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Your property tax bite

Copyright © 2014 Albuquerque Journal

Albuquerque is home to the highest property tax rate in New Mexico – about double Santa Fe’s – and many homeowners have seen their bills grow at nearly twice the rate of inflation since 2004.

In the city’s basic taxing district, for example, the tax bill for a home that’s now on the books at $200,000 ran about $225 a month last year, compared to roughly $165 a decade ago, if you factor in changes to both the home’s assessed value and tax rates.

Most of the growth isn’t the result of government agencies jacking up the tax rate year after year.

In fact, the tax rate itself increased less than 10 percent over the past decade – from 38.022 to 41.715 mills.

Instead, much of the increase comes from an almost automatic bump of 3 percent a year in many homes’ assessed value on the tax rolls. About two-thirds of homes this year saw at least some increase in assessed value.

Those homes are on the books at below market value, and the increase in assessed value is an attempt to bring them closer to market value. That means a home’s value for tax purposes can climb, even if its actual market value falls in a given year.

Add it all up, and plenty of people have seen their annual property tax bill grow well beyond the rate of inflation over the last 10 years.

Just as a worker whose salary rises over a decade ends up paying more in income taxes as a result, so, too, have homeowners paid more in taxes as the value of their property climbs for tax purposes.

a01_jd_27jul_Tax-Pie-ChartThat doesn’t necessarily make the bill any easier to swallow.

Ken Sanchez, an Albuquerque city councilor and accountant who also works in real estate, said taxes are one of the first questions people ask about when buying a home.

Sanchez sees it both ways – the bite of the tax bill is painful, but the demand for services is tremendous.

“There have been times when I’ve wanted to protest my taxes,” he said in an interview, “but I know the needs of the city and county and the services we’re being provided.”

Albuquerque Mayor Richard Berry points out that much of the tax rate is made up of taxes approved by voters themselves.

“If voters want services, and they choose to vote for taxes to pay for that, our job is then to take those taxes and deliver them back to the community at great value,” Berry said.

The basic residential tax rate covering the city, county and state governments – among other citywide agencies – would result in a $2,698 annual bill on a $200,000 home.

That’s twice what a home of that value would be assessed in Santa Fe, and it’s about $370 more than the home would be taxed in Rio Rancho.

Of course, as New Mexico’s largest city, Albuquerque can boast that it offers services not easily found elsewhere. About 15 percent of a city tax bill, for example, goes toward the University of New Mexico Hospital, the state’s only Level 1 trauma center.

A combination of factors contribute to Albuquerque’s high property tax rate, experts say.

For one thing, big cities all over the nation tend to have higher taxes. For another, Albuquerque-area governments tend to rely more heavily on property taxes than other kinds of taxes.

Property taxes are a reasonably stable revenue source. Gross receipts taxes – which work similarly to a sales tax, paid when consumers buy goods or services – fluctuate more, tying the government’s revenue more closely to the economy.

In Santa Fe, for example, the property tax rates are low, but the gross receipts tax is high – 8.1875 percent. Albuquerque’s gross-receipts tax is 7 percent, the lowest of New Mexico’s four largest cities.

“You might see increased pressure on property taxes outside Bernalillo County because the gross receipts tax has been over-relied upon,” said Richard Anklam, president and executive director of the New Mexico Tax Research Institute.

Still, Albuquerque’s total residential tax rate – 41.715 mills, in technical terms – is higher than other communities in the state, according to state tax documents. A mill is one-tenth of a cent.

And it is quite a bit higher than its neighbors’. To match Albuquerque’s property tax rate, Rio Rancho agencies would have to raise theirs about 16 percent, Los Lunas about 19 percent, Moriarty nearly 58 percent, Belen about 40 percent and Edgewood about 115 percent.

A West Side neighborhood, with Downtown Albuquerque seen across the river in the distance. Rising assessed home values have helped push up local tax bills over the last decade. (Greg Sorber/Albuquerque Journal)

A West Side neighborhood, with Downtown Albuquerque seen across the river in the distance. Rising assessed home values have helped push up local tax bills over the last decade. (Greg Sorber/Albuquerque Journal)

In some cases, Albuquerque’s higher tax rate is the result of extra agencies that don’t impose taxes in nearby communities. There’s no hospital or higher-education tax in Moriarty and Edgewood, for example.

