States seek property tax limits as home values soar
(States Newsroom) Soaring home values have increased property taxes for millions of homeowners in recent years, prompting action from state lawmakers to lighten the burden.
“The biggest problem was they just went up so quickly. … I think that’s one of the reasons why it became this rallying cry from the people asking for tax relief,” said Idaho state Rep. Jason Monks, a Republican.
The typical home value in Idaho increased from $275,852 in November 2019 to $434,224 this November — a 57% increase during the course of four years, according to data provided by real estate giant Zillow, which tracks the average of the middle one-third of home values.
Rising home prices typically lead to higher property tax assessments, potentially pushing up tax bills even when tax rates remain steady. Those rates are generally set by local governments, not legislatures. But public pressure has compelled lawmakers in several states, including Idaho, to use surplus state revenues to mitigate property tax hikes.
In Ada County, home to Boise and Idaho’s most populous county, the measure that Monks and his colleagues approved in March delivered nearly $100 million in property tax relief. That amounted to a median cut of more than $500 per home, the Idaho Capital Sun reported.
“I think it was wildly successful,” Monks said. “Really everybody across the state received tax relief, which was the objective of the bill.”
Jared Walczak, vice president of state projects at the Tax Foundation, a pro-business research organization, said he expects many other states — both blue and red — to tackle the issue this year.
“In virtually every state where the legislature meets this year, property tax relief bills will be filed,” Walczak said. “This is a front-of-mind issue for many legislators across the country.”
But property taxes are intrinsically complex.
States can set broad property tax policies — such as tinkering with assessment rates on real estate. But it’s generally local governments, including school districts and municipalities, that set specific tax rates and heavily rely on the revenue for day-to-day operations.
The effort across the country to provide property tax relief has sparked some concern that states could go too far, jeopardizing revenue for school districts and local governments. And some policymakers worry about overly broad relief that could benefit the wealthiest property owners at the expense of those most in need.
In Idaho, legislators had to override a veto from Republican Gov. Brad Little, who was worried about jeopardizing funding for transportation projects and the cutting of a local election date. After the veto override, the governor said he was satisfied with legislative cleanups and overall was supportive of the property tax changes.
The issue is particularly ripe in the Mountain West, where home values skyrocketed after remote work gave Americans more residential freedom. Many well-heeled workers fled the East Coast and California for the mountains, pushing up housing prices.
In December, Montana Republican Gov. Greg Gianforte launched a task force charged with proposing a property tax relief plan for legislators to consider at their next regular session in 2025. Recent legislation authorized up to $675 in property tax rebates for 2023 and 2024, but Gianforte said the state needs “long-term reforms to keep property taxes as low as possible.”
In Wyoming, organizers aim to put a property tax relief measure on the statewide ballot after legislative efforts fizzled. Lawmakers already have introduced several alternative measures ahead of the 2024 session.
And Colorado lawmakers will once again attempt to deliver lasting property tax relief after the failure of a ballot initiative pushed by Democratic Gov. Jared Polis prompted a short-term legislative cut during a special session in November.
Nebraska Republican Gov. Jim Pillen has proposed to reduce local property taxes by increasing the state sales tax rate by 2 cents, from 5.5 cents to 7.5 cents, the Nebraska Examiner reported.
Home values spark urgency
Generally, American home values increase incrementally each year.
The Case-Shiller U.S. National Home Price Index, a benchmark of average single-family home prices, shows a steady increase from the 1980s to the beginning of 2020.
But those values shot up nearly 40% during the past three years — far outpacing inflation rates for food, energy and other consumer purchases.
“So, they (homeowners) could be facing 40% higher property taxes. Even after you account for inflation, this is a very significant increase,” Walczak, of the Tax Foundation, said. “And they recognize they’re not getting 40% more or better government for these additional tax payments. … So there is a public outcry.”
That outcry is especially pronounced among retired and low-income homeowners who often struggle to keep up with rising property taxes.
“I think the main reason people get frustrated with property taxes is that they’re often disconnected from their ability to pay,” said Aidan Davis, the state policy director at the Institute on Taxation and Economic Policy, a research group that supports tax policies to create a “racially and economically equitable tax system.”
As with the recent wave of state income tax cuts, it’s unclear whether deep property tax cuts can be sustained over time as state revenues likely begin to decline.
Nearly every state has enacted some form of property tax limit since the 1970s. Some implemented caps on how much valuations of a home can rise each year. Other states have pushed local jurisdictions to restrict rate increases.
