Caps imposed on Nevada property taxes in 2005, as pre-recession land and home values skyrocketed, have saved tens of thousands of dollars for individual property owners while costing the state’s cities and counties billions. Now, with government revenue decimated by the pandemic, and the folly of relying on sales and hospitality taxes laid bare, legislators are poised to take up the political hot potato of tweaking the caps.
Efforts in recent years to change the formula have failed.
“We haven’t engaged them directly yet,” Nevada League of Cities Executive Director Wesley Harper says of lawmakers. “We’ve been in conceptual conversations since the end of last session. They’re open to look. Everybody wants to understand the benefits.”
The League is the force behind Senate Bill 64, sponsored by the Senate Committee on Revenue and Economic Development.
“The conversation started pre pandemic and I think the perspective is not the same as it was then,” Harper says, adding a property tax adjustment would help provide “a predictable source of revenue.”
“Heavy reliance on sales tax and taxes related to hospitality has really brought out the need to have a predictable and stable source of revenue.” Harper says. “Cities that are not as reliant fared much better than cities in Nevada have done.”
Property tax accounts for between one-quarter and one-third of revenue for Nevada counties, according to a report from the Guinn Center, but some Nevada counties are more reliant on property tax than others.
Clark County has the highest assessed value of any county ($98 billion of the state’s total $137 billion in fiscal year 2020), according to the Department of Taxation, but derives only about 20 percent of revenue from property taxes. The bulk is distributed to the Clark County School District and local governments.
Assessed value in Clark County has increased by more than $30 billion in the last decade. Property tax revenue in the same period has not kept pace.
“The goal is to slow the decline in property tax revenue, not to raise property taxes on anybody,” says Harper. “Slow the amount local governments are losing every year with the depreciation and abatements.”
Without caps, Nevada counties would have collected about $3.1 billion in property tax in FY 2016. Instead, more than half a billion of that – $549 million – was abated, according to Applied Analysis, a fiscal consulting firm hired by the Legislative Counsel Bureau in 2019.
In that same year, Clark County generated $2.2 billion in property tax revenue, reduced to $1.8 billion after abatements.
Where property tax goes Net Collected 2018 $2,749,242,176 Local Governments $1,500,884,879 School Districts $1,100,711,594 State Bond Fund $ 147,645,703 Source: Nevada Department of Taxation
Where property tax goes
Net Collected 2018 $2,749,242,176
Local Governments $1,500,884,879
School Districts $1,100,711,594
State Bond Fund $ 147,645,703
Source: Nevada Department of Taxation
The abatements have caused Clark County and other governments to turn to other sources, such as sales taxes and fees, to pay for public safety. Both place a disproportionate burden on low-income residents.
“This may be particularly problematic when the fee increases occur in the area of courts and police services, a recent trend that has exacerbated racial inequities and undermined public trust in the criminal justice system,” the Center for Budget and Policy Priorities wrote in 2018. The CBPP cites a U.S. Justice Department report warning those forced to pay fines and fees “may confront escalating debt; face repeated, unnecessary incarceration for nonpayment despite posing no danger to the community; lose their jobs; and become trapped in cycles of poverty that can be nearly impossible to escape.”
Even Gov. Steve Sisolak, who railed against tax increases in his first State of the State speech two years ago, voiced his disdain as a County Commissioner for Nevada’s method of calculating the property tax, providing fodder for a campaign ad from the Republican Governors’ Association in 2018. Sisolak is up for re-election in 2022.
Sisolak, who signed drastic budget cuts into law last summer, has asked state agencies to submit plans for twelve percent cuts this year.
Doing the math
Nevada’s property tax rate is constitutionally limited to five percent of assessed value, not market value.
Nevada’s effective property tax rate — calculated as a percentage of home value — is among the lowest in the nation at about .70 percent, according to data from the U.S. Census Bureau compiled by WalletHub. Hawaii has the lowest rate — .27 percent — and New Jersey has the highest — 2.47 percent — based on 2017 assessments.
Assessed value in Nevada is 35 percent of taxable value. Taxable value is calculated by adding the value of land and replacement value of improvements, minus 1.5 percent annual depreciation on the improvements for 50 years.
In 1979, spurred by Proposition 13 in neighboring California, Nevada legislators set the property tax rate at a maximum of $3.64 per $100 of assessed value.
