The DMA Way

Georgia Property Tax - It Ain’t Broke, But They’re Trying to Fix It

by DMA Staff | Mar 08, 2016

By: Patrick Price, CCIM | Director, Property Tax at DMA 

Georgia lawmakers are considering certain measures that would effect the ad valorem Property Tax system – in one case in a positive manner, the other clearly adverse to the integrity of the tax itself. In the former, Senate Bill 258 would prohibit the county from increasing an assessment above the initial value set by the Board of Assessors in any given year that the assessment is appealed; effectively precluding a county from being punitive and attempting to raise your value because the assessment is being protested. That’s good. In the latter, however, House Resolution 965 would implement a “cap” or limitation on annual increases in property assessments. That’s bad…and I’ll explain why below. 

You see, the Property Tax system as we know it was well-crafted and has served the needs of revenue generation well for a very long time. You can’t hide “property” like some do “income” – and the tax is progressive, requiring those with the greatest wealth of property to pay more in support of the services required by the local community. With limited exceptions, the system provides for the taxation to be levied in direct correlation with a property’s fair market value…thus, everyone pays “their fair share”.

Unfortunately, it is just too “politically expedient” for those trying to accumulate votes or stay in office to promise some form of tax relief to their constituents; especially those that vote (read: “residents”, not “businesses”). It is for this reason that we see some states in the Southeast now incorporating CAPS, or limitations on value increases into their property tax statutes. It is as though someone, somewhere has looked at the decades-old, failed system in California and thought “hey, that works”. Seriously? When in reality, it is merely a scheme that transfers the tax burden among various areas or asset-classes, destroys the equity of the system and creates additional administrative costs to an already-burdened local government system.

Take a brief look at Florida, for example – where residential property assessment increases are capped annually at 3%, while commercial property is capped at 10% annual increases. In positive economic times, this means that residential property will be assessed at less than fair market value…and the problem will be compounded in times of extended prosperity (a widening differential between the two values). At the same time, it would be an extremely rare occurrence for values to increase more than 10% annually for a continued period of time; meaning commercial values will, for the most part, keep pace with inflation. Therefore, the ultimate effect of such “caps” is the veiled transfer of the tax burden away from residential property and increasingly on the backs of the commercial and industrial tax base. This might “sound” good to voters, but these are the economic engines for society providing jobs to the residents – and whose prosperity is needed for those home values to continue increasing.

Back to the present - now we have Georgia lawmakers considering unnecessary changes to their own property tax system. House Resolution 965 would limit increases to property tax assessments to the lesser of 2.5% per year or the change in CPI. At no time could the cumulative increase be more than 7.5% in a 3-year period. Again, this “sounds attractive” to a constituency that is not given all of the context or necessary information to fully evaluate the long-term consequences…thus, when asked to vote on such a measure in the general ballot process, of course they will approve it. But what does such an arbitrary cap really accomplish? It creates serious inequity among similar taxpayers and, inexplicably overlooked, it is punitive to those of less means among the tax base. First, consider that most assessment caps have an “exception” allowing for assessments at full market value if the property is transferred. Hence, you are given a system where neighbors in homogenous subdivisions – with similar homes of similar value – are hit with extraordinarily different tax bills. And why would we support a change that is regressive, and favors the most privileged?

Consider that any measure which limits annual valuation increases provides the greatest benefit to those who own the most desirable property in the most robust areas of economic vitality. Those whose properties increase the most in the market are the very people who benefit the greatest from such assessment caps. In contrast, those with property in areas of decline are likely to continue being taxed at their full market value (since the properties are either increasing at a slower rate, or are perhaps even decreasing). Such artificial restrictions on assessment do nothing more than create unfair “tax breaks” for those with the fastest appreciating property wealth. And we no longer have a system where everyone is paying property taxes in proportion to value; the fairness and equity of the system are gone. And by the way, once the smoke and mirrors have dissipated, you may then realize that taxes can still increase remarkably (in the form of increased tax “rates”).

Which brings us to an easy answer to the problem of runaway property taxes that make it difficult for taxpayers to afford. If politicians really want to help their voters, they can target the “tax rates”, rather than the false promise of controlling “values”. Any caps or limitations applied to the tax rate still allows for the systematic reappraisal of all property at market value. In this manner, the allocation or burden of the tax can be fairly redistributed periodically in proportion to where values are increasing/decreasing (by geographic region and/or asset class). Meaning those with the greatest property wealth can still bear the appropriate portion of the tax – and this is a fluid, ever-changing measurement. Yet, overall, the government is still restricted in the total amount of tax they can collect – accomplishing the goal of reigning-in spending and implementing tax relief to all property owners.

One limited example of this is found in Tennessee, where counties perform reappraisals every four years. However, a county does not find itself entitled to a “revenue boon” just because property values (the market) have increased over time. Rather, they are able to establish the current fair market value of all property, and how that is allocated among all taxpayers…but ultimately the tax “rate” must be adjusted (reduced) so that the total collection of tax is no more than it was prior to the most recent reappraisal. So there you go – continued equitable distribution of the tax burden, while limiting the increase in property taxes. If the county wants more funds and wishes to increase the tax rate – they must tackle that animal separately, and withstand the requisite scrutiny from voters that will accompany such an increase. This is how it should be…those spending the money must justify the increase, rather than the assessor being blamed (whose job should be to merely appraise all properties in the county). I only wish the general population could be enlightened on the real underlying principles at stake, and the true impact that these measures have on the tax system in the longer term.

Please do not hesitate to contact your local DMA office should you have specific questions or requests.