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Cap on Property Values Lifted When House Sells

By Sean Olson
Journal Staff Writer
    When Ken Cooper retired and moved into a smaller home in Bernalillo County, he didn't expect to get hit by "tax lightning."
    Or at least that's what Sen. Mark Boitano, R-Albuquerque, calls it. Cooper just calls it unfair.
    Boitano introduced two bills in the state Legislature he said will prevent more people like Cooper from being struck.
    Cooper is one of the roughly 20,000 to 30,000 homeowners a year whose assessed property values jump as much as 300 percent after buying a home. In many cases, they pay far more in taxes than neighbors with similar homes.
    A 2001 state law prohibits counties from raising the assessed value on a home by more than 3 percent per year.
    But the cap is lifted when a house is sold. At that point, the assessment rises to "current and correct" values— at least 85 percent of market value.
    After that point, it once again is protected by the 3 percent cap.
    Cooper's tax bill— about 80 percent more than he was paying on a larger home in Placitas— doesn't bother him so much as the double standard it sets in his neighborhood.
    "The last thing I expected was to pay more taxes than I did for a very elegant home in Placitas," Cooper said.
    He now pays more than $1,800 in property taxes for his Camino del Oso NE home. One of his neighbors with a larger home pays about $400 less.
    Bernalillo County Assessor Karen Montoya said complaints from people surprised by a tax increase or upset at the perceived inequity make up a large part of the complaints her office receives.
    "This is one of the big questions, big concerns (people have)," she said.
Assessed vs. taxable value
    If you are a homeowner, each year the county assessor mails you an assessment notice. That notice provides two key figures: an assessed value and a taxable value.
    The assessed value is what the county says the land, house and other improvements are worth.
    Taxable value is one-third of assessed value, though there are exemptions that can lower the value further. The taxable value is used by the county treasurer, in combination with the county's tax rates, to determine your actual bill.
    If you stay in the same house, your assessment rises no more than 3 percent a year.
    If you move, the assessor brings your new home up to market value for the first full year that you live there.
    A higher value, of course, generally means a higher tax bill.
    For example, Cooper's house had been assessed by the county at $119,562 before he bought it.
    But, in the marketplace, the house was worth far more. Cooper paid $178,000.
    The first year he owned it, the old assessment was still in effect. But for 2006, the county raised the assessed value to $154,200. As a result, his taxes went from $1,311 to $1,730.
Newcomers vs. old-timers
    "It should be illegal for the newcomers to be covering for the old people," Cooper said. "And their taxes will never catch mine."
    The disparity in tax bills is getting larger every year, and people who move are getting the short end of the stick, said Boitano, a real estate agent.
    "It's alarming. The inequity is absolutely alarming," he said.
    The cap was, in fact, created as "relief" for families who had owned their homes for many years, said Rep. Luciano "Lucky" Varela, D-Santa Fe.
    At the time, assessors were supposed to bring all property values up to 85 percent of market value before the law took effect. In many counties, assessments were woefully behind what those properties would bring in the marketplace, Varela said.
    Varela isn't convinced that work got done before the cap took effect. That means much of the disparity in tax bills already existed, he said, and the current law should not take the blame.
    Other factors have contributed to the situation.
    Starting in 2002, a new state law gave assessors access to home sale prices.
    While assessors can't use a particular sales price to set that home's assessment, they can use it for statistical purposes to help determine values in the neighborhood.
    That helps assessors bring values up to market levels in neighborhoods where they had traditionally been low.
    Any home that sells in those neighborhoods will likely then be assessed higher than those that haven't sold.
    The jump in values based on the new sales information is one reason legislators continue to see a need for the 3 percent cap.
    Otherwise, longtime homeowners, especially elderly people on fixed incomes, face the prospect of being taxed out of their homes.
    But Boitano said the basic principles behind New Mexico tax codes are uniformity and fairness. He is trying to garner support for a bill that would extend the 3 percent cap on rising values to everyone, including those who move into new homes.
    It would also roll back assessed property values to 2004 levels, to protect the people who were "hit with tax lightning," Boitano said.
    Boitano said he is willing to sacrifice any values counties have changed over the past three years, bringing many homes back to values well under market levels, if the process will be more fair for taxpayers.
    "This is the best way to resolve the inequity, to give some people that have been hit with this tax shock some relief," Boitano said.
    Varela said the plan has too many unknowns.
    The rollback to 2004 property values would most likely be a bill-killer, he said, because it would wreak havoc on counties' projections for revenues and bond financing.
    Varela said the Legislature should take a closer look at all property tax law to fix any kinks they find.
    As an alternative, Boitano's second bill would suspend the 3 percent cap for two years and require all county assessors to bring property values to market levels.
    The added value would bring down the tax rates that are applied to home values and, in many cases, actually lower property tax bills, he said.
    After two years, the 3 percent cap would be reinstated and extended to homes that are sold, Boitano said.
Homes undervalued
    As of now, values on Bernalillo County tax rolls do not reflect the actual market value of the county's 187,000 homes, according to the assessor, Montoya.
    Montoya said if all homes were adjusted to current and correct values this year, the total countywide value would increase 50 percent— bringing the taxable values from just more than $13 billion to about $20 billion.
    Each year, as market values grow, a new crop of homes falls behind correct values, she said.
    Even new homes, which start at market value, don't keep up because market values typically rise much faster than 3 percent, Montoya said.
    In 2007, home prices increased about 8.9 percent, according to market forecasters. So a new home bought in 2004 is most likely not valued at current market levels, she said.
    Boitano said he has been meeting with assessors and others to try and hammer out a compromise that would provide fairness.
    "We're trying to work with everybody," Boitano said. "It shouldn't be a fistfight."
    Property Tax Law
  • A 2001 state law caps increases in assessed property values at 3 percent a year. The cap does not apply when homes are sold.
  • Assessment standards call for homes to be assessed at 85 percent or higher of market value.
  • A partial disclosure law allows assessors to see home sale prices. The data can be used for statistical purposes, making it easier to reassess values in a neighborhood. For neighborhoods in which there had been little data in the past, values could jump significantly, but only for homes that are sold.
  • People who have bought homes since 2001 are usually paying significantly more in property taxes than neighbors who have been in the area longer.