There’s been a fair amount of talk about a proposed property tax exemption that got voted down today, and Senator Ken Cuccinelli made that the topic of his most recent Cuccinelli Compass. If you want the real story about what this was, and why it should have failed, read on…
The Short Version:
Nobody wants to advance tax cuts more than I do, but the language of the real estate tax exemption amendment can be used for political welfare for the favored constituents of local governments rather than tax relief for all of the homeowners in a jurisdiction. I have no doubt that that is why the Senate Dems like the current language of the proposed amendment.
The language was written wrong last year and it wasn’t caught last year, and you can’t “fix” the language of a constitutional amendment in the second year of passage without having to start the process over again.
The Long Version:
First, The Process For An Amendment
There is a two step process required to pass an amendment to the Virginia Constitution. Usually this takes place over two years, though it can take three years.
In the first year, the proposed amendment must be passed by both the House and the Senate.
After the first year, there has to be an election before the amendment can be taken up again by the House and Senate. In the case of the property tax amendment, it was passed without much review in the 2007 General Assembly by Senator Rerras, then came the November 2007 elections.
After the election, in the second year of passage, in addition to passing the amendment with the exact same wording as the year before, it is also necessary to pass a bill to implement the constitutional amendment and to put it on the ballot.
The amendment, SJ 6, was submitted in this session by Senator Mary Margaret Whipple, [SuperLib (D)-Arlington]. The bill, SB 496, was submitted by Senator Ralph Northam – the Senator that had defeated Nick Rerras. Presumably, the Dems’ idea in giving it to Northam was political, i.e., the concept originated in Norfolk and they had shown a greater desire for this than anywhere else in Virginia, thus the Dems could prop up a freshman by getting him credit for the amendment. This is not much different than Rerras carrying it in a tough election year.
Because they had the majority in the Senate, the Dems controlled who’s bill and amendment would be considered. i.e., if 5 of us had put in amendments or bills, they could stop everyone and clear the way for Whipple and Northam.
Second, What We Wanted To Do…
The concept that we were trying to accomplish was simple: to allow local governments the option of exempting up to 20% of the value of owner-occupied residences and farms from real estate taxes. To be even more specific, the idea was to allow the exemption of up to 20% of the value of each and every owner-occupied residence or farm.
Okay, simple enough right?
Third, What Was Drafted…
Here is the critical language from the amendment and the bill (with my own emphasis):
From the Constitutional Amendment, SJ 6:
ARTICLE X : TAXATION AND FINANCE
Section 6. Exempt property.
… (k) The General Assembly may by general law allow the governing body of any county, city, or town to exempt or partially exempt from real property taxation or provide for the deferral of real property taxes, within such restrictions and upon such conditions as may be prescribed by the governing body by ordinance, of up to twenty percent of the value of residential or farm property that is designed for continuous habitation and is occupied as the primary dwelling of the individual owners.
From the bill, SB 496:
Be it enacted by the General Assembly of Virginia:
1. That the Code of Virginia is amended by adding in Chapter 32 of Title 58.1 an article numbered 2.01, consisting of a section numbered 58.1-3218.1 as follows:
Exemptions and Deferrals of Real Estate Tax for Residential or Farm Property Designed for Continuous Habitation.
§ 58.1-3218.1. Exemptions from and deferrals of real estate taxes; certain residential or farm property.
… B. Pursuant to Article X, Section 6 (k) of the Constitution of Virginia, for tax years beginning on or after January 1, 2009, the governing body of each county, city, or town may, by ordinance, (i) exempt or partially exempt from real property taxation, (ii) provide for the deferral of real property taxes, or (iii) provide for a combination program of exemptions from and deferrals of taxation of real property of up to 20 percent of the value of real property that is (a) residential or farm property designed for continuous habitation and (b) occupied as of the tax day as the primary dwelling of the owner or owners, who shall all be individuals. For purposes of this section, real property shall include any “manufactured home” as defined in § 36-85.3 and assessed pursuant to § 58.1-3522.
As provided in Article X, Section 6 (k) of the Constitution of Virginia and as otherwise authorized by law, any restrictions, conditions, or classifications of the tax relief program described under this section shall be provided by the local ordinance, including provisions to verify eligibility.
Fourth, What The Language Actually Does
Let’s cut to the heart of the problem with the language underlined above. Note that the language “exempt or partially exempt” does NOT require that the tax exemption be provided to every homeowner or farm. Rather, the 20% is calculated on the TOTAL VALUE of all residential real estate in a locality.
The language “upon such conditions as may be prescribed by the governing body” allows local governments to selectively grant the exemption.
So, let’s look at this in a hypothetical: Say there’s a locality where all of the residential real estate is the same value, with 500 homes each worth $100,000, for a total assessed value of $50,000,000. Our intention is that only $80,000 of the value of each home be taxed; however, the language of the proposed amendment allows a local government to give 100 homes a 100% tax exemption! Yikes. This was not caught last year (more on that below).
This isn’t a tax cut, it’s a welfare program that will get doled out to the politically favored neighborhoods in each locality, which explains why Sen. Whipple and the Dems like it so much. They get to say that they’re tax cutters when what they’re really doing is giving their local government allies the ability to dole out money to favored constituents. How do we know this will happen? Because it already does. For example, in Lynchburg, Ward 2 residents pay less for their trash service, while everyone else pays extra. Who do you suppose folks in Ward 2 vote for, incumbents or challengers?
The language proposed would allow the legalization of political pork through real estate tax exemptions.
Fifth, How Did We Get Here?
While I’m not happy to say it, there obviously was not adequate review of the potential abuse of the amendment language as it was written last year. This is important because we can’t just “fix” the amendment this year, as it can only go on the ballot if it passes in exactly the same form as last year. But the language from last year is fatally flawed. It can’t be fixed this year.
We can amend the bill, but that doesn’t do any good to solve the underlying problem with the amendment. So we’re stuck either voting for a very badly flawed amendment that would legalize the mass-buying of votes by using the exemption to pay off (literally) favored constituencies or we have to start over.
The Republicans in the Senate are committed to bringing forth a good bill over the next two sessions and getting it on the ballot in a form that will have a very strong chance of passage, but that cannot be used as a form of political pork to feed to a select group of voters to buy votes.
I’m sorry to have to report this, and I wish it were caught last year. But I hope that you agree that while we should push for a real estate tax exemption amendment, we do need to get it right, particularly since we’re talking about rewriting the constitution, not merely passing a bill that could be tweaked the following year if we get it wrong.
I will be on a podcast at http://bearingdrift.com on this subject, probably by Wednesday night, and it will include Senator Ralph Northam as well, so tune in there for more.
I’m really thankful we have folks like Ken Cuccinelli in the Senate who can spot these problems and help explain what the heck went on so we can understand what Democrats were really trying to accomplish here. Had this been successful, it would have taken years to fix this flawed constitutional amendment.
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