So there is a voters initiative going around in Arizona, called the American Dream Act. This act would remove property taxes off of any citizen over the age of 65. On the face of it, you may be willing to support this effort, as I was, but after just a little thought about it, it is clear that this must be defeated. Being a Realtor, I have a high degree of interest and knowledge in this subject.
First we must look at how property tax is calculated in Arizona. First the county accessor figures out how much every property in that county is worth. It can only go up at a small rate each year, so properties that have not changed hands in a long time are valued much less than they should be. The amount the county says a property is worth is the Full Cash Value, then we have the Limited Property Value. The property can go up any amount but the LPV can only go up 5% per year. So in the last 8 years most property has gone up much more than 5% per year, but the LPV is a benefit for people who still own the same house. The LPV gets reset to the FCV when the property is sold. On an owner occupied single family residence the tax is based on 10% of the LPV Value this is called the assessed LPV. Most commercial buildings are assessed at 18% of the LPV Value. Empty land and investment property is 15%, Senior living centers are also 15%. Schools and churches are even 15% though churches can apply to be exempt.
So if you are a taxing body you send the amount you need to raise to the assessor’s office. They then add up the Assessed LPV of all the properties in your jurisdiction and divide that by the amount you need to raise, and those properties are assessed that amount. So lets say you are school district, you need $10 million to run your school. Your district has $2 billion in Assessed LPV then that would mean for each $100 in Assessed property value a property has they will have a property tax obligation of 50 cents. So if the home in that district is worth $200,000 and has an LPV of $120,000, then an assessed LPV of $12,000 that person will owe $60 to that school district. Then we have layers and layers of different taxing bodies, each with different borders and different amounts. This is a large task, mostly done by computers now, but after figuring out everything a bill is sent out for each property with a list of each taxing body they are paying tax to and how much. All of this data is public record for every property. For example a home in Sun City that is worth $173k has an assessed LPV of $10,376. They have a tax obligation to three taxing districts, $102 to pay for Maricopa County Community Colleges, $342 to pay for Fire service in Sun City, and $70 to pay for Street Lighting improvements. This is only $5 per $100 in Assessed LPV.
So lets say we make all senior citizen property owners tax exempt then they won’t pay these taxes any longer, BUT they still we be paid, the assessor will just have the remaining properties pay a higher amount. So lets say this bill passed, and in sun city about 70% of the properties are owned by someone over the age of 65. The rest are churches, businesses, property that is rented and such. So in order for those 70% to pay nothing the rest must pay over 3 times as much as they are paying now because the tax base has shrunk.
Imagine you are a business in Sun City, you already are assessed at 18% instead of 10% on the value of your property, but now that amount will go way up due to a smaller base. If you own a building worth $500,000 which would be a small business, you already are paying on an assessed LPV of $90,000, about 9 times as much as the average home. If we use the same amount of $5 per 100 in LPV we would expect a tax of $4,500 for this small business per year. If the base is shrunk by 70% this business will see a tax INCREASE of OVER $10,000 to over $15,000 per year. This sort of thing can make the difference of that business staying in business or failing.
Imagine you are renter in Sun City, you live in a nice home, or senior living and you rent from a landlord. This property is also not exempt. You may not directly pay property tax, but it is part of your rent, and if it goes up your landlord will surly pass it on to you eventually. Lets say it is an average house with a $700 a year tax obligation, and lets say that 70% of the property value in sun city becomes non taxable, your new tax is over $2300 per year, about $135 more per month. Let’s think about who rents, usually these are the most fragile, and poorest among us, the people who can least afford a tax increase.
Because this new law is not means tested that means you will get the benefit no matter how much you make or are worth, but a renter, or someone who is just out of college struggling to pay their bills, or that small business will pay for your benefit. You lived a good life, you are reaping the rewards of home ownership and now you want more benefits on the backs of those that can least afford it.
If you are for this still for this, and your reasoning is that taxes are bad and that taxes are theft, I am with you. But this will just shift the taxes to people who have a hard time already. Furthermore, the senior population is with us on this cause to lower taxes, and once their taxes are gone they will no longer care about lowering property taxes, this will lead to even higher taxes.
If you are still for this because it will put money in your pocket, have a heart and care about the rest of the population, you had a good life, you own a home, you are ahead of most people, the generation that is coming up has it much harder than you had it.
Luckily for me I live in Peoria, where the senior population is much lower than sun city, but if this was to pass it would still be a fairly large impact because I own a business also that pays a lot in property taxes but I have never minded them because I see where the money goes and those are things that I support. But I don’t want to pay more than my fair share.
When the Founders said “democracy is two wolves and a sheep deciding what’s for dinner” this is EXACTLY what they had in mind.
So I implore you to not sign petitions for this, and if it makes it on the ballot vote against it. Unless of course you only care about yourself and are greedy then do what you want.