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Working Toward Honesty and Accountability

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By Lowell L. Kalapa

Recently a state legislator characterized the Tax Foundation as having a “bias” because it has always taken the position that there should be a single rate for the real property tax.
While she made it sound like something sinister, there is nothing wrong with being biased if in fact it is something that is the best for all taxpayers. In this case, it is the idea of honesty and accountability in the real property tax system. Elected officials made the move to a two- or three-tier rate system for the real property tax when the counties took over the responsibility for the real property tax back in the early 1980’s.
County officials saw the opportunity to earn a lot of points with their constituents if they could visibly lower the real property tax rate on residential property because those classes of property are where all the voters are. To make up the lost revenues, they set higher rates for non-residential property like commercial and industrial property based on the rationale that there were fewer voters and besides these businesses could pass the cost onto their customers. Even higher rates were adopted for hotel/resort property because, for sure, the customers of those properties didn’t even vote in the state.
The result was that where residential property represented say two-thirds of the value of the property in the tax base, the differential rates resulted in residential property generating less than half the dollars of the real property tax. So residential property was paying less than its share of the value pie.
Hooray! Homeowners cheered! They didn’t have to pay as much in property taxes and as a result they re- elected their benevolent council members. But wait! If the property tax collections were just as high as in the previous year and the property tax rate was lower on residential property, then the dollars collected from nonresidential property had to be more.
And about that argument of businesses or nonresidential property owners being able to pass the cost of the higher tax onto their customers . . . just who do you think their customers are? Why you and me! So we all end up paying the property tax that we would otherwise have paid as homeowners had there not been a two-tiered rate system.
However, this is where the accountability issue comes into play. Instead of holding county council members accountable for the cost of operating county programs and projects, we end up blaming those businesses we patronize for “ripping us off” with higher prices. Little do we realize that those higher prices are in some part due to the higher property taxes on nonresidential property.
A single real property tax rate would help all taxpayers to see just how much it costs to run the county. None of this “smoke and mirrors” in hiding the cost by imbedding the cost of the property tax in the price of goods and services sold by nonresidential property owners. If property taxpayers really knew how high the property tax on their homes would be, they just might take more interest in how those tax dollars are being spent.
Sure, we would all like the “man behind the tree” to pay our tax burden, but when that scheme allows elected officials to spend more than the community and the economy can bear, then there is a real crisis in accountability and a real question of whether or not elected officials are being honest. Being honest about the true cost of government may just upset voters, but that is what a single rate would do. So is a “bias” for ensuring that people know what government costs so sinister?
From an economic point of view as more and more of the tax burden is shifted to businesses located on non-residential property, the less likely those businesses will be to absorb those costs and in the end may have to go out of business because the property tax is a fixed cost that must be recovered if the person is to stay in business. Now that county officials have created a two-tier rate system, it will be difficult to correct it as it may mean having to raise the property tax rate on residential property owners. Not an easy task!
So the challenge is whether or not county officials want to be honest about the property tax burden or if they want to continue to hide behind the shift in tax burden to our grocery bills and the higher costs of getting kids ready for school. Truth in government is a “bias” to be proud of any day!

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