Tag Archives: Property Tax

Second Version Of California Split Property Roll Tax Initiative Qualifies For November Ballot

On May 29, the office of California Secretary of State Alex Padilla announced that enough signatures were deemed valid for the second version of a ballot initiative to require commercial and industrial properties to be taxed based on their market value. In California, the proposal to assess taxes on commercial and industrial properties at market value, while continuing to assess taxes on residential properties based on purchase price, is known as split roll.

 

Proposition 13 (1978) requires that residential, commercial, and industrial properties be taxed based on their purchase price. The tax is limited to no more than 1 percent of the purchase price (at the time of purchase), with an annual adjustment equal to the rate of inflation or 2 percent, whichever is lower. According to the state Legislative Analyst’s Office, market values in California tend to increase faster than 2 percent per year, meaning the taxable value of commercial and industrial properties is often lower than the market value.

The first version of the split-roll tax ballot initiative qualified for the November 2020 ballot in October 2018. In August 2019, the campaign Schools and Communities First, which is behind the proposal, announced that signatures would be collected for a revised version of the ballot initiative. Tyler Law, a campaign spokesperson, said that the campaign would not withdraw the qualified initiative from the ballot until the revised initiative qualifies. Law said, “The committee’s got the money. We’re going to get it on the ballot.”

About 1.75 million signatures were filed for the second version on April 2, 2020. At least 997,139 (57.02 percent) of the signatures needed to be valid. Based on a random sample of submitted signatures, 74.60 percent were projected to be valid.

Both versions of the ballot initiative would create a process in the state constitution for distributing revenue from the revised tax on commercial and industrial properties. First, the revenue would be distributed to (a) the state to supplement decreases in revenue from the state’s personal income tax and corporation tax due to increased tax deductions and (b) counties to cover the costs of implementing the measure. Second, 60 percent of the remaining funds would be distributed to local governments and special districts, and 40 percent would be distributed to school districts and community colleges (via a new Local School and Community College Property Tax Fund).

Whereas the first version would have taxed property whose business owners have $2.00 million or more in holdings in California and operate on a majority of the property, the second version eliminated the majority-operation requirement and increased the threshold to $3.00 million.

The second version also redefined the exception for small businesses. The first version would have continued to tax businesses with 50 or fewer full-time employees based on purchase price. The second version would likewise define small businesses as those with 50 or fewer full-time employees but would also require businesses to be independently owned and operated and own real estate in California to be exempted from the change. Other changes involve replacing the state’s existing funding distribution formula for schools and colleges with a new formula for distributing the revenue from the ballot initiative. The second version would also give retail centers, whose occupants are 50 percent or more small businesses, more time before being taxed at market value.

Since the campaign Schools and Communities First will withdraw the first version of the ballot initiative, the qualification won’t change the number of measures on the ballot in California. As of May 31, six citizen-initiated measures have qualified for the ballot (excluding the first version of the split roll tax initiative). Three more ballot initiatives are pending signature verification. The verification deadline is June 25, 2020. June 25 is also the last day that the California State Legislature can place measures on the November ballot.

Source: by Ryan Bryne | Ballotpedia News

The Collapse of Main Street and Local Tax Revenues Cannot Be Reversed

The core problem is the U.S. economy has been fully financialized, and so costs are unaffordable.

(Charles Hugh Smith) To understand the long-term consequences of the pandemic on Main Street and local tax revenues, we need to consider first and second order effects. The immediate consequences of lock downs and changes in consumer behavior are first-order effects: closures of Main Street, job losses, massive Federal Reserve bailouts of the top 0.1%, loan programs for small businesses, stimulus checks to households that earned less than $200,000 last year, and so on.

The second-order effects cannot be bailed out or controlled by central authorities. Second-order effects are the result of consequences have their own consequences.

The first-order effects of the pandemic on Main Street are painfully obvious: small businesses that have barely kept their heads above water as costs have soared have laid off employees as they’ve closed their doors.

