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Idaho needs to remove the upper limit for the homeowners exemption and make it half the home value no matter how high the value is. As the housing prices rise the current exemption provides a smaller and smaller benefit to homeowners.
Idaho needs to remove the upper limit for the homeowners exemption and make it half the home value no matter how high the value is. As the housing prices rise the current exemption provides a smaller and smaller benefit to homeowners.
That's true. The exemption has never changed, but property prices all over the state have escalated a lot.
Don't hold your breath that the exemption will ever change, though. The legislature hates tax hikes like poison, so the exemption is a nice hidden way for the state to make more revenue without having to discuss any tax hikes.
That's true. The exemption has never changed, but property prices all over the state have escalated a lot.
Don't hold your breath that the exemption will ever change, though. The legislature hates tax hikes like poison, so the exemption is a nice hidden way for the state to make more revenue without having to discuss any tax hikes.
I like the exemption approach as long as managed well.
Prop 13 in CA is dramatically biased toward the wealthy. What a give away.
At same time, pure market based would be incredibly expensive.
I also like the bias toward residents even when I have not been able to claim it.
The fundamental issue with property taxes is the more time that has elapsed from the time the home was purchased, the less useful the home value becomes as a indicator of ability to afford any given taxation rate. That phenomena happens regardless of property value. It's also the case that property value isn't well correlated with income level. For example, some will choose to purchase homes will below what the banks may indicate they can afford. Others will purchase a home early in their careers and stay in that home for years while their income grows disproportionatly to the home value.
Many look to Prop 13 as a panacea. The reality is not so simplistic. For one thing, I don't think Prop 13 would have been nearly as successful at limiting tax burdens without the rest of the Jarvis initiatives that were passed in the years after Prop 13. For another, Prop 13 really devastated municipal finances in California, and its largely responsible for the sad state of government finances in California.
At the end of the day, the issue isn't how local governments choose to use taxes to pay for local services. Rather, the fundamental issue is spending.
I respectfully disagree.
This is perhaps off topic, but I think an important for ID residents since as valuations rise in ID, many us have engaged in conversations about limiting property tax increases.
Prop 13 limits rises in property taxes. Stealing from Wiki, "Under Proposition 13, the annual real estate tax on a parcel of property is limited to 1 percent of its assessed value. This 'assessed value,' may be increased only by a maximum of 2 percent per year, until and unless the property has a change of ownership."
As housing prices have soared over the past forty years, the pie that represents lost property tax revenue from taxes based on market value has grown enormous. The slice of pie to higher valued homes and those to wealthy residents grows larger as a % of that pie. So within the home owing world, the benefits of Prop 13 are disproportionately skewed toward the wealthier owner.
In addition, the homeownership rate is only 55.2% (it is 70.7% in Idaho). Therefore the bulk of the tax break that this represents is unavailable to the 44.8% and concentrated within the upper echelon of the homeowners.
Moreover, because the Prop 13 benefit passes down in its entirety to children or grandchildren (if parents are no longer in the picture), this unearned subsidy that is concentrated into the hands of wealthy homeowners, transfers the wealth (if you do a NPV calc) to their children.
And since real estate wealth is often a feature within estate transfers that now exist tax free under unbelievably generous limits (I think $11 million or so), the house plus the ancient tax level is transferred to ensure the wealthy that wealthy.
Thus my statement that Prop 13 is biased in favor of the wealthy. Not a class statement, just fact.
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Quote:
Originally Posted by Cnynrat
The fundamental issue with property taxes is the more time that has elapsed from the time the home was purchased, the less useful the home value becomes as a indicator of ability to afford any given taxation rate. That phenomena happens regardless of property value. It's also the case that property value isn't well correlated with income level. For example, some will choose to purchase homes will below what the banks may indicate they can afford. Others will purchase a home early in their careers and stay in that home for years while their income grows disproportionatly to the home value.
I completely agree with this
Quote:
Originally Posted by Cnynrat
Many look to Prop 13 as a panacea. The reality is not so simplistic. For one thing, I don't think Prop 13 would have been nearly as successful at limiting tax burdens without the rest of the Jarvis initiatives that were passed in the years after Prop 13. For another, Prop 13 really devastated municipal finances in California, and its largely responsible for the sad state of government finances in California.
I completely agree with this, too.
Quote:
Originally Posted by Cnynrat
At the end of the day, the issue isn't how local governments choose to use taxes to pay for local services. Rather, the fundamental issue is spending.
I agree that the level and nature spending is extremely important to review. At same time, I also think that how a government taxes to raise the revenue is extremely important to understand, with Prop 13 etc. an example of severe distributional affects across class, neighborhoods, and generations.
