By far the most confusing issue on this November’s ballot has to be Amendment D which is the proposed Constitutional change to how property in South Dakota will be taxed. The Rapid City Journal has a story this morning that tries to lay out the pros and cons of this amendment.
Currently our taxes are based on 3 different factors, assessed value of your property, city budgets, and the mil levy in your city that funds the budget. Amendment D proposes to change that formula by trying to control the assessed value of your property by initially rolling back property values to 2003 levels and then allowing it to rise a maximum of 3 percent per year.
The confusion comes into play at least in my mind because of the specific factors that are based on where you live and what if anything could cause your taxes to rise. First off the annual rise will be dictated by the legislature and won’t necessarily be based on actual property value increases or decreases and could in theory cause you to pay less taxes based on current property values or in many cases especially for those of us in rural areas, could actually increase our taxes to more than the assessed value of our homes.
An example of this is cited in the RCJ article.
For instance, you and your neighbor each have homes valued at $200,000 for tax purposes. Over 10 years, the market value of your homes could rise by 6 percent per year, but under Amendment D, your assessments could rise only 3 percent a year.
After 10 years, both houses would be worth $358,000. But the assessed value, limited to 3 percent annual increases, would be $269,000. Assuming that the mill levy is the same as it is today in Rapid City – about 17.7 mills – and then you’d both be paying $4,757 in property taxes.
So far, so good. But what if you sell your house after 10 years and move to a new neighborhood? The person who buys your old house will pay about $1,500 a year more in property taxes than his neighbor does.
Meanwhile, in your new neighborhood, you will be paying more than any of your neighbors.
To put a rural twist on the above example, assume just the opposite is the case. Say you live in an area where property values are stagnate like they are here in Canistota. If the legislature raises the tax rate 3 percent a year but your property values increase only 1 percent or not at all which has often been the case, you end up paying more taxes even though your home hasn’t increased in value.
Another consequence of this amendment relates to the already strapped funding of our schools.
For example, Tim Creal, superintendent of the Custer School District, said state law limits the school district’s mill levy. Custer is at the maximum. If Amendment D passes, assessments will roll back to 2003 levels. Unless the Legislature raised the allowable mill levy, his district will lose $350,000 in annual revenue.
“We are maxed out. No matter what happens, we can’t raise more money. The only way is if the Legislature would change the mill levy,” Creal said. “Without legislation, this is not revenue neutral.”
Mr Creal’s statement really gets to the crux of my problem with this amendment. If passed even supporters admit that more legislation will need to be passed to support it.
Amendment D supporter Bill Napoli even addresses these concerns.
Napoli dismisses those arguments as scare tactics. He said all constitutional amendments require legislative changes. He said he has a package of bills already in mind.
This seems to be a common tune among the supporters of the various bills that seek to change revenue sources for state government like this amendment and the initiated measure that seeks to repeal video lottery. Go ahead and pass the legislation and then rely on those in Pierre to tweak it down the road so that it can be revenue neutral. Based on the recent history of our legislature, do we really want to remove state revenue and then leave it up to Pierre to come up with alternate sources later?
If you live in an area where property values consistently rise more than 3 percent and you plan on never remodeling or moving then you would likely benefit from Amendment D’s passage, but for just about anyone else this measure will end up costing you in the long run.