The second-order effects are still spooling out: how many businesses will close for good because the owners don’t want to risk losing everything by chancing re-opening? How many will give it the old college try and close a few weeks later as they conclude they can’t survive on 60% of their previous revenues? How many enjoy a brief spurt of business as everyone rushes back, but then reality kicks in and business starts sliding after the initial burst wears off?

How many will be unable to hire back everyone who was laid off?

As for local tax revenues based on local sales taxes, income taxes, business license fees, and property taxes: the first three will fall off a cliff, and if cities and counties respond to the drop in tax revenues by jacking up property taxes, this will only hasten the collapse of businesses that were already hanging on by a thread before the pandemic.

The federal government can bail out local governments this year, but what about next year, and every year after that? The hit to local tax revenues is permanent, as the economy became dependent on debt and financialization pushed costs up.

Amazon and online sellers don’t pay local taxes, except in the locales where their fulfillment centers are located. Yes, online sellers pay state and local sales taxes, but these sales are for goods; most of the small businesses that have supported local tax revenues are services: bars, cafes, restaurants, etc. As these close for good, the likelihood of new businesses taking on the same high costs (rent, fees, labor, overhead, etc.) is near-zero, and anyone foolish enough to try will be bankrupted in short order.

Now that work-at-home has been institutionalized, the private sector no longer needs millions of square feet of office space. As revenues drop and profits vanish, businesses will be seeking to cut costs, and vacating unused office space is the obvious first step.

What’s the value of empty commercial space? If demand is near-zero, the value is also near-zero. Local government will be desperate to raise tax revenues, and they will naturally look at bubble-era valuations on all real estate as a cash cow. But they will find that raising property taxes on money-losing properties will only accelerate the rate of property-owner insolvencies.

At some point valuations will adjust down to reality, and property taxes collected will adjust down accordingly. If municipalities think they can make up the losses by jacking up the taxes paid by the survivors, they will quickly find the ranks of the survivors thinned.

This doesn’t exhaust the second-order effects: once Main Street is half-empty, the attraction of the remaining businesses declines; there’s not enough to attract customers, and the virtuous-circle of sales rising for everyone because the district is lively and attractive reverses: the survivors struggle and give up, further hollowing out the district.

The core problem is the U.S. economy has been fully financialized, and so costs are unaffordable. The commercial property owner overpaid for the buildings with cheap borrowed money, and now the owner must collect nose-bleed high rents or he can’t make the mortgage and property tax payments.

Local governments spend every dime of tax revenues, as their costs are insanely high as well. They cannot survive a 10% decline in tax revenues, much less a 40% drop.

The metaphor I’ve used to explain this in the past is the Yellowstone forest fire. The deadwood of bad debt, extreme leverage, zombie companies and all the other fallen branches of financialization pile up, but the central banks no longer allow any creative destruction of unpayable debt and mis-allocated capital; every brush fire is instantly suppressed with more stimulus, more liquidity and lower interest rates.

As a result, the deadwood sapping the real economy of productivity and innovation is allowed to pile higher.

The only possible output of this suppression is an economy piled high with explosive risk. Eventually Nature supplies a lightning strike, and the resulting conflagration consumes the entire economy.

Gordon Long and I look at two highly correlated second-order effectsthe collapse of Main Street and local tax revenues.

Source: Charles Hugh Smith | Of Two Minds

Illinois’ Lethal Combination: Rising Property Taxes & Stagnant Incomes

A lethal combination of rising property taxes and stagnant incomes has forced many Illinoisans to rethink their relationship with their state. More than 1.5 million net residents have already fled the state since 2000 – and you can’t blame others for thinking about joining them.

Property taxes have become punitive in Illinois. We’ve written about how these taxes have destroyed the equity in people’s homes across the state. Many families have done the math, and whether they’re in the struggling south suburbs of Chicago or the affluent North Shore, they’ve decided to leave Illinois behind.