The Prop 13 revolt happened right as prices started to tick up and spending was undisciplined. Its implementation was a huge relief for seniors. Today, the burden is disportionately on the shoulders of younger homeowners and on the millions who are priced out.
A friend, a minister, pays nearly $20K in property tax for a modest home in a modest neighborhood. Those are after tax dollars. He pays more than those who are in houses in beautiful neighborhoods worth five times as much.
As the slice of the pie of Prop 13 benefits approaches the entire pie in the limit and as homeownership rates drift toward 40% in certain areas, the natives will get restless and eventually repeal Prop 13.
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What would be great to see is a panel studying this issue for Bonner County and Idaho in general. Maybe what is needed is a combo of state and local minds to offer a plan superior to Prop 13.
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I like the exemption approach because it is
1) biased toward those with more modest homes (for cheaper homes, the exemption has a bigger effect).
2) it can be lifted and raised depending on market conditions.
Would I think it was great if I had a built a trophy home? Probably not. I would probably want Prop 13. But compared to the rest of Bonner County, even a modest house in South SP puts one in the upper quartile of county valuations and thus in the relatively wealthy.
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As final thought, the larger local budgets get, the more pressure is forced on homeowners on questions of property taxes and the need to seek alternative funding. Build it and the taxes will come. This alludes to your point on spending. I am very uncomfortable with the tenor of local discussions on pricey plans for a utopian SP., Each of these plans not only adds to an ever larger tax burden, but makes permanent those increases.
So we see here the junction where California threw caution to the wind and grew itself into their mess. Before we do the same, we need to limit spending and their utopian dreams. If not, those tax burdens will get ever larger and the distributional nature of tax burdens will start to calve this community into its respective demographic groupings.
This is perhaps off topic, but I think an important for ID residents since as valuations rise in ID, many us have engaged in conversations about limiting property tax increases.
I agree it's on topic because Prop 13 is frequently used as an example of what we might do in Idaho to deal with the issue of increasing property values and property taxes. I don't know if that's because of the number of ex-Californians now living here, or simply because Prop 13 attracted so much attention outside CA at the time. BTW, I lived in CA when Prop 13 was passed, and continued to live there until 2016 when we moved to Bonner county, so I'm very familiar with how it works, and also from the perspective of local municipal finances how it doesn't work.
Quote:
Originally Posted by Sandpointian
As housing prices have soared over the past forty years, the pie that represents lost property tax revenue from taxes based on market value has grown enormous. The slice of pie to higher valued homes and those to wealthy residents grows larger as a % of that pie. So within the home owing world, the benefits of Prop 13 are disproportionately skewed toward the wealthier owner.
Mathematically, this is incorrect. Take a simple example of 2 homes, one with an initial value of $1M, and a second with a value of $250k. Note that the $1M home is 80% of the total assessed value of these properties. Apply the 2% annual increase to both for 14 years after the initial purchase, and the ending values will be $1.3M and $330k respectively. Note that the higher value home is still 80% of the total assessed value of these properties. Do the same thing for an 8% increase each year for 20 years representing a somewhat typical actual market value increase and you end up with values of $2.9M and $734k respectively. Once again, the higher value home is 80% of the total assessed value of these two properties. So, the high value homeowner has an assessed value that is $1.6M lower than it would have been absent Prop 13, and the lower value homeowner assessed value is $404k lower than it would otherwise be. So the total assessed value savings are $2M, of which 80% go to the higher value home. Look at all these numbers as a percent of their respective totals, and it's always 80% to the high value home, and 20% to the low value home. So as a "percent of the pie" the benefits are equally distributed across all ranges of home values.
In addition, it doesn't take into account the typical turnover rate, which is about 15 years on average. So, every 15 years on average homes are sold and reassessed up to current market value. It also doesn't account for significant improvements made to a home, which also triggers a reassessment. (It's true that Prop 13 has driven many homeowners to make improvements without pulling permits to avoid reassessment, which is a different but interesting discussion. Suffice to say, on balance this unintended consequence of Prop 13 is probably not a good thing.)
Quote:
Originally Posted by Sandpointian
In addition, the homeownership rate is only 55.2% (it is 70.7% in Idaho). Therefore the bulk of the tax break that this represents is unavailable to the 44.8% and concentrated within the upper echelon of the homeowners.
Any economist worth their salt would point out that in a relatively competitive market, renters also benefit from the Prop 13 tax savings since the cost of higher taxes isn't embedded in their rental rates. Setting aside the market distortions of rent control where that exists, to say this benefit is not available to renters is not accurate.
