Most of us have complained at some point about increasing real estate tax assessments on our homes, and most Virginia political candidates have noticed. Tim Kaine and Jerry Kilgore, for instance, each have proposed programs to ease our pain. One of these plans -- Kaine's -- is a local, bottom-up, do-it-yourself option. The other -- Kilgore's -- is a (superficially) feel-good, top-down, and ultimately imprudent idea.
THE PLANS
Tim Kaine's ?Five Point Plan for Home Owner Tax Relief? calls, first and foremost, for a "homestead exemption" for homeowners. Under this plan, the state constitution would be amended to give localities the option of exempting from taxation up to 20% of the assessment on every home and farm. This would result in an immediate cut in tax liability.
Second, Kaine wants to exempt additions, rehabilitation, and improvements to a property from taxes. This provision would encourage owners to keep up their properties, while contributing to the local economy through expenditures on construction supplies and labor.
Third, Kaine insists that the state government fully fund its share of public education. Public schools, of course, are mostly paid for by local real estate taxes, and are the major expenditure of local governments. Forcing the state to play fair and to carry its end of the log will immediately reduce the biggest demand for local real estate tax revenues. No wonder local government officials applaud Kaine?s plan.
Fourth, and perhaps the most effective point of all, Kaine insists he will veto any legislation that seeks to impose any future unfunded mandates on localitie. As most of us know, unfunded mandates are a major source of anguish and dismay among local officials, who must pay for the imposed mandate. Given local officials' limited revenue options, this invariably means raising real estate taxes.
Finally, Tim Kaine wants to ensure more citizen participation in hearings on setting the tax rate. This is important because the real estate tax rate determines the total tax we homeowners owe, based on the assessed value. In sum, Kaine's proposal is a bottom-up, do-it-yourself plan in the time-honored Democratic tradition.
In contrast, Jerry Kilgore proposes a constitutional amendment that forces localities to cap real estate assessments, permitting an increase of no more than 5% per year. Don't be fooled; this is yet another state mandate to local governments, even if Kilgore claims it is the guaranteed tax cut that every homeowner wants.
One thing that Kilgore does not say is that his idea is not new. In fact, it is almost exactly what California did with the famous Proposition 13 of 1978. That Proposition essentially put local governments in a straight-jacket. After the passage of "Prop. 13," California?s schools took a nose dive from being among the best in the nation to falling among the most pitiful because they were starved for funds. California's experience has been replicated elsewhere, including Prince George?s County in Maryland. And in every case, the unintended consequences for education have been excruciating.
So why would Kilgore propose such a measure? I can only suppose that Jerry?s out-of-state advisers, who are running his campaign and ?handling? him, are the folks who came up with this Big Daddy in Richmond Knows Best ?solution,? tying the hands of local government. As I said, Kilgore's plan is top-down and ultimately imprudent.
THE REAL PROBLEM
You know what the big problem that no one talks about really is? In my opinion, it is the limited resources of local government. Most of us see and feel the results of local government every day. That's because the local level is where most of us interact with government on a personal, day-to-day, mundane level. Yet, thanks to the so-called "Dillon Rule," in Virginia our localities have only limited sources of money to pay for the myriad things we (and the Commonwealth and the national government) demand local governments do.
Some day soon we are going to have to tackle this problem, and the answers will not be found in reducing funding sources by capping assessments -- as Jerry Kilgore proposes -- or by otherwise tying the hands of local officials. Instead, we need to think about this problem as responsible citizens who have limited resources ourselves.
HOW IT LOOKS IN MY HOME TOWN
I've got to admit, despite the fact that I am a a Realtor with a good idea what is going on in the market, I was a bit shocked when I received my new real estate tax assessment recently. Here in northern Virginia, we regularly re-assess real estate based on 100% of presumed market value. So, when my assessment jumped more than $100,000 over last year?s, I pretty much expected that to happen.
But still, it hurt. Also, I thought, this is going to be brutal for people on a fixed income. Heck, it was brutal for me, and I'm still hard at work. On the other hand, I knew that because my house had appreciated I now had substantially more equity and a growing nest egg if I wanted to tap into the equity. Of course, the real question was: what would my local government set as the tax RATE to be applied on the new tax assessment in order to figure this year?s real estate taxes on my home? That would be the determing factor, aside from changes in market values, on how much it was going to cost me. (On April 25, 2005, Fairfax County adopted a FY 2006 budget which cut the real estate tax rate by 13 cents per $100 of assessed value).
GRUMBLE GRUMBLE
It's fascinating to listen to peoples' comments on rising home values and assessments. Here's a conversation I had with a man who was furious at the increase in his assessment and complained to me, ?you say market value, but I haven?t sold my house, so they can?t possibly know what its ?market value? is.?
Me: "If you decided to put your home on the market, how would you figure out what to ask??
Man: ?Well, my neighbors just sold their home... for a ridiculous price, too.?
Me: ?And that?s exactly how the tax assessor figures what your home is worth. Your neighbor?s home sale is a ?comparable.? Would you sell your house for your new assessment??
Man: ?Of course not! I could get a lot more for it.?
Me: ?That?s right, you could. Assessments basically reflect the market of six to eighteen months ago, and are actually out of date.?
Man: ?Well, I still don?t like it. All this wonderful new equity is locked up in the house, but I can?t get at it without selling.?
Me: ?Or, you could re-finance like many of your neighbors, and take out extra money to pay for college or buying another property... or anything you decide to do. Mortgage rates are as low as I?ve seen them in 40 years. In fact, cranking the new equity out of their homes is exactly what kick-started the economy out of the doldrums a year or so ago, no matter what Bush claims about his tax cuts.?
Man: ?Grumble, grumble.?
Now, when I follow budget events in other states as part of my job, I have seen how California's education system has declined. Localities are really suffering, and have been for decades, because taxes can't keep up with the fantastic growth in population and the aging of the schools and other infrastructure.
Kaine's plan is more flexible (Republicans CLAIM to like "flexibility" when they are using it to con states into accepting new federal cuts). It's more responsive to varying local needs. It's just overall better thought out and more PRACTICAL.
It doesn't solve the problems of the entire world, but it's rational and reasonable, and we, as a state and a nation, need to get back to a little "reason" in our governance.