But Davis said across-the-board cuts don’t necessarily provide relief to those most in need. Her organization recommends lawmakers consider so-called circuit breakers, which prevent homeowners and renters from being overloaded by property taxes. While programs vary greatly, 29 states and the District of Columbia have enacted circuit breakers that cap property tax bills if they represent too large a share of a homeowner’s income.
Property taxes are generally more regressive than other taxes, Davis said, meaning they take a larger percentage of income from lower-income residents. But circuit breakers can protect people whose home values have surged even if their incomes haven’t.
The role of local governments
Idaho lawmakers last year diverted state surplus revenues to fund property tax relief — sending cash directly to local school systems to make up for lost property taxes.
The legislation also increased the income limit and assessed valuation cap for residents participating in the state’s circuit breaker program, allowing more older, widowed or disabled homeowners to qualify. Homeowners saw an average property tax cut of 18% late last year, according to the governor’s office.
To dissuade local school systems from raising taxes, the legislation cut the most popular of four annual election dates that schools largely had relied on to ask voters to raise revenues.
That was a key reason the law was opposed by the Idaho School Boards Association.
Idaho school systems rely on local levies to fund not only facility costs but also operational expenses such as teacher salaries, athletics and special education, said Quinn Perry, the association’s director of policy and government affairs.
While lawmakers touted the law as a historic state investment in education, Perry noted that the state simply swapped school funding sources. And it’s unclear how sustainable the tax cut will prove over time as pandemic relief dries up and the economy remains uncertain.
In October, Idaho budget officials announced state revenues came in nearly $40 million below projected levels as sales and income taxes were weaker than expected.
“I think there is a good question about sustainability,” Perry said, “because it’s essentially taking a lot of general fund dollars to pay for home relief.”
Texas voters in November overwhelmingly approved a constitutional amendment under which the state will send $7.1 billion to school districts so they can lower property taxes. The amendment, which passed with 80% support, also doubles the homestead exemption and caps property tax increases on certain business properties.
At $18 billion, Texas delivered the nation’s largest-ever property tax cut, said state Sen. Paul Bettencourt, who worked on the plan with fellow Republican Lt. Gov. Dan Patrick.
But he said it also helped those struggling the most: The homestead exemption means homeowners won’t have to pay taxes on the first $100,000 value of their homes, a provision that will mean the most to those at the lower end of the market.
“It’s good tax policy but it’s also good public policy to keep people in their homes,” Bettencourt said. “And quite frankly, I think it’s a moral responsibility. Because with all the pressures in modern society, you want to keep as many families as possible in their own home.”
Finding the right balance
In Colorado, the landscape ranges from rural ranching communities to booming urban and suburban markets.
And property taxes can prove a double-edged sword: A wealthy homeowner or investor could cash in on a home value that has doubled in just a few years’ time. But a cash-strapped or low-income homeowner could be at risk of losing their house over skyrocketing valuations and taxes.
“I’ve been struggling with this,” said Democratic state Rep. Marc Snyder. “It’s really hard to come up with a statewide solution when you have such a variety of situations in Colorado.”
Lawmakers grappled with the issue after the November failure of Proposition HH, which would have reduced property tax rates over 10 years and exempted part of a home’s value for its assessment. In a four-day special session that month, the Democratic-controlled legislature provided about $430 million in property tax relief — but only for 2023.
“It worked for a short-term solution,” said Democratic state Rep. Chris deGruy Kennedy.
Kennedy is a member of a task force that began studying the issue in December. That group also includes representatives of local governments. He says many of those leaders want the state to stay away from the issue of property tax rates.
“The state doesn’t get any property tax revenue so, why should it decide how much money the local governments collect?” he said. “And I think that’s a pretty persuasive argument.”
Kennedy said he wants to ensure that Colorado’s school and fire districts have the revenue sources they need to operate well. But he’s wary of tax relief that is overly broad.
“I want to make sure that whatever we do to provide property tax or rent assistance is done in the most targeted way possible,” he said, “so that we’re actually giving the dollars to the people that need them, rather than doing across-the-board cuts.”
The task force aims to report its recommendations to the legislature in March. That should give lawmakers time to craft legislation before the session ends in May, said Snyder, who is running for a state Senate seat.
“I would not relish the thought of going out and knocking on doors if we haven’t done anything,” he said.