Property tax reduction and reform

House Speaker Destin Hall may have opened a can of worms when he proposed forming a study committee to examine property tax reduction and reform. If he was trying to deflect attention away from the legislature’s failure to pass a budget, he might have found a better way of doing so.

The one thing more irritating to taxpayers than paying income taxes is paying property taxes. Not only could this study impact property owners but also the cities and counties, along with schools, hospitals, law enforcement, healthcare and other agencies that depend on funding from local governments.

The subject is especially relevant since property taxes are due January 5^th.

Property taxes are the single largest source of local (city and county) revenues, accounting for some 72 percent of revenues in 2020. It is the tax over which local governments have the most direct control.

Property taxes can be assessed based on two variables: first is the valuation of the property and second is the tax rate assessed on that valuation. North Carolina law requires the counties to conduct revaluations every eight years, however some counties have shortened the cycle to four years to reflect market values more accurately.

There was a time, not too many years ago when cities and counties had a “hold harmless” philosophy after a revaluation, adjusting tax rates so the property taxes didn’t increase. That strategy is just a memory now. Mike Walden, one of North Carolina’s most trusted economists says part of today’s concerns is that, “Counties did not lower property tax rates to fully counter the effect of the increase in assessed values during revaluation years, so they averaged an almost 30 percent increase in real property tax collections in years when a revaluation took place. However, in interim years, they averaged 3.6 percent.”

Since COVID, property values have escalated rapidly. Between March 2020 and July 2024, the list price of a median home rose from 31 to 47 percent statewide. Metropolitan areas experienced surges from 42 to as high as 131 percent, due to factors like population growth from other areas, housing shortages, a strong job market and owners being able to work from home.

But most of our 100 counties declined in population from 2010 to 2020. Local leaders were forced to either drastically cut services to their residents or increase property taxes on those who remain.

Representative Erin Paré, co-chair of the committee formed to study property taxes, said the committee would, “work to deliver responsible reforms that balance homeowner affordability with a local government’s ability to meet community needs.”

Out of the gate, Paré’s purpose statement raises questions.

Question 1: Should property revaluations be conducted more frequently? If so, how often? Walden says that following revaluations property taxes increase by 30 percent. Should taxes after revaluations be confined only to the actual value? Should annual rate increases reflect the actual increase in property values or a fixed percentage of increase?  Should the state have more control over property tax rates?

Question 2: Local government budgets continue to increase, some dramatically. What role, if any should the state play in controlling the rapid budget increases by local governments?

Question 3: Are local governments too dependent on property taxes? If there is going to be legislation that limits or restricts property taxes, what other revenue sources will be available? Cities and counties are created by the state and function as authorized subdivisions, so all sources of revenues must be approved by the state.

Question 4: The state has previously allowed a “circuit breaker” for homeowners over 65, those who are disabled or disabled veterans if the tax bill exceeds 5 percent of their income. What impact might it have on local governments if that “circuit breaker” was increased or decreased? And if decreased, what impact might that have on impacted residents?

Question 5: What role, if any, should the state play in providing relief to poorer counties forced to raise tax rates disproportionately, rates that might result in even further population declines?

Question 6: Should the legislature be involved in reviewing local government spending? Our legislature has a record of expanding its purview of agencies and programs. Could this be a step toward more controls over local governments?

These are just a few questions that come to mind. To be sure there are others.

I suspect I join many other property owners in hoping for tax relief, but here’s what I know. This committee’s actions has the prospect of pitting local governments against legislators, local governments against property owners, property owners against the state or local governments and recipients of local government funds against both the local governments and the state. And if the committee does nothing, it could impact opinions about legislators.

Good luck!

Tom Campbell is a Hall of Fame North Carolina broadcaster and columnist who has covered North Carolina public policy issues since 1965.  Contact him at tomcamp@ncspin.com