Copyright © 2020 Albuquerque Journal
There’s an old saying that lightning doesn’t strike in the same place twice.
Well, it did again this year when a bill intended to address the unintended consequences of a nearly 20-year-old “tax lightning” law again failed to make it out of committee during this year’s legislative session.
“It’s dead,” declared state Rep. Matthew McQueen, D-Galisteo, who has sponsored a bill to limit property tax valuation increases each of the past two years. “But I have every intention to bring it back. It makes perfect sense and addresses fairness in the tax code.”
Technically, House Bill 91 is not dead. But last week, it was tabled in the House Local Government, Land Grants and Cultural Affairs Committee. And tabling an item in its first committee during a 30-day session like this year is tantamount to a kiss of death.
A bill McQueen introduced last year addressing the same issue met a similar fate, dying in committee. At least that time it had earned a do pass recommendation, with amendments, from that same committee.
The House Tax and Revenue Committee gave it a do not pass recommendation, but offered in its place a substitute bill. That’s as far as it went.
“To me, it’s a fairness bill. We passed a 3% cap (on increases to annual property valuations) as a way to protect homeowners from getting priced out of their homes,” McQueen said of legislation approved 20 years ago. “What my bill does is preserve that intent.”
McQueen said he was frustrated by the bill’s failure and blamed himself for not doing a better job of rallying supporters to testify before the committee. Instead, groups representing Realtors, homebuilders and apartment complexes prevailed.
Alan LaSeck, executive director of the Apartment Association of New Mexico, declined an interview for this story.
The New Mexico Home Builders Association did not respond to phone and email messages seeking comment.
Unintended consequences
McQueen’s bill intended to correct unintended consequences of a “tax lightning” law passed during the 2000 legislative session.
“Tax lightning” is a term used to refer to a sharp increase in a homeowner’s assessed property value upon the sale of a home, bringing it up to the current market rate.
Former House Speaker Ben Luján pushed for a new law that was meant to deter gentrification.
The law, which went into effect in 2001 and was largely inspired by the influx of out-of-towners buying second homes on Santa Fe’s east side, states that the market value of a residential property cannot be increased by more than 3% per year, as long as the property is not sold to someone outside the immediate family.
The idea was to keep property taxes affordable for longtime homeowners while houses around them were being bought by people with wealth who would make improvements or additions to the homes, thus increasing not only its value, but also the value of other homes in the neighborhood.
Under the law, properties that are sold are then assessed at their full market rate for tax purposes.
While well intended – and effective in keeping property taxes lower for longtime homeowners – the law has had unintended consequences that have worked to the benefit of wealthy second-home buyers and large-scale apartment complex owners, many of them based out of state.
Under McQueen’s proposed bill, the 3% limit on increases in annual net taxable value would continue to apply. But the value would increase to 10% for properties whose owners were not primary residents.
The adjusted tax payments would not have taken effect until November 2023.
Still no ‘fix’
Had it made it to Gov. Michelle Lujan Grisham’s desk and received her signature, the bill would have had far-reaching effects across the state.
According to a Taxation and Revenue Department (TRD) analysis of the bill, U.S. Census Bureau data indicates that, as of July 1, 2018, there were 942,208 housing units in New Mexico. About 67% of them, 637,609, were owner-occupied homes.
“Hence, the tax increase would affect 33% of the value of New Mexico’s residential properties, which comprise approximately 60% of the state’s taxable value for property tax purposes,” the report states.
The report says that the fiscal effects of the bill would vary, sometimes dramatically, depending on the county. But, “overall, TRD expects the effects to be very moderate on revenues received by beneficiaries.”
There have been other efforts to find a “fix” for the law in 2012 and 2013, but neither time did the legislation make it out of committee against opposition from apartment and homebuilder associations.
McQueen took up the mantle by introducing a bill last year. He tweaked the bill this year to adopt some of the recommendations he heard during last year’s effort.
According to the fiscal impact report, removing the 3% cap from non-primary residential properties had the support of New Mexico county assessors.
“Removing the 3 percent cap is a step in the right direction and will help with some of the unintended consequences created by tax lightning and is an opportunity to move assessments to ‘fair & equitable’ and ‘current & correct,’ ” the report says, attributing the quote to the county assessors’ chair.
Maybe next year
Mike Loftin, executive director of Homewise, which assists low-income homebuyers with low-interest loans, downpayment assistance and finding affordable residences, said a change in the law is long overdue.
“It’s a no-brainer,” he said. “When they capped the property tax evaluation before, I thought the whole argument was to help property owners. It was never intended to help commercial enterprises.”
Loftin said the owners of apartment complexes have found a way around the law. When they sell a large property, they don’t transfer the deed, but instead sell the beneficial rights to the property, “so they figured out a way to circumvent it,” he said.
The argument made by opponents of the bill is that elimination of the cap from multifamily residential properties could lead apartment complex owners to experience a sharp spike in their tax bills. That would give them a “claim” to make up the difference by raising rents. The financially disadvantaged, low-income working and nonworking families and elderly would be hardest hit.
But the New Mexico Counties Affiliate disagrees.
“The argument that rents will go up is unwarranted because it is the market that determines rates, not an apartment owner’s expenses – the owner will simply make a little less profit,” the report states.
The report also includes the Tax and Revenue Department’s analysis of the bill.
It says that the bill “could easily be administrated by New Mexico state and county governments.” But it also says that it could be difficult to differentiate between primary residences and second homes, a problem that could be mitigated by an affidavit or declaration from the property owner each year. The department’s analysis says that the bill “could probably benefit from a definition of ‘principal place of residence.’ ”
Santa Fe County Assessor Gus Martinez says changing the definition of residential properties to exclude apartments might be a way to go. He’s also not sure it will be so easy to administer.
“Who’s going to police it?” he said. “That will be a big deal. There are 33 counties in New Mexico and some of them may not have the technology to administrate it.”
Santa Fe County would be among the most affected if the bill were to pass because it’s a “destination” location attractive to second-home buyers, he said.
Based on population and the number of homes, Bernalillo, Doña Ana, Sandoval and Taos counties would also be among the most affected, he said.
These are considerations and questions McQueen can ponder over the next year and, should he be reelected in November, bring back in the form of a bill next year. But, at least until then, the unintended consequences remain in effect.
