Lawmakers split over contentious property tax issue

By Launce Rake

Friday, Dec. 3, 2004 | 6:24 a.m.

WEEKEND EDITION

December 4 - 5, 2004

Eighteen months after an explosive debate over taxes split the Nevada Legislature, the issue of skyrocketing property tax bills has the potential to reignite a similar debate.

Legislators are split on how to handle the property tax issue, which is fueled by homeowners concerned that this year's spike in property values will send property taxes shooting up.

Lawmakers agree that property tax increases need to be capped. Some Democrats have coalesced around a 6 percent maximum annual increase. Some of the Republicans, however, are pushing for 3 percent or less and a rollback of several years of increases.

The debate cuts to the core of lawmakers' philosophies on taxation and government spending.

Government finance analysts such as Guy Hobbs warn that below 6 percent, what the policy makers are really talking about is cutting government. The 6 percent number, Hobbs and others argue, represents both the historic annual increase in property tax growth in Clark and Washoe counties and mirrors the actual increases in government spending.

Below that, local governments would have to cut services, they warn. In Clark County, that means an already cash-strapped county government would have less to cover the costs of a population base that continues to grow by about 75,000 people a year.

State government and local school districts, which with local governments split the property tax pie roughly into three pieces, could also be affected.

Proponents of the small cap and the rollback generally say government waste can be trimmed and that, coupled with increased revenue from the state's growth, should provide sufficiently for government.

Analysts are still crunching the numbers and looking at the impacts of various tax-cap proposals. But with debate expected to begin in earnest next month, the possibility of a failure to reach a compromise before the beginning of March is on the minds of some legislators.

The date is important because officials say the Legislature has to be done with any reworking of the tax rules by early March to give relief from the property tax bills due in July. It gives legislators just a month after their opening day to come up with a solution to the property tax riddle.

They face pressure to act.

Clark County Assessor Mark Schofield reports his office is receiving 1,500 to 2,000 calls a day from taxpayers alarmed by the increases in property values reported on postcards sent out over the last two weeks. The final tax bills, absent intervention by the Legislature, will go up by a similar percentage.

Schofield's staff can do little to ease those concerns, since the tax rate and assessment procedures are set by state and county law; the assessor's job is to make sure those rules are followed.

However, Schofield first proposed and continues to promote the 6 percent cap on property tax increases. The cap, which would not apply to properties that have had improvements such as new buildings or swimming pools, would be a stop-gap measure until fundamental changes to the law or constitution could be considered and implemented, he explained this week.

His proposal has some support. Senate Minority Leader Dina Titus, D-Las Vegas, and Assembly Speaker Richard Perkins, D-Henderson, have both signed on to the 6 percent cap.

Other legislators, mostly Republicans, are not embracing the proposed cap on increases. One proposal backed by Assemblywoman Sharon Angle, R-Reno, and former assemblyman Don Gustavson, R-Sun Valley, would institute a solution modeled on the Proposition 13 property tax cut passed in California in 1978.

The Angle-Gustavson proposal would, like California's Proposition 13, roll back property taxes by three years and then cap the amount a property's value can increase each year at 2 percent. Property would be reassessed when an owner sells it, but the tax could not be more than 1 percent of a property's value.

In California, the measure cut property taxes by more than 50 percent and crippled local government services and public schools, critics argue.

Gustavson rejects critics as "state and local government employees."

Sen. Randolph Townsend, R-Reno, a member of the taxation committee, said the emerging debate over tax policy should include a look at government spending, but he is not a fan of Proposition 13, which he said "bankrupted local governments in California."

"Costs of government have to be a part of the dialogue," Townsend said. He doesn't reject the Schofield proposal, but suggested that meetings on the property tax issue should be held throughout January and February. All proposals should be on the table, he said.

Where government costs can be trimmed outside of the "inviolate issues" of classrooms and public safety, the Legislature should act, he said.

"Local government owes it to their taxpayers to come forth with a base budget, what they absolutely have to have," Townsend said. "Some people may not be happy, but we're not running a popularity contest. We're trying to provide essential services."

Sen. Barbara Cegavske, R-Las Vegas, said she has been inundated with cards, e-mails, and phone calls on the issue. She said she is keeping an open mind and wants to hear all the arguments, but her constituents are telling her to keep property tax increases at 1 percent or 2 percent.

"From my point of view, a 1 or 2 percent cap is where I feel comfortable," Cegavske said, adding that she believes California's problems came from overspending.

"How am I going to justify more? I think 6 (percent) is too high."

