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Indexing exemption won't work without other changes

It’s not entirely a surprise that Gov. Bobby Jindal would endorse bills generally indexing the homestead exemption, given his past actions in support, even sometimes grudgingly, of tax relief. But without change suggested by other bills, passage of this concept promises not to change much regarding individual tax liabilities and could make worse the state’s fiscal structure.

Louisiana presently has the nation’s highest homestead exemption at $75,000, which essentially relieves almost half of homeowners of the burden of paying parish (including New Orleans) and school property taxes and reduces it for all others. It has been this way since 1982, however, while the value of the exemption has been approximately halved. Other proposals would raise the limit, but Jindal’s endorsement of indexing by the rate of inflation from the present base assumes erosion of the buying power of the present level of the exemption has made it reasonable and small increases may proceed from here.

But the problem is that local jurisdictions presently can “roll forward” millages. If valuations increase the total take of property taxes, the millage automatically goes down to compensate unless a two-thirds vote of the governing authority (or an elected official such as a sheriff where appropriate) raises the millage anywhere up to its approved level. Indexing that takes away slightly revenues every year from a jurisdiction may prompt governing authorities to inch up millages, thinking voters won’t notice that the overall level doesn’t change on their tax bills (many of whom don’t notice anyway since they are paid through mortgage payments).

So this may look good symbolically, but mostly will have little substantive impact. It also represents a reversal of a healthy trend that the erosion of the exemption had created, spreading more of the tax burden around. Having a high exemption places too much property tax payment on a small proportion of homeowners and business, discouraging the latter. Therefore, assuming levels of revenue should stay the same, economic development would be enhanced by evening out the pain.

The former problem of implementation could be dealt with by passing any of several bills that would make it more difficult for authorities to roll forward, but that would exacerbate the latter problem. Both could be solved by adopting something like state Rep. Kevin Pearson’s HB 252 which would make the exception work at valuation levels between $10,001 to $85,000, and amending it to index at the higher level.

Bills like Pearson’s would spread more of the burden around yet maintain the greater amount of exemption. While some argue this would be injurious to lower-income homeowners, the fact is even in the highest-taxed parishes the extra tax on those presently not paying would be only about $12 a month. Amending this kind of bill to index would not change that and help anybody with property worth more than $85,000. Also amended to it or in separate bill passage could be the measures designed to make rolling forward more difficult.

Supporting indexing in and of itself may score political points among voters but likely will do little else. The HB 252 approach and other amendments to it would have a far more meaningful, and salutary, impact on the state’s fiscal structure.

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