Think the rise in housing prices is a good thing? Think again.
One of the unintended consequences may be property tax increases we never voted for. By law, “The county assessor appraises residential property at 100% of its ‘fair market value.’” As property values increase, assessed values rise proportionately. And that won’t be easy to change because “the standards of fair market value and uniform valuations are requirements of the Utah Constitution.”
What increases in assessed value can we expect in 2022 and beyond? As reported in the Deseret News, “In the second quarter of 2021, Utah’s housing prices increased a staggering 28.3% from 2020.” Are we ready for double-digit increases? With housing values expected to continue upward, increases in assessed values won’t end in 2022.
Fortunately, assessed values are only part of the story. In Utah, a primary residence’s taxable value is set at less than its fair value, though they still move in concert. Additionally, Utah’s “Truth-in Taxation” law de-linked property tax revenues from the growth in property values. The law requires property tax rates to automatically adjust when property values change so the taxes remain the same, unless a taxing entity’s legislative body (e.g., a city council) voted to increase the tax through a process of notification and public hearing. It is widely believed that Utah property taxes are lower than many states because of this law.
Even so, application of the law has produced mixed results. According to a 2018 study conducted by the Utah Foundation, “overall collections have still outpaced population growth and inflation combined.” The reason is “revenues for school districts and local and special districts have been increasing faster than population growth and inflation …” It is interesting to note the portion of taxes that has grown the fastest is controlled by the state Legislature.
More than 40 years ago, California took a more aggressive approach. Among other things, annual assessment increases were limited to 2%, or the rate of inflation (whichever is lower).
If we do nothing, it is quite likely that property taxes will continue to outpace population growth and inflation, and those increases could be quite significant. With more than 35 years of experience, we should be able to improve on the “truth in taxation” law passed in 1985. Some elements of California’s Prop 13 are more effective and worth considering, but we can do better. It’s time for an informed public discussion.
We are all in this together. Although seniors living on fixed incomes may be the least able to afford double-digit tax increases, all are affected because wage increases are unlikely to keep pace.
Some politicians may favor a limited approach based on income levels. In reality, many already have been priced out of the housing market and would not benefit from such a limited approach. However, they could benefit if overall property taxes were controlled, since less would need to be passed along to tenants.
The governor indicated that he is not excited about property value increases, “because it does put additional pressure on families.” Elected officials can’t control property values, but they can control taxes — if they chose to. Unfortunately, according to one prominent state senator, there has not been much interest in property tax amendments.
Will 2022 bring double-digit tax increases we didn’t vote for? That depends on us. It’s easy to get discouraged with runaway spending, inflation, supply-chain issues and other economic problems created by Washington politicians. But this is something closer to home that we can fix. Reach out to your elected state officials and express your views.
William R. Titera is a retired EY national office audit partner and former chair of the AICPA’s Assurance Services Executive Committee.