Options for Reducing Property Taxes David L. Sjoquist Towards a Better Understanding of Property Taxes & Proposed Policies September 11, 2008 Atlanta, Georgia

What is the problem? Local governments are spending too much Property taxes are too high Large annual increases in assessed value Tax increases are too large Not fair/equitable Elderly are forced to sell Residential vs. business burden is wrong Reduces economic development Capital gain is taxed but not realized

Three Options for Reducing Property Tax Burden State funding of education Grants to local governments Targeted tax credits

I. State funding of education Increase QBE to $8,000 per FTE Districts under $8,000: eliminate PT Districts over $8,000: allow supplement Set an allowable annual increase Districts assured of annual increase: From the state From prop tax

Current (FY 2007) Revenue (in millions) Revenue per FTE Local $5,767$3,604 State $7,201$4,500 Total$12,968$8,104 Proposal Revenue (in millions) Revenue per FTE Local $611 $382 State$12,803$8,000 Total$13,414$8,382

Prop Tax Reduction = $5,156 million Increased funding = $445 million % reduction in local rev: 89% Districts with 0 tax: 109

II. Matching Grant State grant = fraction of prop tax Require an equal cut in prop tax Set a limit for increase in grant

Example Current Property tax = $100 million Grant = ½ of prop tax ($50 million) Cut property tax to $50 million Future: match prop tax $ for $

What about the 2 nd year? Suppose increase is limited to 5% Case A: Prop tax stay at $50 million Matching Grant is $50 million Case B: Prop tax increases to $52.5 million Matching Grant is $52.5 million

Case C: Prop tax increases to $54 million Matching grant is $52.5 million

III. Targeted Tax Credit Credit = Property Tax in excess of some fraction of income

Example Property tax = $1500 Income = $30,000 Fraction = 4% 4% of $30,000 = $1200 Credit = $1500 – $1200 = $300

Eligibility and Limitations Age Income Owner-Renter Maximum credit

Relief with 4% Homeowners only Maximum Income Age Limit Property Tax Relief (in millions) % of Owners None $ % $50,000None$ % $50,00062 $985.0%

Fiscal Research Center Andrew Young School of Policy Studies Georgia State University Atlanta, GA FRC Report No. 182 August 2008 For copies of reports, see the FRC website: A Brief History of the Property Tax in Georgia David L. Sjoquist