February 12, 2019

Smith criticizes cap on property valuation increases

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Andy Lyman

Andy Lyman

Sen. John Arthur Smith

An influential state senator on Monday railed against a law that changed the way New Mexico taxes residential properties, saying the 2001 measure was supposed to help low-income people but instead has hurt them while providing a windfall to wealthier homeowners.

Senate Finance Committee Chairman John Arthur Smith, in remarks on the Senate floor, also said the law has robbed counties of needed tax revenue.

Smith, D-Deming, called the fallout from the law the “unintended consequences of the do-good of the Legislature.”

The senator made the remarks in response to a story in Sunday’s New Mexican, which examined the law’s history and effects. It was designed to protect longtime homeowners in gentrified neighborhoods like Santa Fe’s east side from being taxed out of their residences due to rising property values.

Under the law, which applies statewide, the market value of a residential property for tax purposes cannot be increased more than 3 percent a year as long as the owner remains the same. Resold and newly constructed residences are taxed at full market value.

The New Mexican reported the law has created an unfair tax system, with tax breaks for about 26,000 homeowners in the city but not for 8,900 others. The tax breaks last year ranged from a few dollars to tens of thousands of dollars.

The owner of a residential compound valued at $2.8 million received a tax break last year of more than $16,500. The owners of an apartment complex and a senior living center each received tax breaks of more than $40,000.

Also, because of the law, a buyer of a home often pays substantially more in property taxes than owners of similar homes in the same neighborhoods.

“We’re hurting the low-income people if they’re ever in the position to buy a house,” Smith said. “We’ve done real damage to them.”

At the same time, he said, “There are people who have the benefit of very, very low property tax that can pay several times more money, but the Legislature did that out of the kindness of their heart.”

Smith said the state’s property tax system is “completely out of kilter” because of the way residences are now taxed.

“We have basically wrecked and devastated the revenue stream for counties,” he said.

Santa Fe County has estimated that it would collect $9.5 million more a year in property taxes if all residences were taxed at full market value.

Smith’s comments about the change in the way residential properties are taxed were part of lengthier remarks about the unintended consequences of changes in tax policy.

He said the elimination of the gross receipts tax on food in 2005 has resulted in tax revenue declines for local governments. And Smith renewed his opposition to tapping the state’s $17.5 billion Land Grant Permanent Fund to help pay for prekindergarten education.

“I beg my colleagues when they look at tax policy to start thinking long term rather than what they can go back and sell the voters …,” he said. “Let’s look at the damage conceivably we may be doing.”

Smith’s comments came as the Legislature considers widespread changes in how taxes — including personal income and gross receipts taxes — are levied.