Politicians Target Property Taxes to Squeeze More Money from Taxpayers Amid Recession
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2020 has brought a great deal of hardship to many parts of the U.S., but particularly to Nashville, Tennessee. Music City was hit with an early March tornado outbreak that devastated property across swaths of the city. That was follow by the pandemic that shuttered businesses, some permanently, and tanked the economy. Mayor John Cooper (D) and Nashville Metro Council members are now piling on with a 34% property tax hike, which was approved shortly after midnight on Wednesday, June 17.
“Years of gross fiscal mismanagement resulted in this situation,” said Justin Owen, CEO of the Beacon Center of Tennessee, a Nashville-based think tank. “Instead of working to fix the mistakes of the past and chart a better path forward, 32 Council members took the easy way out and voted to pass the buck to Nashvillians. Last night is just another indication that many Council members want to see us become another San Francisco or Seattle.”
Owen backs up his assertion of municipal mismanagement in Nashville with receipts. The Beacon Center recently published a report documenting how local government spending in Nashville has grown at an unsustainable clip in recent years, well beyond the rate of population growth.
This large property tax hike (Mayor Cooper himself concedes this tax hike is large) in the Volunteer State’s most populous city could very well prompt state legislators to consider property tax limitation measures like those on the books in Texas and other states. The property tax limitation law on the books in Texas, which was just enacted in 2019, recently proved effective in thwarting a property tax hike in Dallas that was much more modest than the one imposed this week in Nashville.
During the 2019 session Governor Greg Abbott and Texas lawmakers approved a reform reducing Texas’ property tax “rollback rate” from 8% to 3.5%. The reduced rollback rate provides greater protection for Texas taxpayers, requiring local government officials to get voter approval if they wish to raise property tax collections in excess of 3.5% annually.
In late May Dallas city council members were considering a proposal to declare an emergency, which would allow the city to raise property taxes in excess of the 3.5% rollback rate. The Texas Public Policy Foundation’s Jame Quintero called the proposal to raise Dallas property taxes by 8% in the middle of a recession “the last thing that should be on the mind of any local official,” adding that “Texans need a helping hand, not a picked pocket.”
Unlike in Nashville this week, Dallas taxpayers got welcome news last month when their city council declined to proceed with the proposal to raise property taxes in excess of the rollback rate. The motion on whether to open the possibility of 8% tax hike failed on May 27 with only 3 out of 14 city council members voting in favor. The way Dallas city council member Cara Mendelsohn saw it, the city’s budget shortfall was no excuse to impose a property tax in excess of what state law permits.
“It’s going to be painful,” Mendelsohn said. “We’re going to have some really tough choices to make, but that doesn’t mitigate the fact that one of those choices shouldn’t be to make it harder for our residents.”
Were Governor Bill Lee (R) and Tennessee lawmakers to institute a property tax rollback rate like the one adopted by Governor Abbott in 2019, the massive property tax hike enacted by Nashville Mayor Cooper this week would not have been possible. In fact, the property tax imposed in Nashville this week is nearly 10 times larger than what would be allowed were Tennessee legislators to pass a Texas-style property tax rollback rate.
California & Colorado Property Tax Caps Under Attack
If government worker unions in California get their way, and they often do in the Golden State, voters will approve a November ballot measure that would repeal the property tax limit on the books in California. Implemented by the 1978 passage of Proposition 13, California law limits annual increases in the taxable value of a property, both personal and commercial, to 2% or the rate of inflation, whichever is less.
Transferred properties are reassessed at 1% of their sale price. In addition to this property tax cap, Prop. 13 also subjects all tax increases to a two-thirds supermajority vote requirement of the legislature.
With some of the nation’s costliest housing, Prop. 13 provides significant relief to California homeowners and employers. There will be a measure on the ballot this November, one financially backed by government sector labor unions, that would gut Prop. 13 protections for employers. The Prop. 13-weakening measure that will appear on California’s November ballot, which Joe Biden and the California Democratic Party have endorsed, would raise taxes on California employers by as much as $12 billion annually by removing the Prop. 13 cap for commercial properties.
If this ballot measure, officially dubbed The California Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative, is approved by voters in November, it would repeal Prop. 13’s property tax protection for commercial property worth more than $3 million, requiring it to be taxed at market value. The result would be billions of dollars in higher property tax bills going out to businesses that are already struggling amid the current recession.
"California already has the worst climate for business and job creation in the country,” said Rex Hime, president of the California Business Properties Association. “A split-roll property tax will just increase pressure on many businesses that are already finding it hard to make ends meet.”
California Business Roundtable president Rob Lapsley says that if this ballot measure is approved, the Golden state is “going to have the largest tax increase in California history at exactly the wrong time in our economy to be able to afford it.”
California isn’t the only Democrat-controlled state where politicians are seeking to remove a property tax cap. Colorado Democrats, like their west coast counterparts, are also trying to repeal a state property tax limitation measure.
Whereas Prop. 13 is the target in California, in Colorado it’s the Gallagher Amendment. The Gallagher Amendment, named after the state senator who drafted it, was approved by Colorado votes in 1982. By stipulating the ratio of tax revenue that can be raised from residential versus non-residential properties, the Gallagher Amendment has helped bring down residential property tax burdens over time.
Before adjourning session this week, Colorado legislators referred a measure to the ballot this November that would repeal the Gallagher Amendment if approved by Colorado voters. In the middle of a recession, with unemployment at record highs, it should be a struggle to convince voters that their property tax bills should go up by as much as half a billion annually.
“I think what it comes down to is most Coloradans have seen their property taxes go up over the years, and their taxes will be higher without Gallagher than they would be with it,” said Michael Fields, executive director of the Colorado Rising State Action. “So I think that’s going to be an uphill battle.”
As politicians seek to avoid raising income taxes, sales taxes, and other politically unpopular levies in the middle of a recession, expect more government officials to look to property taxes as a way to shore up government coffers this year and beyond. Public feedback on this approach will come quick, as this November will demonstrate what voters think of the nation’s most longstanding property tax limitation measures, along with the politicians who wish to increase tax collections by targeting business and home owners with higher property tax bills.