But sometimes, the tax rates themselves are just higher for those agencies almost everyone pays into. The tax rate to support municipal government, for example, is higher in Albuquerque than in Los Lunas, Moriarty, Belen or Rio Rancho.

Albuquerque’s property tax rates are still about average for the nation, said Anklam, who’s reviewed national studies on the topic.

“We’re not high on a national basis,” he said. “We’re high relative to the rest of the state, and the state, on average, is quite low.”

There’s been a tendency in the Albuquerque area to raise the tax rate bit by bit over time, Anklam said.

“We’re where we are because of this incremental approach,” he said. “It builds over time, and you need to be sensitive to that.”

Bernalillo County, for example, plans to ask voters this fall for a property tax increase that would generate $2.8 million to pay for buying and maintaining open-space land. The tax would add about $13 to the bill on a $200,000 home.

An earlier open-space tax expired after an administrative error kept its renewal off the 2006 ballot.

James O’Neill, a tax consultant, said he believes government officials “do worry about” the tax rates. On the other hand, urban areas tend to have more taxing jurisdictions and higher prices.

“If the government wants to build a building, it costs more in Albuquerque than it does elsewhere,” O’Neill said.

Whether a higher tax rate affects where people decide to live is a matter of dispute.

Sanchez, the council president, said he expects taxes to influence where people buy homes.

“They will be looking at Sandoval County and other counties because their tax rates are lower,” Sanchez said.

Scott Clark, a property tax consultant, said he doesn’t believe the rates “make that big of a difference,” except in limited circumstances. They could come into play in a neighborhood like North Albuquerque Acres in the far northeast part of town, he said, where some homes lie within city limits and some are just outside the boundary.

“You can have a home across the street and the tax rate can literally be a third more,” Clark said.a01_jd_27jul_Taxes_Central-NM

Many people have seen their annual property tax bill grow well beyond the rate of inflation over time.

Take the example of a home near the University of New Mexico north campus, in the largest taxing district in Albuquerque, on the tax rolls at roughly $159,000, paying taxes to seven different agencies, including the flood-control authority.

Its property tax bill increased by nearly 39 percent over the last 10-year cycle of bills. Inflation, as measured by the urban Consumer Price Index, climbed only 22 percent during that period.

Much of the tax bill increase is due to the escalating value of the home. For tax purposes, this particular home’s value went up in nine of the last 10 years, usually around the 3 percent limit.

If the value hadn’t grown at all – if the home had been worth $159,000 in 2004 and remained at that value in 2013 – the tax bill would have climbed less than 10 percent.

That’s just one example, of course, but it’s a typical one for neighborhoods where the assessed value of homes lags well behind how much the homeowners could actually them sell for.

Of course, tax officials could also argue that, despite the increase, home owners in this situation still aren’t paying what they should.

That’s because government appraisers can increase the value of the property by only 3 percent each year, under state law, with certain exceptions. Consequently, assessed values in many neighborhoods never quite catch up to market values.

On the other hand, not everyone sees a 3 percent increase every year.

In Bernalillo County, about two-thirds of residential properties went up in value during the 2014 assessment. The remainder, split almost evenly, either had no change or a decrease in value.

There’s been plenty of debate over the years about how to adjust New Mexico’s property-tax system. Much of it has been focused on a phenomenon known as “tax lightning.”

That’s due to the 2001 state law that says a home’s value on the tax rolls can climb only up to 3 percent a year, unless the property changes ownership. That means home buyers often end up with property taxes far higher than their neighbors, only because they bought their home more recently.

Attempts in the Legislature to change the law have failed in recent years.

The 3 percent cap is seen as a way to protect homeowners from ending up with taxes they cannot afford simply because they live in a neighborhood where market values have skyrocketed.

Mayor Berry, a former state lawmaker himself, said he’d like to see tax lightning addressed one way or another.

“We want to make sure that our tax system is equitable, and in many cases, our property tax system is not equitable because of the way the state law is,” Berry said.

Clark, the tax consultant, puts it this way: “Everybody hates paying taxes. Especially property taxes.”

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