In The News › Tax panel considers homestead exemption

Mar 22, 2011

Source: CityBusiness

Filed under: Orleans Parish, Statewide, Taxation & Assessments

Tax panel considers homestead exemption

Tuesday, March 22, 2011
By Ben Myers
CityBusiness

New Orleans city leaders, like generations of residents, often complain of suffering from an unfair tax system.

Part of their frustration stems from the homestead exemption, which shields Louisiana homeowners from property taxes on the first $75,000 of a home’s value.

New Orleans is the only city in Louisiana where general city taxes are included in the state’s homestead exemption. That anomaly costs the city’s general fund $7.8 million annually, according to economists Tim Ryan and James Richardson, who presented their findings to Mayor Mitch Landrieu’s Tax Fairness Commission on March 16.

“You can’t talk about tax fairness without at least mentioning the homestead exemption,” said Mary Zervigon, co-chairwoman of the commission.

The commission’s initial proposals to change New Orleans’ tax system were due this week, in time for the 2011 legislative session. Any change to the exemption requires a constitutional amendment, which requires statewide voter approval on top of two-thirds passage in the legislature.

Voters have approved 151 amendments since the Louisiana Constitution was ratified in 1974, but “when it comes to shifting the burden of taxation … that’s no easier,” Zervigon said.

As of Wednesday, the commission’s latest draft resolution recommends lawmakers “be reminded” of “the problems created” by the homestead exemption, which is highest in the nation, according to the commission. Echoing the Bureau of Governmental Research, the commission also criticizes lawmakers for shortchanging a revenue sharing fund meant to offset the exemption’s impact.

BGR advocates eliminating the homestead exemption. That would generate $11.8 million in additional revenue that would spread beyond the city’s general fund to economic development, capital improvements and streets, among other millage dedications, according to BGR.

It would also disproportionately impact low-income homeowners, Richardson and Ryan said. For example, homeowners earning between $25,000 and $34,999 would see a 33.7 percent increase in their overall liability if New Orleans, like every other Louisiana city, stopped exempting general city taxes. Those earning $200,000 or more would see a 2 percent increase.

Richardson and Ryan say a “gradual” elimination – whereby the exemption does not apply to homeowners earning above a certain amount – could lessen the disproportionate impacts. That’s similar to BGR’s recommendation, which is a property tax “circuit breaker” that would modify the exemption according to income.

A circuit breaker is “great in theory” but requires objective criteria beyond income alone, said James Perry, executive director of the Greater New Orleans Fair Housing Action Center. Perry said he recently spoke with a multimillionaire bank chairman with a $1 annual salary. Such a situation leaves much open to an assessor’s judgment, Perry said.

“You look at all the folks who do income taxes all across the nation, all of them are trying to figure out the code and the secrets to save their clients money,” Perry said.

The homestead exemption reminder is the only one of four recommendations the commission is making that doesn’t call for a constitutional amendment. One such amendment would “correct” years of “bad case law” in which courts have allowed exemptions on a broad array of property uses. Another would limit the types of organizations that qualify for exemptions.

Another proposal, without mentioning the homestead exemption, calls for allowing cities to opt out of municipal exemptions on property taxes. That would theoretically allow New Orleans to apply the homestead exemption in the same way as other Louisiana cities.

Lawmakers throughout the state usually need to be enticed with a principle to take interest in New Orleans-specific issues, Zervigon said. But opponents could argue that too much local control leaves the state powerless if municipalities become reckless, she said.

“It’s a fairly radical change,” Zervigon said. “It’s a long-range educational project. Sometimes you can convince people over time that something would be a good idea, sometimes not.”

Mar 22, 2011

Source: CityBusiness

Filed under: Orleans Parish, Statewide, Taxation & Assessments

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