Can fixing relief programs lower NC property tax bills?  ...Middle East

Homes in Southeast Raleigh. (Photo: Greg Childress/NC Newsline)

State lawmakers should focus on fixing existing state programs to provide property tax relief for seniors and disabled homeowners, says Hudson Vaughan, director of the Community Justice Collaborative at the N.C. Housing Coalition.

Vaughan’s comments come as lawmakers weigh a constitutional amendment that would give them authority to restrict property tax increases. The amendment is a response to homeowners’ complaints about rising property taxes, which some lawmakers and taxpayers contend is partly due to irresponsible spending by local governments.

A draft of the amendment doesn’t spell out how property tax increases would be restricted; it would only be a mandate to the General Assembly to limit increases. Lawmakers would determine how to do that in accompanying legislation.

An effective fix, Vaughan told NC Newsline, would be to expand and improve the state’s homestead exemption and circuit breaker programs that are designed to provide property tax relief for seniors and disabled homeowners.

“If we’re really talking about people who are threatened with displacement because of a significant property tax burden, then these targeted programs actually being fixed and expanded — especially in high-cost areas where most of the struggles are being recorded — then it’s a much cleaner fix,” Vaughan said. 

Here’s how the homestead exemption and circuit breaker programs work:

The state also offers a disabled veterans exclusion that excludes the first $45,000 of the appraised value of the permanent residence of a disabled veteran.

A levy limit on the table

State lawmakers are considering a levy limit to cap how much revenue local governments can collect from existing properties each year as another way to lower property tax bills. 

“Levy limits stand out as the most effective and least distortive option,” Abir Mandal, a senior policy analyst at the conservative-leaning Tax Foundation, wrote in a recent column. “These policies cap annual growth in total property tax revenue (the levy) from existing properties, typically adjusting the cap for inflation and population growth.”

New construction and development are excluded, allowing revenue to expand with population and economic growth, Mandal wrote.

Critics of levy limits contend they fail to control increases in housing costs and reduce local government fiscal flexibility. They can also lead to cuts in essential public services and an increased reliance on fees and less transparent revenue sources, critics contend.

Vaughan said that reports from states with property tax limits such as California show that local governments begin to rely more on state aid for support once caps are implemented.  

House Speaker Destin Hall (R-Caldwell), who formed the House Select Committee on Property Tax Reduction, supports the idea of  a levy limit. The committee was created to examine ways to reduce property taxes.

“It’s time for real reform, which is why the House is pursuing solutions like levy limits to stop runaway property tax hikes and protect North Carolina taxpayers,” Hall said in a recent statement.

But a levy limit won’t fix the real problem seniors have paying high property taxes, said Vaughan, who has worked with more than 500 elderly homeowners in recent years to lower their property taxes. Many of them spend 10% or more of their modest incomes on property taxes, he said.

“That’s a real burden … and yet the state programs, as they’re written, aren’t reaching a lot of folks, especially in growing counties that have high costs of living,” Vaughan said.

He shared an example of an elderly homeowner with a $40,000 a year income who saw her property taxes double from $2,000 a year to $4,000. The example is similar to one tate Rep. Jeff Zenger (R-Forsyth) shared with the tax reform committee.

“A levy limit would have no immediate impact on this homeowner, and even a pre-existing one would likely have saved her just a couple hundred dollars of that increase,” Vaughan said. 

Improving existing tax relief programs

Vaughan is lobbying lawmakers to improve the homestead exemption and circuit breaker so that they serve more homeowners. The homestead exclusion program should be based on area median income to address regional differences in income and cost of living, he said. 

In Wake County, for example, only about 1% of homeowners qualify for the exemption because of the income restriction, he said.

“As much as 50% of elders in some of the rural counties can qualify, but only a tiny percentage of these growing counties can qualify, and those are often the folks who have the highest property tax burden,” Vaughan said.  

Vaughan believes the circuit breaker is grossly underutilized. He wants lawmakers to drop the deferral and lien provisions in the circuit breaker because they deter homeowners from taking advantage of the program.

“There’s a lot of anxiety around having deferred taxes and what that will mean for the future of their properties,” Vaughan said. “So you just have very few people take advantage of that program. 

Data from the North Carolina Department of Revenue show that only 26 counties have homeowners participating in the circuit breaker program. In contrast, all 100 counties have homeowners taking advantage of the elderly and disabled exclusion and the disabled veterans exclusion.

Another problem with the circuit breaker, Vaughan said, is that county tax offices have difficulty explaining and implementing the program.

“You have to track it, you have to have liens on the property, you have to update incomes every single year, so it’s a very cumbersome program to implement,” Vaughan said. 

Senate Bill 349, introduced last legislative session by a trio of Republicans, would have eliminated the tax deferral provision in the circuit breaker, making it instead a forgivable benefit. The bill would have also expanded income eligibility, made it easier for a co-owner to claim the benefit, and extended the requalification provision to three years instead of every year.

“It would have made a big difference in the ease of explaining it and having people taking advantage of it,” Vaughan said. “So, the solutions are already being proposed.”

SB 349 was one of a slew of bills filed last session to expand the state’s tax relief programs for homeowners. Many of them shared similar provisions to expand eligibility for the programs. All stalled in House and Senate committees.

A constitutional amendment

The House tax reform committee could vote next month on whether to pursue the proposed constitutional amendment. Rep. Julia Howard (R-Davie) told the committee last week that she is certain voters would approve an amendment to limit tax increases.

“People are very concerned about their property tax, but they’re gonna speak loud and clear,” Howard said. “When they do, then it’s gonna be your responsibility to address the issue, and it’s not an easy fix.”

Marcus Gadson, an associate professor of law at UNC Chapel Hill and constitutional law expert, said constitutional amendments in North Carolina that make it onto ballots have a high success rate. Amendments in this state require a 60% supermajority vote in both chambers to make it onto the ballot.

“Typically, something that is able to reach that 60% threshold in both chambers is something that stands a pretty good chance of getting a majority of the [popular] vote,” Gadson said. “In North Carolina, you just need a majority to ratify a constitutional amendment.”

Gadson said lawmakers on both sides of the issues will have to make their case to voters by explaining the revenue implications for local governments and municipalities, and the potential impact on funding for law enforcement, public schools and human services.

“I think because we are living in a time where cost of living is such a concern for voters,” Gadson said, “an amendment that effectively could lower taxes and put more money in people’s pockets — I do think that it stands a good chance of passage.”

“Of course,” he added, “the question will remain: exactly how much would this help people?” 

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