At last week’s House Select Committee on Property Tax Reduction and Reform, legislators discussed a bill proposing a constitutional amendment that would require the NCGA to enact property tax levy limits. If the bill is passed in both chambers, the proposed amendment would be included on North Carolina voters’ midterm ballots. Proponents of the bill claim that this new amendment will reduce property taxes for struggling homeowners. Technically, the NCGA already has the authority to enact a levy limit without an amendment, so it’s unclear the true function of this amendment. We are excited that our legislators are looking to address the significant issue of rising property tax burdens. However, there are much better ways to provide targeted property tax relief that keeps people in their homes without hamstringing local governments–which are already facing large funding deficits in education, health, and other critical services–with a one-size-fits-all approach.
What is a levy limit?
A levy limit restricts the overall amount of increased property tax revenue that a county can collect. This is a model being considered in one of the proposals before the House Select Committee on Property Tax. It’s important to note the state has not been specific or clear about what the limit would be in their proposal nor how they would design it.
Example: What relief could a levy limit provide? What about the current property tax relief programs?
Let’s look at an example of an elderly homeowner similar to one a committee member shared at last week’s meeting.
This homeowner lives in Lewisville, Forsyth County, and is on a fixed income; let’s say $45,000 per year. They saw their property taxes increase from $2,500 to $5,000 after last year’s revaluation. Because levy limits aren’t retroactive, a new levy limit would provide no relief to this homeowner immediately. And if a levy limit already existed, such as a 2.5% tax revenue increase cap which is common in other states with this policy, then this would have saved them about $300 last year. However, their property taxes still would have increased by $2,200 or 90%. They would still be paying over 10% of their income to property taxes.
Current Property Tax Relief Programs & Impactful Improvements
The Coalition has been actively communicating with legislators about the importance of improving our existing property tax relief programs. We believe that current programs can be updated to consider the scale of the need and avoid handicapping our local municipalities ability to provide services. If we use the same example, and consider the Homestead Exemption, the current program would have allowed the elderly homeowner to have their property taxes cut in half, so she would have continued to pay $2,500 – a 0% increase.
BUT, because the income limit on the homestead exemption is too low, she would not qualify, and therefore gets no benefit despite being about $6000 above the limit, and living in a higher cost of living area. The solution here is NOT a levy limit, it’s passing legislation like HB59 that was introduced last session, which would have updated the income eligibility requirements and allowed her to qualify since she is under 80% AMI for Forsyth County.
Now let’s look at the Circuit Breaker. As the program currently exists, the program would cap her property taxes at 5% of her income, which would be just $2,250 of the $5,000. This program would off-set all of the increase in property taxes. In fact, her property taxes would even decrease slightly from previous years. The circuit breaker program already exists, but because the program requires a deferral and lien on the property, very few homeowners want to do it AND it’s cumbersome for tax offices to keep up with. As a result, two-thirds of NC counties do not have a single homeowner on the circuit breaker. A bill introduced last session, SB349, proposed getting rid of the deferral and making some common-sense improvements. Legislation like this would remove key barriers to relief for thousands of struggling homeowners across our state.
Last but certainly not least, there are also simply improvements to the revaluation schedule and state support that would make it less likely for these big shifts in property taxes to occur so suddenly. This is caused by spread out revaluations without much state support.
Check out this two-pager on property tax relief, and keep an eye out in the coming weeks for additional information and resources to support true property tax relief advocacy efforts for North Carolinians.
Questions about property tax advocacy?
Hudson Vaughan
NC Housing Coalition, hvaughan@nchousing.org
Jacquie Ayala
Habitat for Humanity of Wake County, jacquie.ayala@habitatwake.org