I think home ownership rates in CA are low for reasons that have nothing to do with Prop 13. The primary factors are high fees and significant regulatory burdens that actually work against the development of more moderately priced housing in locations that would limit commute distances/times. In short, barriers have been created that impede the ability of the market to supply the type of housing that is both affordable and desired by buyers. Bonner county is a completely different environment, but I think there are some lessons to be learned from CA that can be applied here, particularly on the regulatory side, to address the local housing affordability issue. Different subject for a different day.
Quote:
Originally Posted by Sandpointian
Moreover, because the Prop 13 benefit passes down in its entirety to children or grandchildren (if parents are no longer in the picture), this unearned subsidy that is concentrated into the hands of wealthy homeowners, transfers the wealth (if you do a NPV calc) to their children.
As noted above, on a percentage basis the benefits are equally distributed across all ranges of housing values, so this is somewhat of a moot point. That said, I question how much of an issue this is. I'm sure there are some folks who keep an inherited property with the accumulated tax benefits, but I'd guess in most cases the property is sold shortly after it's inherited. In any case, this "feature" of Prop 13 was added after the fact, and I don't it was part of the core strategy in place at the time of it's original passage. I don't think there is a good argument for keeping this particular provision.
Quote:
Originally Posted by Sandpointian
Thus my statement that Prop 13 is biased in favor of the wealthy. Not a class statement, just fact.
As I understand it, your primary argument revolves around the distribution of the benefits on a percentage basis. As I've shown above, the benefits are equally distributed across all home values, so I disagree that it's a fact.
Now, of you want to argue about absolute dollar amounts instead of percentages, yes, in that domain the dollar value of Prop 13 benefits fall more towards those who own higher value properties. But then, they also pay a much higher dollar value of all property taxes. In the end of that discussion I think you'll find you are asking why can some afford million dollar homes and others can not.
Quote:
Originally Posted by Sandpointian
I agree that the level and nature spending is extremely important to review. At same time, I also think that how a government taxes to raise the revenue is extremely important to understand, with Prop 13 etc. an example of severe distributional affects across class, neighborhoods, and generations.
The Prop 13 revolt happened right as prices started to tick up and spending was undisciplined. Its implementation was a huge relief for seniors. Today, the burden is disportionately on the shoulders of younger homeowners and on the millions who are priced out.
A friend, a minister, pays nearly $20K in property tax for a modest home in a modest neighborhood. Those are after tax dollars. He pays more than those who are in houses in beautiful neighborhoods worth five times as much.
As the slice of the pie of Prop 13 benefits approaches the entire pie in the limit and as homeownership rates drift toward 40% in certain areas, the natives will get restless and eventually repeal Prop 13.
It was really spending that drove Prop 13. Yes, CA property values had been increasing at ~10%+ annual rates, but what was happening is that local politicians where using higher values to drive higher tax collections and use that to increase spending. Had they reduced tax rates to keep overall tax receipts more or less constant, or at least on pace with inflation, I question whether Prop 13 would have ever happened.
The comparison with Bonner county is telling. As I said in another post, my property taxes have been fairly flat, even with the impact of the much higher school levy rate. So while my home value has increased more or less in line with the overall market, the mil rate has dropped because the county is holding the line on spending. I understand that may not be the case in other locales in Idaho, but IMO that only further emphasizes that the root of the issue is spending, not increasing property values.
I agree there is an element of unfairness about the Prop 13 solution that results in the recent home buyer paying on a much higher assessed value vs. a similar home that was purchased decades ago (I think that's your friend's situation?). For a long time I was waiting for someone to challenge the law on that basis. IDK if that ever happened, but if it did they were not successful. The Prop 13 proponents would argue that by limiting increases in assessed value that value better represents "ability to pay," since the assessed value remains closer to what the buyer originally paid for the home. Even so, there are all sorts of issues with that, and I don't say that to defend Prop 13.
Quote:
Originally Posted by Sandpointian
What would be great to see is a panel studying this issue for Bonner County and Idaho in general. Maybe what is needed is a combo of state and local minds to offer a plan superior to Prop 13.
I'd like to see that. I think the current proposals being considered at the state level are not the right solution.
There are plenty of issues with a Prop 13-like approach. We lived in a very small semi-rural community in SoCal that had no commercial development. Cities like ours were starved of tax receipts. The other Jarvis initiatives made very difficult for cities to enact new taxes. Property taxes are paid to the county, and as counties were starved of tax receipts they doled out a smaller and smaller portion of that money back to the cities. Larger cities implemented strategies to increase the amount of sales tax money they got back from the state. Auto malls became common as a direct result, but not all cities want that sort of development. The success that cities had replacing property tax receipts varied from one to another, but many where not so successful and important city services often suffered as a result. So I am not in favor of anything that looks like Prop 13 for Idaho.
