House property tax legislation adjusts homeowner credits and reforms local government funding

The House Property Tax Division passed their “division report” on April 1, which are their recommendations for the property taxes and aids to local governments sections of the House omnibus tax bill.

The House set a target of $250 million in cuts to this area of the budget for FY 2010-11, and the committee has sought to come up with cuts while still paying attention to the rising regressivity of the tax system and the need for local governments to fund services in their communities. (This compares to $520 million in cuts in aids and credits in the Governor’s budget.)

Here are some of the big pieces:

Property tax credits: The report makes a $19 million increase to the homeowner property tax refund, commonly called the “Circuit Breaker”. That’s a 6% increase, and it is achieved by 1) increasing the maximum amount of credit by 10 percent, and 2) for households with incomes between $18,120 and $67,909, it would now be a little easier to qualify and the amount of credit would be larger. The proposal also cuts the Market Value Homestead Credit by a similar amount – so they reduce the credit that is based on home value and increase the credit that is based more on income. The division report does not accept the Governor’s proposal to cut the Renters’ Credit.

Aids to local governments: The House would cut aids to cities (Local Government Aid) by 8% in FY 2010-11 and 7% in the next biennium – considerably less than the Governor’s proposal – and repeals levy limits for cities. Counties would face deeper cuts in County Program Aid in the FY 2012-13 biennium than proposed by the Governor, but would be allowed the option of enacting a 0.5% local sales tax. Counties would still be subject to levy limits in Pay 2010.

The House Property Tax Division has had several working groups this legislative session, focusing on local government performance measurement and improvement, local government mandates, and state property tax benchmarks and indicators. The outcomes of those working groups are also incorporated in this bill…stay tuned for additional analysis in the weeks ahead on understanding the potential impact on local services both of reductions in aid and changes in state mandates.

If you want to see the bill itself, visit the House Property Tax Committee’s web site and look for the amendments to HF 2020.

Next step: the division report will go to the full House tax committee, which will consider whether to fully incorporate the report into the omnibus tax bill, or make changes.

-Nan Madden

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