The traditional method for measuring the burden of property taxes is to look at a household’s property tax bill and compare it to a home’s value. Under this method, Illinoisans pay the highest property taxes in the nation. At 2.7 percent, Illinoisans pay far more than residents in neighboring states – twice more than those in Missouri and three times more than residents in Indiana.

https://www.zerohedge.com/s3/files/inline-images/Illinoisans-pay-the-highest-property-tax-rates-in-the-nation.png?itok=TySk9EJ4

That fact is outrageous on its own.

But to really understand the pain that these taxes inflict on Illinoisans, it’s important to compare property tax bills to household incomes. After all, those bills are paid straight from people’s earnings.

The unfortunate reality is that Illinois incomes have been stagnant for years – and falling when you consider the impact of inflation.

Between 2000 and 2017, Illinois median household incomes increased just 34 percent, far short of inflation. In contrast, household property tax bills are up 105 percent, according to Illinois Department of Revenue data.

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The net result: Property tax bills per household have grown three times faster than household incomes since 2000.

That means more of Illinoisans’ hard-earned incomes are going toward property taxes and less towards groceries, college tuition, and retirement savings. In 2017, 6.73 percent of household incomes went toward property taxes, up from 4.3 percent in 2000.

https://www.zerohedge.com/s3/files/inline-images/Illinois-property-taxes-consumed-6.7-percent-of-household-incomes-in-2017.png?itok=wNlz9IY8

That’s a 55 percent increase in the effective tax rate.

The detailed data is below:

https://www.zerohedge.com/s3/files/inline-images/Illinois-property-taxes-consume-more-of-household-incomes-when-compared-to-2000.png?itok=ncfCS74C

Property taxes, county by county

https://www.zerohedge.com/s3/files/inline-images/Top-10-Illinois-counties-with-the-highest-property-tax-rates.png?itok=DdaYf29G

Residents of Lake County pay the highest property taxes in Illinois when measured as a percentage of household incomes. In 2000, Lake County residents paid 6.5 percent of their household incomes toward property taxes. Today, residents pay 9.1 percent. That’s a 40 percent increase. The average Lake County property tax bill is now over $7,500 per household.

Meanwhile the residents of the other collar counties and Cook pay more than 7 percent of their incomes to property taxes, with average bills ranging from $4,500 to $6,200 a year.

Overall, the collar counties pay the highest taxes as a percent of income in the state. But it’s not just the Chicago suburbs that are taking a hit. Taxpayers statewide have seen their taxes rise.

https://www.zerohedge.com/s3/files/inline-images/Top-10-Illinois-counties-with-the-highest-growth-in-property-tax-rates.png?itok=ZF6tO_IT

In fact, most of the counties that have had the biggest tax growth, in percentage terms, are found downstate. Hardin County residents, though they pay low rates, have seen them jump 97 percent since 2000. Residents in Pulaski County, have seen their rates go up by 78 percent.

Cook County comes next at 75 percent, but after that it’s all deep downstate again: Calhoun (70 percent), Greene (66 percent), Jersey (65 percent), and Pope County (62 percent).

Taxes too high

Any way you cut it, Illinoisans are being punished by property taxes.

That’s prompted some, including new Gov. J.B. Pritzker, to propose a reduction in property taxes by increasing income taxes.

But that would do Illinoisans no good. Illinoisans already pay the nation’s 6th-highest rates when you lump all state and local taxes together.

https://www.zerohedge.com/s3/files/inline-images/Illinoisans-pay-the-6th-highest-state-local-tax-rate-in-the-nation.png?itok=DtJreRql

Shifting them around won’t help when the total tax bill is too high to begin with. What Illinoisans need is tax cut, not a tax shift.

