Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 16, 1993 TAG: 9305170252
SECTION: EDITORIAL PAGE: F-3 EDITION: METRO
SOURCE: GEOFF SEAMANS ASSOCIATE EDITOR
DATELINE: LENGTH: Long
If Councilman James Harvey has his way, it will drop another penny, to $1.22, in the 1994-95 fiscal year.
There are right reasons and wrong reasons for cutting real-estate taxes. Unfortunately, the Roanoke tax-cutting seems driven by the wrong ones.
Three right reasons for cutting a real-estate tax rate:
Because your taxes are appreciably higher than your neighbors, and there is no defensible explanation for it.
But real-estate tax rates in the Roanoke Valley are all in the same ballpark: $1.13 in Roanoke County; $1.18 in Salem; $1.25, soon-to-be $1.23, in the city. The size of other local taxes and fees varies from locality to locality, too; Roanoke city's is not always the highest.
Because you're substituting real-estate tax revenues with money from other, more equitable sources of revenue.
But while other local taxes in Roanoke have risen in recent years, as Harvey has noted, shifting from one tax to another is commendable only if the new tax is a fairer one.
The fairest alternative to real-estate taxes, a local income tax, is simply not an option under current state law. Meanwhile, some of the other city taxes are manifestly less fair than the real-estate tax.
An auto decal, for example, costs the same whether it's for a '75 Ford or a '93 Ferrari. Yet council was willing to raise the decal fee this past spring - while now insisting on cutting the rate on the real-estate tax, which is tied to market value of property and thus to a taxpayer's wealth.
Because you're trying to impose discipline on a runaway municipal bureaucracy.
But if there is such a need in Roanoke, the public hasn't mentioned it - unlike, say, the two-for-one pension deal council had given itself. Nor has council mentioned runaway government as a reason for cutting the rate.
Indeed, council absorbed most of the tax-rate cut not by cutting the city manager's budgeted expenditures but by increasing revenue estimates from other taxes.
Meanwhile, the local-government load - in Roanoke and elsewhere - has been made heavier by a debt-ridden federal government's and a cash-starved state government's habit of dumping responsibilities on cities and counties.
A case in point is the latest city non-property tax increases, in the auto-decal fee and the local cigarette tax. The extra revenue is to pay for jail expansion made necessary in part by the state's failure to build enough prisons and, more broadly, the emphasis on incarceration in criminal-justice policy nationwide.
Now, two wrong reasons for cutting real-estate taxes, both of which have been used to justify council's action:
Because real-estate values are rising.
If the rises were racing ahead of general inflation, as they were during much of the '80s, this argument would hold some water. The faster-than-inflation rise in values during that era helped justify and make possible the city's lowering of the real-estate rate from $1.64 to $1.25 over a 12-year period. In recent years, however, the increase in real-estate values has slowed, and now runs close to general inflation.
Anyway, the greater wealth brought to a homeowner by higher real-estate values, while it may be illiquid, is not a meaningless abstraction.
Many homeowners - myself included - benefited materially from the inflation in real-estate values. For homeowners, higher values can be used as collateral for tax-favored loans. When the home is sold, the owner reaps the capital gain - which, for home sales, is generally not subject to income tax.
With regard to income-producing property, the argument that rising assessments compel lower tax rates is even weaker. Landlords can bank return on investment without having to borrow against the property or wait till they sell it.
Because cutting the real-estate tax rate helps elderly homeowners.
But why should elderliness matter (and why do politicians assume the elderly themselves think it matters) in setting tax policy? Retirees come in all shapes, forms and bank-account sizes; some are comfortable financially and some are not. With tax policy, it shouldn't be age that's important; it should be ability to pay.
A truer way of putting it is that cutting the real-estate tax rate helps some elderly homeowners, and the richer they are, the more it helps.
It doesn't help at all elderly people who no longer, or perhaps never did, own their homes. It is likely to have little effect for those homeowners who make less than $22,000 a year and have a net worth of less than $70,000; they're already eligible to have their real-estate taxes frozen at the amount they were when they reached 65.
It may help, but not much, the owner of a nice but modest home: On one, say, $60,000, the owner next year will pay $1 a month less in taxes than he otherwise would have, $2 a month less thereafter, $3 a month less if the rate goes down another penny.
Of course, for the guy sitting in a million-dollar pile, the monthly savings are $17, $33 and $50 respectively. That must be who Roanoke's real-estate tax cuts are trying to protect.
by CNB