By Phaedra Haywood: Santa Fe New Mexican
What to do about “tax lightning” will be debated during the state Legislature’s upcoming session.
Lawmakers, who convene Tuesday for a 30-day session, will consider various ways to fix a New Mexico property tax law that can cause a dramatic increase in a home’s taxable value when it changes ownership.
The law caps increases at 3 percent a year until the property gets a new owner, when the property must be reassessed at current and correct values.
Santa Fe County Assessor Domingo Martinez said the state law was passed in 2000 to protect longtime Santa Fe families from the impact of skyrocketing home values on their tax bills.
“People would come here on vacation and they would love Santa Fe and they were buying homes sight unseen,” Martinez said. “The market just kept going higher and higher and the old families in some of these neighborhoods, who never intended to sell, saw their taxes going up because their value was increasing.”
But the law has the effect of punishing new homeowners who end up paying tax bills much higher that those of longtime owners of similar properties.
Several Bernalillo County homeowners challenged the law in court last year and won.
Two state district judges found the law unconstitutional on the grounds that state law only allows property tax valuations to be limited based on the age and income of property owners and whether they occupy the property, not on how long they’ve owned it.
Bernalillo County Assessor Karen Montoya responded to the rulings by announcing her intention to roll back values on properties that had sold since the cap was imposed, reassessing them by the same criteria used for valuing properties that hadn’t changed hands.
Gov. Bill Richardson announced in December that he’ll propose an amendment to the state constitution that would change the language prohibiting value limits based on factors besides age, income or occupancy. The governor also directed Taxation and Revenue Secretary Rick Homans to review the issue and come up with legislative fixes that would ensure equitable taxation.
In the meantime, several state lawmakers said they will propose their own plans for addressing the issue.
Sen. Mark Boitano, R-Albuquerque, said he’ll introduce three different bills to address the inequities created by the 3 percent annual cap.
One bill would remove the 3 percent limit temporarily and require assessors in every county to bring all properties to current and correct values (about 92 percent of market value), after which the cap would be reinstalled on all properties across the board.
Another bill would allow county commissions to vote on the option of rolling values back to 2001 levels, maintain the 3 percent cap across the board and implement a new sales ration for new construction.
The third bill would create a state board that would deal with tax equalization issues that cross multiple taxing jurisdictions.
Boitano said he didn’t know enough about Richardson’s proposal to comment on it except to say that if the governor proposes legislation to change the parts of the constitution that were the legal grounds for the successful legal challenges to the law, he expects “a full-court press” of opposition to such a change.
Sen. Tim Eichenburg, D-Albuquerque, has prefiled a bill of his own, SB 45, which would extend the 3 percent cap to all property owners. “I think it makes the property tax equitable,” Eichenburg said.
Martinez said he thinks the best solution to the problem would be to remove the cap temporarily and bring all properties to current values before reinstating the cap for everyone. But, Martinez said, that should only be done if the budgets of all taxing entities are frozen during the year that the new value is added to the rolls, in order to keep budget writers from taking advantage of the increase in values to spend more money.
Keeping the cap the way it is, Martinez said, will only continue the inequities that have prompted criticism of the law.
“Those people that have new homes will continue to complain, ‘Why are my homes going up to current and correct when all my neighbors’ homes are down here at that other values?’ We get protests on that issue every year.”
Eichenburg, a former director of the state Property Tax Division, said he isn’t sure if Montoya has the authority to roll back values to 2001 levels, but he applauds her for taking a stand on the issue.
“She’ll force the Legislature’s hand, that’s for sure,” Eichenburg said. “It’s a very courageous, bold thing that she’s done. She’s tired of the inequity in the Bernalillo County, and it wasn’t the legislators that stood up to this, it was the assessor. So good for her.”