I would like to see us move away from property taxes altogether as a local government funding mechanism. We use them as though they are a good measure of ability to pay, but assessed values are not that. The example of the retired seniors living in a home they bought decades ago is just one example of how that breaks down over time.
I do have some fairly complex thoughts about how to replace property taxes, but that discussion is probably better left for another venue.
Quote:
Originally Posted by Sandpointian
As final thought, the larger local budgets get, the more pressure is forced on homeowners on questions of property taxes and the need to seek alternative funding. Build it and the taxes will come. This alludes to your point on spending. I am very uncomfortable with the tenor of local discussions on pricey plans for a utopian SP., Each of these plans not only adds to an ever larger tax burden, but makes permanent those increases.
So we see here the junction where California threw caution to the wind and grew itself into their mess. Before we do the same, we need to limit spending and their utopian dreams. If not, those tax burdens will get ever larger and the distributional nature of tax burdens will start to calve this community into its respective demographic groupings.
S.
I think we agree that spending is very important. As I've suggested I think it's the most important issue. If spending is held to reasonable levels the particulars of the approach to taxation become less important. Still, there is room for improvement, and I'd like to see careful consideration given to the alternatives rather than what feels like the knee-jerk reaction happening in Boise this season.
Idaho needs a prop 13 style bill bad. It is insane how people on fixed incomes are being taxed out of their homes. What I don't understand is we are a non disclosure state. If I report a sales value to taxing authorities, I can be sued. only conclusion to me is that homeowners are doing it after being told not too at closing.
Call your elected leaders and ask them to put together a bill. I have been for months. Taxes don't go down when the market slows, so why should it skyrocket when the market is good?
How many people are really being taxed out of their homes? It makes for an emotional sound bite, and I'm sure it's happening to some folks. But I question whether it's a widespread problem, as tragic as that is at the individual level. I know in my county the policy is they won't even begin this process until people are 5 years in arrears.
Higher property values are not what's driving higher taxes. The mil rate is calculated AFTER total net assessed value is known, and it's set to a rate that will bring in taxes equal to forecast spending, and forecast spending is set by the local taxing authority budgets. If your taxes are going up it's because spending is going up, not assessed values. That's the result of decisions made by your local politicians. Get on their case about it - they deserve it!
The non-disclosure issue is an interesting one. Recognize that county assessors are required by ID law to reassess properties to +/- 10% of true market value. They are going to do that one way or another whether or not people report sales values. Do we think they will do a more or a less accurate job without having access to sales values? Does keeping the market opaque make it easier or harder for homeowners to figure out when their property is improperly assessed, and then does it make it easier or harder for them to challenge inaccurate assessments? I know people like to think they can pull a fast one over on the assessor under non disclosure and have their property assessed at less than market value, but in reality it's just as likely to be assessed above market value. A better question might be who benefits from non-disclosure? The answer is people who have access to sales data even though it's not disclosed to taxing authorities.
I lived under Prop 13 from the very beginning until a few years ago - yes, I was among those who voted for it. Prop 13 by itself would likely have been a failure without the other package of Jarvis initiatives, so it's not as simple as limiting assessed value increases and mil rate changes, which is basically all Prop 13 did. Once you look at the totality of the Jarvis initiatives, I think it's been a mixed bag that in many cases has created more problems with municipal finance than it solved. It's a big part of the reason why some localities struggle to provide basic local government services in CA. In retrospect, I don't think it was the right approach.
I am not a fan of property taxes as the means to fund local governments. There are many issues with that approach, the incorrect assumption that property value is a good indicator of "ability to pay" is just one of them. But moving away from property taxes to some other approach will require some careful consideration, and that's not what I see happening in Boise this season. Instead, we're seeing a parade of knee-jerk proposals that are not well thought out.
The one thing I would agree with that I've heard from Boise is if they don't "do something," we'll likely see an initiative to try to fix the problem. Unfortunately, citizen initiatives are usually not well thought out either.
I agree Dave. While a property tax increase will be a bigger burden, I think the average home wouldn't be an enormous increase.
Idaho very seldom passes any taxes that will take a big bite at once. The Legislature has preferred to make increases small nibbles by raising the state income tax a bit, or the sales tax, licenses, etc.
Counties don't have those options, so if property taxes make a big increase, it more often comes from the county, not the state.
I've never been able to understand why Idaho is a non-disclosure state either. Home sale prices are still posted into the county tax rolls, so anyone who's interested can still discover what a sale was, along with a home's sale history, as it's still public information.
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