Then, in 2005 with values skyrocketing, lawmakers decreed “an increase in the tax bill of the owner of a home by more than 3 percent over the tax bill of that homeowner for the previous year constitutes a severe economic hardship” and instituted caps on the tax — no more than 3 percent over the previous year for residential property and certain residential rentals, and a General Tax Cap on other property, which is the greater of the average percentage increase in assessed value in the county over ten years or twice the Consumer Price Index.
Without the caps, a home in Clark County with assessed value of $137,427 in 2006 would have amassed gross taxes of $43,010 by 2016. But under the cap, $11,178 was abated, reducing the homeowners’ tax bill to $31,832 during the ten year span, according to Applied Analysis. The abatements cost Nevada governments about $6 billion from 2006 through 2017.
If the General Tax Cap is less than three percent, the Residential Tax Cap must equal it, a provision that has forced the rate on residential property even lower.
In 2017, the secondary calculation capped both commercial and residential taxes at .2 percent in six of the state’s 17 counties, including Clark, according to a report from Applied Analysis.
If at first you don’t succeed…
Assembly Bill 43, introduced in 2017, would have added a floor of 2.6 percent to the formula.
The measure failed.
Senate Joint Resolution 14, which would have reset the depreciation factor upon sale or transfer of a property, passed the Legislature in 2017. Approval in 2019 would have put the measure on the 2020 ballot, but the effort fizzled. A report prepared by Applied Analysis projected the reset of the tax rate upon the sale of properties would have generated more than $13 billion in a dozen years.
Now, with property values once again spiking, two bills before the Nevada Legislature would tweak, but not remove the caps. Both measures would require approval from two-thirds of the Senate and Assembly. Political considerations are likely to play into the decision, at least from the entire Assembly and the one-half of the Senate facing re-election next year.
Senate Bill 10, requested by the Nevada Association of Counties, would eliminate the secondary calculation but leave in place the 3 percent cap on residential property taxes and the 8 percent cap on commercial property taxes. Representatives from NACO did not respond to requests for comment.
Senate Bill 64, requested by the Nevada League of Cities, would also eliminate the secondary calculation. Additionally, it would reduce the annual depreciation rate on improvements from 1.5 percent to 1 percent.
“It does benefit the stability of local government planning and perhaps starts taking us in a positive direction with respect to property tax overall,” Harper says.
“We thought going to 1 percent is a reasonable first step,” he says. “The ideal is to eliminate depreciation altogether.”
Nevada is the only state in the union that depreciates improvements as part of the property tax calculation.
Harper says further reduction in the depreciation rate is not a fait accompli.
“We want to get the reaction from stakeholders to this proposal. We’re taking it one step at a time,” he says. “If the needs are met and we can get the stabilization we need with this step, we’re not going to come back just to come back.”
Those “stakeholders” — from lawmakers to lobbyists — are reserving comment.
“I have reviewed them, but it is probably best that we do not comment on them at this point,” Jeremy Aguero of Applied Analysis said via email of the two bills.
“We are reviewing both bills for potential impacts,” says Las Vegas Chamber spokeswoman Cara Clarke. “We will take positions on them after the session begins.”
In recent years the state’s business groups have grown increasingly supportive of tweaking the property tax calculation, rather than facing additional levies on business.
“We support the concept behind this bill (AB 43) because our property tax system is broken,” Tray Abney, then-lobbyist for the Reno-Sparks-Northern Chamber testified in 2017 according to legislative minutes, warding off attempts to levy business to pay for “services that benefit every Nevadan.”
The Nevada Realtors says it has “not taken positions on any bills yet, but we are very engaged in the property tax discussions and look forward to engaging in the issue during session.”
“We are reviewing bills and will share our position on them at the appropriate time,” said Dawn Christensen of the Nevada Resort Association.
“I’m always interested in appropriate property tax reform but I haven’t read the bills yet and don’t have a position,” said Sen. Julia Ratti, co-chair of the Senate Revenue and Economic Development committee. “I’m focused on getting through the budget hearings next week.”
State Sen. Ben Kieckhefer was the sole Senate Republican to vote in favor of SJR 14 in 2017.
He also sits on the Senate Revenue Committee that is sponsoring the current measures.
Kieckhefer declined to comment.
Harper says it’s unknown how much revenue the League’s suggested adjustment would generate.
“We are working on that. The Local Government Fiscal Working Group has been reconstituted to answer exactly that question,” he says. “We’re asking for several different scenarios to take it out of the amorphous and give it real consequences, as far as services to residents and to schools.”