Source: ZeroHedge
By Ted Dabrowski and John Klingner via WirePoints.com

Progressive Property Tax Spikes Throwing Thousands of Seattle Seniors Out of Their Homes

https://static.seattletimes.com/wp-content/uploads/2018/03/2f8b0bc0-33c0-11e8-9316-bc6406bfcffc-960x640.jpgDennis and Patricia Hall stand beside their Kirkland family home, built by Dennis in 1980. They raised their daughter there and planned to stay for the rest of their lives. But now on a fixed income will be forced out of their home due to parabolic government property tax hikes.

The Seattle Times has collected hundreds of reader responses to the tax hikes. Many who said they’re retired or disabled, and living on fixed incomes, offered emotional stories of being unable to afford the heftier rate.

Dennis Hall imagined living his whole life in the country-style home he and his wife built in Kirkland for $55,000 in 1980. But the couple, now retirees on a fixed income, say the latest tax bill for their property — valued at $1.2 million — is forcing them to rethink their golden years, sell the beloved home and move. “This year was the breaking point. Enough is enough,” said Hall, 65, thinking about the big tax increase, a reflection of skyrocketing home values, voter-approved levies and a plan by state lawmakers to fully fund public schools. “We were hoping on dying here.” With this round of property-tax notices, the couple are not alone in their worries. As the effects of the higher rates spread statewide, some homeowners are calling the tax increase a tipping point in a period of financial stress that’s forcing too-soon goodbyes to longtime homes. Over the course of weeks, The Seattle Times collected hundreds of emails, phone calls and responses on social media from people like Hall, many of whom identified as retired or disabled, saying they have limited options for paying the heftier amounts. “Should anything happen to me like an illness or injury, I will be homeless pretty quick,” wrote a 61-year-old homeowner in Seattle’s Ballard neighborhood. “There is no way I can make it; have to sell our home,” another person said in a voicemail. “I don’t know what to say or do.”  

Property-tax increases vary greatly from city to city.

A handful of people shared less emotional stories of budgeting without lattes or expansive cable packages to cover the larger bills. A few said the spike is a result of Washington’s regressive tax structure. And in a region with a growing housing- affordability and homelessness crisis, a couple of respondents acknowledged their status as “well-paid” and fortunate enough to afford the tax by simply shifting around their spending.

With Social Security, some seniors hoping to qualify for assistance reported annual incomes that barely surpass the state’s maximum of $45,000 for tax deferrals or $40,000 for exemptions. Recipients of the former eventually have to repay with interest, while tax exemptions reduce amounts due based on various criteria, including income and home value. According to numbers provided by the Washington State Department of Revenue, about 107,000 seniors participated in the exemption program last year — or roughly 7 percent of the state’s total senior population. The department, meanwhile, received 558 applications for deferrals.

House for settling down

Surrounded by spacious fields and livestock, the Kirkland home was ideal for Hall and his wife, Patricia, to settle down in and raise a family, with college and the military behind them. Born and raised in the suburb, he worked in construction while she managed the home. They adopted a baby girl in 1985. “That’s when the house came alive,” he recalled. Nearly four decades later, a time span that included the birth of their grandson, the couple’s budget tightened significantly when he retired in 2010 at age 58. The latest tax increase of $1,500 on the property — not far from Microsoft’s campus — hit hard. They sold the land and home to a local developer soon after and started making plans to move to the Duvall area, where their daughter’s family lives. “I’m not against paying taxes,” Dennis Hall said, so long as the government services he sees are on par with how much he pays. These days, relocating for more affordable living is not a phenomenon unique to Washington retirees. New U.S. census data show populations of retiree-friendly communities rising faster than national population growth, The Wall Street Journal reports. But the shift for homeowners here, in the metropolitan area of King, Snohomish and Pierce counties, comes with incomparable pressure. Single-family-home values in the three counties have been rising faster than anywhere else in the country. Median house prices recently hit records of $777,000 in Seattle and $950,000 on the Eastside. Beyond the surging values, this year’s property-tax increases are largely a result of last year’s bipartisan deal by lawmakers to shift spending on public schools.