With a 6 percent cap, people on fixed or limited incomes still risk losing their homes, she said.

Sen. Bob Beers, R-Las Vegas, agreed that 6 percent is too high, but he has concerns about adopting a Proposition 13. His concern is not that the California tax initiative cut revenue to the state and local governments, but that governments made up the money by raising other kinds of taxes and fees.

"Prop 13 -- It did nothing to halt the erosion of the quality of life in California," he said. "We had Prop 13 followed up by a significant increase in sales taxes and other taxes, user fees."

Beers said he supports a refund of property taxes to the taxpayers.

"I don't believe that government can be made smaller, but we need to think seriously about if it is big enough now," Beers said. "Any time that government sees a large conversion of private sector to public sector, it brings the specter of us versus them -- taxpayers versus tax consumers. Certainly after last session that is a fresh wound from half the public, anyway."

Senate Majority Leader Bill Raggio, R-Reno, the chairman of the Senate Finance Committee, said he has not made a decision on any property tax limitation.

"There are too many ramifications," he said in referring to how it would affect state and local government. He said the Legislature will look at the issue in full.

Sen. Mike McGinness, R-Fallon, chairman of the Senate Taxation Committee, said there will be a "full discussion" of the issue.

"It's not as simple as putting a cap on property tax," he said.

McGinness said a cap would hurt some rural counties that depend largely on the property tax revenue. But he said the urban counties of Clark and Washoe are feeling the big impact on the rising values of land.

"We need to hear from all counties and cities," he said.

He noted the state now takes 16-17 cents of the property tax dollar.

The state uses 16 cents to pay off the bonds it issues for construction and another 1/2 cent to 1 cent is used to fund the bonds that voters passed for conservation projects.

"If the state could lower its rate and help the cities and counties, that might work," McGinness said. "We just don't know which direction we're going."

It was originally planned for the taxation committees of the Legislature to hold hearings around the state on the issue before the session. However, the Senate has been locked into the ongoing impeachment proceedings of Controller Kathy Augustine, have derailed those proposed hearings.

One complaint that will come up during hearings on the issue will be from upset taxpayers who note that the property tax increases continue to exceed the pace of inflation.

Government officials and analysts say it is not fair to compare demand for revenues to the inflation rate.

Hobbs and Schofield argue that the 6 percent level is close to the historical average of property tax growth, and putting a cap below that -- or even at 6 percent -- will threaten bond ratings and the ability to provide essential services.

Hobbs said that at 6 percent, local governments and school districts are at equilibrium.

Clark County Finance Director George Stevens said the cost of government is simply going up faster than the overall inflation rate. He pointed out that the same is probably true for many individuals in Clark County and elsewhere.

Barbara Ginoulias, Clark County Comprehensive Planning director, said the continuing population growth also is putting a squeeze on local government revenues, particularly due to the cost of operating and maintaining the new roads, buildings and other capital investments required to serve the population. In that way, growth does not pay for growth -- and that adds to the burden on existing taxpayers.

Schofield said the debate in Carson City will have to look at both revenue and spending, but the spending side comes up because even with a 6 percent cap, governments may have to cut.

"If you reduce it to a lower amount, government services are going to hemorrhage," he said.

Some Democrats, while aware of the debate, are hesitant to come out publicly behind any definitive number to go on the property-tax cap, including the 6 percent number.

"I have not endorsed it," Assemblyman David Parks, D-Las Vegas, said. "I think there are some other alternatives that we need to look at."

Assemblywoman Barbara Buckley, majority floor leader, agreed that all the proposals need to be weighed, and the impacts on governments and schools need to be considered. However, she said, debate over the spending side will have to be limited.

"I don't think we will have time to examine the budgets of school districts and local governments," she said. "Detailed reviews of budgets -- we don't have time for that. We need to look at what we need to do to make sure the average homeowner is protected from these outrageous increases.

"Time is of the essence here."

Despite the history of deep divisions on the tax issue, legislators optimistically agree that they can come up with a solution by early March.

"It is the first order of business," said Cegavske, who added that she supported a special session, rejected by Gov. Kenny Guinn, to consider the issue.

Assemblyman Joe Hardy, R-Boulder City, said the issue is too important to avoid a timely resolution.

"We will do something," Hardy said. "It has to be done in the first few weeks in February so that people will have some relief.

"The R's (Republicans) want to do something. The D's (Democrats) want to do something. The governor wants to do something... It's going to happen. We are going to see a cap happen.

"I can tell you that we are going to have it done in February. If it's not ... Ho, ho, Katie bar the door."

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