Vote 2012: Prop 117 (Property Value Taxes) Debate

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Prop 117 is a constitutional amendment referred to the ballot by the Arizona Legislature that would limit – to 5% – annual increases in property value which is used to calculate property taxes. Hear from Arizona Tax Research Association President Kevin McCarthy, who supports Prop 117, and Maricopa County Treasurer Charles “Hos” Hoskins, who is opposed to the measure.

Ted Simons: Our vote 2012 election coverage continues with another tax related ballot measure. Prop 117 is a constitutional amendment referred to the ballot by state lawmakers. It would limit the annual increase in assessed property values to more than 5%. Here to talk about what effect that will have on property taxes is Kevin McCarthy president of the Arizona tax research association which supports prop 117, and Charles "Hos" Hoskins, Maricopa County treasurer, he is opposed to the measure. Good to have you both here. Thank you so much for joining us. We appreciate it. Kevin, again, why is this proposition necessary?

Kevin McCarthy: Well, we think it's very necessary. Arizona is infamous for having one of the most complicated property tax systems in the country. This doesn't fix all the problems but we have a one-time opportunity to fix a couple of complications we think are particularly problematic. We are the only state in the country that confuses taxpayers, for instance, with two sets of taxable values that their property is taxed on. These were measures that were put in the Arizona constitution back in 1980. One of those taxable values is unlimited in how much it can grow, which means tax exposure can be extreme when you have surges in the real estate market. The other limited value is limited to 10% a year. And if that wasn't complicated enough it's limited to 25% of the difference of this year's secondary and last year's limited value. In my 26 years in the business, if you want to lose credibility with taxpayers in terms of them understanding the system, develop one that does that. So one of the first things 117 does is we're getting rid of the two taxable values. We'll have one simple assets of assessed value and that will be limited in growth to 5% a year.

Ted Simons: Why not simplify things, say 5% ball game.

Charles "Hos" Hoskins: Well, I congratulate them for attempting to simplify things, but it also has some side effects. Experts agree that whenever you limit growth of value, it ends up switching the tax burden to residential property. And if you go online and search for property value limits, you'll find many references that says that it will shift the burden, it sometimes is confusing, and it creates inequities within a class. And that is a pretty serious issue. That could end up being unconstitutional.

Ted Simons: Let's -- we have two things there. We'll get to the inequities, but the idea of shifting to residential. Is that a valid argument?

Kevin McCarthy: It would be the reverse probably in Arizona. If you look at historical trends, in the last real estate boom, residential property increased in value at twice the rate of commercial property. So if you wanted to look in Arizona and say, could this have some interplay between locally assessed homes and businesses, the reverse argument is made. This is the classic argument to try to defeat any effort of tax reform is always to try to have taxpayers look inward and tell themselves, the standard trick is to suggest this is bad for homeowners. You'd have to ignore how bad the current system is for homeowners first to be able to develop such an argument.

Ted Simons: A trick, he says.

Charles "Hos" Hoskins: It is at this time bad for homeowners because homeowners have held their value better than commercial property. Especially in the retirement community. What this would do, this prop 117, it would lock values in at -- where there would be a disparity between the market value of residential property and other property, so residential properties would be subsidizing those other properties for many years until that 5% could catch up.

Ted Simons: How many years?

Charles "Hos" Hoskins: And that would also be more noticeable in the retirement communities because they are closer to full market value. If there is a 30% difference between the market values of residential and the other properties, just on a straight line, it would take six years to catch up and they would be subsidizing those properties during that period of time.

Ted Simons: Again, sounds like another shift of the burden here.

Kevin McCarthy: No. In fact, the retirement communities in Arizona were damaged as much if not more by the rapid growth in values than any other property. What tax payers need to do is look at their bills. Intuitively all property taxpayers know if you allow an unlimited increase in the taxable value and you have what occurred in Arizona in 2000 homeowners saw a 60% increase in their value in one year, during that period of time, we had a record increase in tax levies. Folks who benefit from that system, tax collectors, tax consultants, they're going to try to confuse and divide taxpayers. But intuitively taxpayers know when their value skyrockets so does their taxes. That's something 117 will stop.

Ted Simons: Protecting against real estate booms. Valid argument?

Charles "Hos" Hoskins: Not entirely, because it will allow tax rates to increase. Mr. McCarthy was quoted in an article recently that was published that says there's nothing in 117 that prevents increases in tax rates. So if you limit the growth in value, you increase the tax rates, because the process starts with the levy of each of the districts. School districts, for instance. And then you take the taxable value within that school district and divide it into the levy and you get a tax rate. If you limit that and the budget goes up or increases more than 5%, the tax rate goes up. So it will increase -- there's nothing to prevent tax increases in prop 117.

Ted Simons: Last point on this, sounds like something's got to give.

Kevin McCarthy: There's all sorts of things to prevent taxes when -- last time value skyrocketed, 150 jurisdictions in Arizona didn't adjust their tax rates down a penny. We had record tax increases as a result of that. If taxpayers know one thing, they've heard it once they've heard it 100 times, it didn't increase your antioxidants because it left the tax rate the same. That won't happen with 117. They'll have to be honest, they'll be -- there will be transparency, they'll say we want more money than that and there will be need to address the tax rate accordingly.

Ted Simons: Doesn't sound like it could be fair, sounds like it could be unconstitutional against -- is that integrity real? Is that possible?

Kevin McCarthy: Let's talk about the constitutionality. Certainly the -- HOS could have availed to himself through all these arguments when it was referred through the Arizona legislature. The whole referral senate bill, senate concurrent resolution 1025 was analyzed by all the lawyers at the capitol that. Wasn't an argument that won the day. We picked 5% for a reason. 5% unlike the studies that the treasurer will refer, to tracks about the normal growth trend in Arizona. We think the 5% growth trend will ensure that there are not distortions between classes, but it will, that is 5% limit will make sure when we have a real estate boom, those values are brought into the system slower.

Ted Simons: No disproportionate shift he says.

Charles "Hos" Hoskins: That is contrary to numerous experts. These people are Ph.D.s, they're professors in universe, they're internationally recognized. I agree with these experts. There will be shifts, and I encouraging anyone that has any question about it to do their own research. Go online, look for property value limits, and there's a website that just came up, it's where there will be information on that. I do agree with these people that it will do three things -- it will increase taxes by shifting -- to homeowners, it will shift the burden, and it will create inequities and no I'm not really convinced it will be any more simple.

Ted Simons: OK. Not more simple. Just a simple fact that it's supposed to be simplified -- it doesn't sound like he's buying it.

Kevin McCarthy: He's not, but gladly in the light of day at the Arizona legislature a bipartisan group much legislators who think this system desperately needs to be reformed didn't see it any of the ways the treasurer does. This doesn't shift taxes from businesses to residential property. And I would encourage all the taxpayers out there, get your bill out. See if you benefit from a system that allows for 60% increase in value and a skyrocket can bill along with it.

Ted Simons: We need to stop it there. Gentlemen, great discussion. Thanks for joining us.

Kevin McCarthy:President, Arizona Tax Research Association; Charles "Hos" Hoskins:Maricopa County Treasurer;

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