In an effort to comply with the state Supreme Court’s 2012 McCleary ruling, which found the state has neglected its constitutional duty to pay for public schooling, lawmakers voted to raise the state property-tax levy for schools to $2.70 per $1,000 of assessed value, up from $1.89 in 2017. The plan will reduce local school levies, but not until next year. “Wondering if ‘laptops for kids’ is worth losing homeowners,” a Bothell reader wrote to the newspaper, saying her family picked the city in 2009 because of its lower taxes compared with the Seattle area.

“Guess that was nine years ago — not the future.”

Property-tax insider

Michelle LeMay, 64, of Seattle, knows the effects of property taxes well. She worked almost two decades in the King County Assessor’s Office as an administrative specialist, mailing tax notices to homeowners, fielding phone calls and helping people such as seniors with exemption paperwork. But the tables have turned. Now, she and her husband, on a fixed income, feel they’re being pushed out of their house in Greenwood with this year’s property-tax increase of 22 percent. Their income is barely above the maximum to qualify for a senior tax exemption, she said. “You can’t live in Seattle for $40,000.”In many poorer and rural school districts across Washington, projections for the new law on school spending show cuts in property taxes in future years, while taxes remain higher in richer areas like Seattle, Bellevue and Mercer Island. Voter-approved levies make up a large portion of the hikes in some areas, too, including King County, where the increases range from 9 percent in Normandy Park to 31 percent in Carnation. Among U.S. states, a 2016 report by the Tax Foundation found Washington had the 26th-highest property-tax rate (0.94 percent). That compared with the highest rate of 2.11 percent in New Jersey. It’s unclear how the new taxes may change Washington’s rank. As LeMay and her husband go through their belongings and contemplate selling their home eventually, they told The Times they feel overwhelmed and are looking at possibilities outside King County. “Arizona seems like the place a lot of people are relocating,” LeMay said.Beyond tax exemptions and deferrals for qualified seniors, widows and people with low incomes or disabilities can apply through the state for tax help. Also, homeowners can appeal the assessor’s valuation of their homes, which determines tax increases, by July 1 or within 60 days of receiving notification of their assessment. Kathleen Dellplain, 72, formerly of Seattle’s Fauntleroy neighborhood, moved away before the pack. A retired widow, she noticed herself losing financial ground as the owner of a waterfront home years ago. She put the house on the market after receiving this year’s assessment and moved to a farmhouse in Enumclaw, in Southeast King County. “If I could’ve frozen my tax or kept it with the regular rate of inflation, I would have probably stayed there for the rest of my life,” she said. But costs rose too quickly for her income, she said, especially with her commitment to help grandkids through college.

Source: Seattle Times

 

Illinois Remain 2nd Highest Property Tax State In America

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Houses in Chicago’s Beverly neighborhood (Warren Skalski / Chicago Tribune)

Illinois still has the second-highest property taxes in the nation, according to a survey by personal finance website WalletHub.

Only New Jersey has a higher effective property tax rate, the survey found.

Though property taxes vary from county to county across the state, the average effective rate in Illinois — the proportion of the value of a home that a homeowner must pay each year in taxes — was 2.25 percent, just a hair below the New Jersey rate of 2.29 percent.

Hawaii has the lowest effective property tax rate in the nation at 0.28 percent, WalletHub found. But before you rush to move to Honolulu, bear in mind that the median Hawaiian home costs $504,500, nearly three times as much as the median Illinois home.

“Over their lifetimes, some Illinois residents end up paying more in property taxes than the value of their home.”  – Governor Bruce Rauner 

Missouri had a median effective property tax rate of 1 percent, WalletHub calculated. Most of the lowest property tax states are in the South and West.

Gov. Bruce Rauner has complained that Illinois’ high property tax rates mean that, over their lifetimes, some Illinois residents end up paying more in property taxes than the value of their home.

Previous surveys by the conservative-leaning Tax Foundation and the nonpartisan Tax Policy Center have also found that Illinois has some of the nation’s highest property taxes.

by Kim Janssen for the Chicago Tribune