As property bills rise, so does unrest

Homeowners who might be considered lucky because of the rapid appreciation of their real estate are instead growing angry.

In places such as Beaufort, S.C., Lake Tahoe, Calif., and portions of Florida, property values are rising as much as 100% or more between revaluations. The resulting sticker shock of property-tax bills have spawned legislative proposals, citizen initiatives and lawsuits in at least 20 states where rising assessments are driving working-class families and seniors out of popular neighborhoods. Some call it the ugly side of the real estate boom -- when the value of a home grows rapidly, so do property bills.

In coastal South Carolina, where land is increasing in value at a rapid pace, there's been a fiery push since last summer in the state legislature to cut property taxes. A plan to raise the state sales tax by 2% and eliminate about 85% of taxes on an owner-occupied home swept through the House but has become bogged down as manufacturers and business leaders argue a higher sales tax would put the state at a competitive disadvantage. It now appears the entire property-tax reform effort may collapse.

But the fervor over rising property tax bills raises the question of whether North Carolina might see similar initiatives.

"Everything is possible," says Roberto Quercia, associate professor at UNC Chapel Hill's department of city and regional planning. "Increases in housing prices and the resulting increases in property taxes concern many people."

Governments are increasingly reliant on property taxes as their top revenue stream. Last year, governments collected $339 billion in property taxes, according to the Census Bureau, an average $2,750 for every home in the country.

There is a perceived shift of the tax burden onto residential properties. While many public officials believe homeowners should be happy that their homes are worth more, those who are retired on fixed incomes or just getting by can't always afford higher taxes and are forced to leave.

Unrest about property taxes can be seen even locally -- witness the defeat of school bonds in Mecklenburg County last fall -- and in other areas around the state.

But most say a revolt is unlikely in North Carolina.

"What it takes to have tax revolt is taxes," says Joe Hunt, a lecturer in public finance at the Institute of Government in Chapel Hill. He notes the property-tax burden in North Carolina is not as high as in some other states. In Boston, for example, property tax assessments are as much as 9% of the value of a home, while Hunt says they are much lower here.

"North Carolina doesn't have the exorbitant tax rate as others. In North Carolina, 2% would be high and most of North Carolina would be well under 1% of the home's value."

The state also taxes sales and income, relieving some pressure on property values.

Locally, collections are growing rapidly, although tax rates have been largely stable. In the past 10 fiscal years, the city's collections have risen 110% and the county's rose 89%, largely the result of construction and appreciation.

Making major changes to a state's tax structure is more difficult than it first appears, says Howard Duvall, executive director of the Municipal Association of South Carolina.

"They are looking for a tax swap that's acceptable and that's where the wheels have fallen off the bus," says Duvall. "It's not as simple as putting in a 2-cent sales-tax hike. The people who pay sales tax are not the same as those paying (big) property taxes."

A switch from property taxes, which are locally collected and spent, to an increase in sales tax puts local governments at the mercy of the state to get funding, Duvall says.

"You are in jeopardy of losing control over revenue because it has to come from the state," he says. "Governments will have to go to Columbia and ask to buy a fire truck, so that puts them under the thumb of the legislature."

If governments don't get revenue from property taxes, they will have to get it from somewhere else, Quercia says. "If that were to happen in places like Wake and Mecklenburg counties, given the rapid growth, I expect it would be difficult for those jurisdictions."

Others say steps to limit the growth of assessed values of property -- in a politically popular effort to keep long-time owners in their homes -- can lead to distortions.

"You can have two houses next door to each other and one family is paying a much higher property-tax bill than the other," says Helen Ladd, a professor of public policy studies at Duke University. "There's no principal of tax fairness."

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