The burden of high property taxes is a source of growing frustration and legitimate concern for taxpayers across the nation.
Because property tax systems vary greatly across the states, finding a solution to out-of-control property tax burdens is often difficult for policymakers. Interestingly, states across the country are taking a page from Utah’s book, where a state law has kept property taxes from spinning out of control for decades.
The root cause of high property taxes is government spending. Over the past 40 years, state and local spending increased by 88%, even after fully adjusting for population and inflation. To achieve true property tax relief, this spending addiction at the local level must be addressed.
For ideas on how localities can break this addiction, look no further than Utah. The Beehive State is a national leader on pro-growth economic policies, ranking No. 1 in “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index” for 13 years in a row. One of the reasons for this stellar economic outlook is Utah’s most taxpayer-friendly law, known as the truth-in-taxation law.
Enacted in 1985, Utah’s truth-in-taxation law is a revenue-based limitation, which means as property valuations increase, property tax rates decrease. The law guarantees that each taxing entity receives the same property tax revenues as the previous year, including new growth.
If a local government wants to exceed the certified tax rate, the law requires that notices be sent to taxpayers, providing information on the proposed tax increase. These notices also include the date, time, and location for a truth-in-taxation budget hearing, where property owners can voice their support or opposition. Then, local officials must take a recorded vote on the property tax proposal.
Through this process, local governments must justify why they want to increase taxes for additional spending. Naturally, this added transparency and accountability has helped to control the growth of property taxes in Utah. In 1985, Utah ranked 24th for lowest property tax burdens among the 50 states—today, Utah has improved to 14th lowest.
Several states are taking note and working toward implementing truth-in-taxation laws of their own. Some of these states include Kansas, Nebraska, and Iowa. After vetoing the bill last year, Kansas Gov. Laura Kelly, a Democrat, recently signed a Utah-style truth-in-taxation bill into law. A similar measure is currently moving through the Nebraska Legislature.
In Iowa, the General Assembly passed a property tax accountability and transparency law in 2019. The law requires local governments to hold a public hearing if the proposed budget increases more than 2% above the previous year (school district funding is exempt from this limitation) and a supermajority vote to enact the spending increase.
This 2% “soft cap” is meant to control the growth of property taxes and to prevent local governments from claiming windfalls from increased assessments.
Although Iowa’s effort was a good start, property taxpayers in the Hawkeye State are still confronted with a complicated tax system. Following the approach of Utah and Kansas would provide greater clarity for taxpayers.
The business-as-usual model in most states hides tax increases and is known as the “honesty gap.” While taking credit for maintaining or even reducing property tax rates, local officials can use assessment-driven measures to extract more revenue from taxpayers—without ever holding a public hearing or vote. This drives the local spending addiction. Too often, if property valuations increase by 10%, so do local government budgets.
With truth-in-taxation, taxpayers’ best interests are prioritized. Local governments are stopped from getting a windfall just because assessments have increased, and elected local leaders are forced to be honest about the true nature of property tax hikes. This makes it the true gold standard of property tax legislation.
Other states would be wise to follow in the footsteps of Kansas and Utah, and consider this much-needed reform.