Phasing out property tax freeze could lead to lower taxes

mowen@ledger-enquirer.comJanuary 26, 2013 

Columbus' property tax assessment freeze means different things to different people.

To some, who have owned and lived in a house for a long time, it's a huge tax break.

To their new neighbors who might be paying hundreds of times as much in property taxes for the same services and amenities, their assessment might include some choice words.

To the city as a whole, many say it's a drag on Columbus' growth and a stimulant for adjacent counties.

Dan Parker, a founder of Coldwell Banker/Kennon, Parker, Duncan and Key, has been selling real estate since 1966, so he's seen the market before and after the freeze went into effect. He thinks it's driving people out of Columbus to lower tax havens that are close enough to still enjoy the amenities of Columbus but just far enough away to avoid having to pay for them.

"I am aware of many instances over the years where buyers have chosen to move to nearby Alabama counties or Harris or Talbot or Marion County for the benefit of lower property taxes," Parker said. "How many would be hard to quantify, but it could easily be several hundred a year."

Mayor Teresa Tomlinson said the lack of growth over the last two decades and a stagnant property tax digest are quantifiable, but the reason for those facts is harder to pin down. Columbus grew 3.9 percent in the 1990s and only 1.9 percent in the 2000s, she said, while the state as a whole grew 26.9 percent in the 1990s and 18.3 percent in the 2000s. Even taking into account Atlanta's strong influence on those numbers, those numbers look bad, she said.

"I think you see the quantitative evidence in the fact that since we've had (the freeze) our growth has been stagnant despite the fact the growth in the state has been so tremendous and our surrounding counties have shown such incredible growth," she said.

Others have tried

Tomlinson wants to do something that no one has yet been able to do: talk Columbus voters into approving a referendum that eventually would eliminate the freeze.

Voters initially approved the freeze 73 percent to 27 percent in 1982. A 1991 attempt to repeal the freeze by referendum failed 81 percent to 19 percent.

In the early 2000s, a group challenged the freeze's constitutionality and won a favorable ruling at the Superior Court level. But the state and then federal supreme courts ruled it constitutional.

It was clear that few people under the freeze would vote themselves out from under it.

But Tomlinson's approach would allow anyone who currently has the freeze to maintain it on their home as long as they live.

The freeze would come off a piece of property only when it changes hands, then it would remain unfrozen instead of being refrozen at its current fair market value, as is the case under the freeze.

Once all the homestead property in the county changes hands, the freeze would be history.

Homestead exemption hike

Another aspect of Tomlinson's sunset referendum is an increase of the city's homestead exemption, but only for those whose assessments are unfrozen. It would rise from the current $13,500 to $20,000. That, Tomlinson said, would offer a significant savings and soften the blow of coming out from under the freeze.

Using the example of an owner-occupied home worth $200,000, she said the current tax bill would be about $2,700 but would be reduced about $270 a year, about 10 percent, with the higher homestead exemption.

That might soften the blow, but it's not likely to discourage those moving into unincorporated Harris or to Alabama, if lower taxes are indeed the main attraction.

In unincorporated Russell County, a $200,000 house would cost the owner about $680 in property taxes, and in Phenix City, about $1,100, according to the county tax assessor's office.

In unincorporated Harris County, a $200,000 house would cost the owner about $1,820 a year.

Those taxes rise, of course, when you move into the city.

The same house in Shiloh will cost you about $2,200, in Hamilton, $2,400 and in Pine Mountain, you'll pay about the same as in Columbus -- $2,700, according to the tax assessor's office.

Columbus taxes will never be as low as in unincorporated areas, Tomlinson said, but you get what you pay for.

"We're still going to be offering superior services and superior quality of life -- hospitals, better schools and better road systems, better amenities, all of the things that Columbus offers," Tomlinson said. "But the problem is right now, we have such a barrier to entry with the high taxes that the disadvantage isn't being offset by the amenities in too many people's minds."

Tax cut will pay off

After Tomlinson floated the sunset referendum in her recent State of the City address, at-large Columbus Councilor Skip Henderson said he liked the idea of the higher homestead exemption, "but we're just going to have to crunch the numbers -- see what the impact on the budget would be."

Because the extra $6,500 homestead exemption is a tax cut, it would cut revenue to both the Consolidated Government and the Muscogee County School District, should the school board vote to participate in the sunset referendum. But only at first, Tomlinson said. As the freeze thaws, and more property moves from the old tax system to the new, revenue will pack back up, according to Tomlinson.

She had tax experts run the numbers and this is what they came up with:

Over the first three years of the sunset, the city would lose a total of about $254,000. The school district would lose about $350,000 over those first three years.

After that, property tax revenue would start to grow and those losses would be recovered within a couple of years and by the end of 10 years, both entities would show a net gain -- $1.35 million for the city and $1.87 million for the schools over that period.

That eventual increase would make it possible to lower millage rates in the future and still produce the same amount of revenue, Tomlinson said.

That would benefit business owners and other non-homestead property owners, who have never benefited from, and in fact have suffered from, the freeze.

As an example, Tomlinson said her numbers show that, had the sunset referendum been offered and approved 10 years ago, the city today would be able to cut its millage rate by three mills and the school district by four mills and still produce the same revenue.

Realtor Parker said he and other business owners would welcome that scenario.

"My opinion is that if Muscogee voters would approve a lifting of the freeze, that in time the result should be lower property taxes for most property owners," Parker said. "I like the mayor's proposal but only wish it could be phased in quicker, as it will take many years for all properties to no longer be protected by the tax freeze."

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