3.1.11

Exemption reform must not index but broaden base

With the single most vociferous advocate of raising Louisiana’s homestead exemption on property taxes retired and his legislator counterpart deferring future activism on the issue, the issue itself deserves another vetting.

Louisiana has the most generous exemption in the nation, on a primary residence of what turns out as the first $75,000 in value on property taxes except for municipalities except in Orleans Parish. Other exceptions exist such as disability and veteran status and may apply to any jurisdiction (such as established by Amendment 3 from the last election). Proponents of the high rate, including those who wish it to go higher, argue it helps those on fixed and/or limited incomes afford home ownership. Opponents of any higher rate, including those who would want it reduced, assert that this shifts the major part of the tax burden onto those owning more expensive homes, business and renters, city residents, and shortchanges jurisdictions other than municipalities (except in Orleans Parish).

This extant rate last changed in 1982, providing fuel to those who wish to raise it. This prompted the likes of former Jefferson Parish assessor Lawrence Chehardy and current state Sen. John Alario to consistently agitate for its increase in the past couple of decades. But its high level means, even with consumer inflation worked in from it latest compuation in Nov., 2010, that today’s equivalent has sunk only to $32,324, well above many states such as neighboring Texas with its $10,000 exemption.

Given that the most efficient form of taxation in terms of revenue collection comes in the form of the lowest aggregate rate spread over the largest pool of payers, state Rep. Kevin Pearson has suggested through legislation in the past two sessions the excellent idea that owners pay on the first $10,000 (meaning practically every homeowner) and then the exemption applies in the $10,000.01 to $85,000 range. Under this arrangement, even the most strapped owners would pay a pittance; as an example in a jurisdiction where the combined millage equals 100 this would be a bill of $100 for the year.

Advantageously, it would achieve the optimal by spreading the burden and increasing revenues by bringing more payers into the system. After implementation, it might also create slower increases in tax rates as a broader range of voters would be affected by these, thereby making them less likely to vote for them, and it would make governing authorities less likely to allow millage levels to remain the same as property values increase, as more constituents would be affected and might disapprove. As Pearson’s past efforts have been rebuffed, hopefully he’ll try again this session.

Another reform attempt, indexation, should not be implemented. Not only would it lock in the artificially high level in Louisiana, it would not address the ability of authorities to roll forward millages as noted above. That is, they may become more likely to vote to allow the millage to go higher, above the level where, applied to reassessed values, the same total collections would remain the same for those properties not transferred in ownership, as a way to beat indexing.

Finally, while the best theoretical idea would be to have no exemptions written into the law or Constitution and instead to allow assessors to make case-by-case exemptions on the basis of numerous factors like income, disability, age, veteran status, etc., that assessors are elected officials threatens too much to bring political considerations into play. Thus, Pearson’s idea without indexing has the best chance for enactment that is fair and improves efficiency.

As for the level of the exemption, its relatively high level warrants no increase for some time, perhaps decades. With ardor for its argumentation cooled, perhaps more attention will shift to Pearson’s better solution.

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