 years since lawmakers imposed the 3% cap on residential property taxes, the floor has dropped below 3% on four occasions.
The lowest caps occurred in 2017, a decade after the peak of the Great Recession, when the threshold dropped below 3% in nine of 17 counties. The drop cost local governments $69 million.
“Once heralded as Nevada’s most stable and predictable revenue source, the introduction of property tax abatements has complicated and confounded the calculation of the value of a unit of property tax, while the unique use of depreciation and replacement value has further separated property assessments from a market-based reality,” says a report composed last year by the Nevada Commission on School Funding. The Commission recommended removing the caps.
In recent years, according to the report, the percentage growth of abatements has exceeded the growth of property tax revenue.