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Multi-tasking with the 1% … killing the schools AND making the poor pay for their funeral.
I showed here how we could raise $94 million for the School District from the property tax, as requested by the Mayor, and sequester it until the SRC abandons its privatization plan. But is the property tax the best place to get the money? If the City raised the $94 million from some other source, it could still sequester it until the SRC sees the light.
The 1% generally likes the property tax. It’s a regressive tax that falls most heavily on people who are property-rich, cash poor. How sweet it would be to make poor and working people not only pay more, but to make them pay more for destruction of one of their greatest assets, the public school system.
There has been dispute, however, whether a property tax increase as it’s been packaged this year would indeed hit poor people the hardest.
Some progressives think that a property tax increase this year would not be regressive because it would emerge out of the AVI initiative intended to correct the massive inequities in City property assessments. But even if assessments were accurate, and didn’t under-value richer neighborhoods, poor property owners would still get hit hardest from tax rate increases. It’s just the nature of the property tax. It taxes at a single rate that the rich can pay much easier than the poor.
AVI, if done right, is a good thing. Increasing rates, however, to generate more revenue from the tax, might still not be.
We do have a business tax that is extraordinarily low, doesn’t hit small businesses very hard, and also brings in lots of revenue from out-of-City merchants. It’s the Gross Receipts Tax. The best way to raise the $94 million would be to increase that tax from its pathetically low current rate of .0014 (that’s 14 CENTS on every hundred dollars) to a bit over .0300. The .0014 is a maximum rate, btw. Some businesses can opt for an alternative rate that’s cheaper, and whatever rate they choose, the tax is deductible from their federal taxes.
However, Council and the Mayor are allergic to mere mention of raising any business tax. So the best we can probably do this year is make the real estate tax as progressive as we can. There are a variety of ways to do that, and fortunately, several of them are now before Council.
One path toward progressivity is to create a “homestead exemption” that would exempt a portion of an owner’s assessment from the tax. The Mayor wants a tiny exemption, $15,000, and that amount is included in his AVI bill. That would be small comfort for working class owners in gentrifying areas, however, whose assessments may well be over $300,000. Council should provide a much higher number. However, one complication with this entire approach is that a homestead exemption of any kind requires statutory authorization. It’s unknown whether the City will receive it by the May 24 budget deadline.
There are three other bills before Council that could make a difference in how progressive the tax becomes. Here’s a summary of them and their possible impact.
1) Bill 120338 amends the current City Code sections relating to deferral of increases in real estate taxes in any given year of more than 15%. As under current law, deferrals would continue until the property is sold. However the interest rate charged on the deferred amounts would be reduced to the lower of 4% or the rate of one year treasury bonds. Deferral would remain discretionary with the City and a variety of vague factors, some of which relate to owners’ income, would apply.
2) Bill 120339 would give credits against the real estate tax for low income families. Persons eligible for credits would be based on their income class, as follows, but with exemption percentages currently unstated for each:
Unmarried Married (joint income) Credit %
$0 to $6,500 $0 to $13,000 ?
$6,501 to $7,500 $13,001 to $14,000 ?
$7,501 to $8,750 $14,001 to $15,250 ?
Each income bracket would increase by $9,500 for each additional dependent in the family. This could be an important vehicle for making the tax more progressive. But, of course, the percentage credit that Council actually adopts, if any, is critically important.
3) Bill 120340 would grant tax exemptions to longtime owner-occupants in gentrifying neighborhoods.
State law permits Council to authorize exemptions or deferrals of tax increases occurring in gentrifying neighborhoods for longtime owner-occupants.
This bill would offer the most liberal benefit – full tax exemption -- for whatever portion of a tax increase could be attributed to an eligible owner’s living in a gentrifying neighborhood.
Any long-term homeowner living anywhere in the City whose market value assessment increased by 10% or more in any year, (unless the increase is due to physical improvements in the property) would be presumed to be a victim of gentrification and entitled to an exemption of some portion of their tax increase.
The exact percentage of increase that would be exempted is left blank in the bill. That’s obviously a key provision.
There seem to be no time limits on how long the exemptions would remain in place.
This bill might be overinclusive, protecting people perfectly capable of paying higher taxes due to AVI. But state law doesn’t allow income criteria from being used in affording gentrification relief. And trying to carve out the particular neighborhoods in which the relief should be granted as a surrogate for income targeting, is devilishly difficult.
My personal bottom line is that I think a GRT increase would be best. I would also prefer that AVI not go into effect without the new assessments first being published so that there can be some review of their validity. However, if a homestead exclusion is high enough, and if Bills 120339 and Bill 120340 are passed with exemption amounts that are generous, a property tax increase might not be so onerous as to outweigh the need to hold out some conditional aid to the School District.
Hearings on all these bills will be held on Monday, May 14 at 1 PM in City Council Chambers.