BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE: February 19, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB-718

SPONSOR: Representative Ruiz

BILL SHORT TITLE: Increasing the low-income elderly taxpayer assessed value cap

CONFLICTS, DUPLICATES, COMPANIONS: HB-623 conflict -- HB-623 increases the cap in proportion to changes in the consumer price index.

DESCRIPTION: This would amend Section 7-36-21.3 NMSA to increase the maximum adjusted gross income required to qualify for valuation limit on owner-occupied homes property tax purposes. Current statutes require taxpayers to be 65 years of age or older and to possess an annual adjusted gross income of $18,000 or less to qualify for the valuation freeze enacted in last year's legislative session. The proposed measure would include elderly individuals whose annual adjusted gross income is $40,000 or less. Current statutes also limit valuation increases to 3 percent annually in most cases. Hence, assuming a property increases in value by 3 percent or more, the 65 and over cap shields taxpayers from approximately 3 percent increases in taxes, assuming rates do not change. 

EFFECTIVE DATE:  Not specified – assume 90 days after adjournment (June 15, 2001). The 65 and over valuation limitation is applicable to the 2001 and successive tax years. Without an emergency clause in the proposed measure, however, its provisions could probably not become effective until the 2002 property tax year.

FISCAL IMPACT: The proposed measure would impose no significant immediate impacts on state or local revenues. Its primary effect would be to shift the burden of paying property taxes from individuals and businesses not qualifying for the valuation limitation to households that do qualify for it. It would also tend to limit bonding capacity growth over time. 
  	Local effects of the measure would vary greatly, depending on the fraction of the population aged 65 and over and average income levels. Some extent of this variation is shown in Illustration 1. The second column in the table lists per capita income by county. The third column portrays the fraction of the population in each county consisting of individuals aged 65 and over. This figure ranges from about 7 percent in McKinley County to almost 30 percent in Sierra County. A rough indication of combined effects of age and income that would drive the proposed measure's impacts is shown in column 4 -- where figures for the inverse of per capita income and the fraction of population aged 65 and over are multiplied. The result is multiplied by 10,000 simply to produce figures that are easy to read. Figures shown in the final column of Illustration 1 suggest greatest impacts of the proposed measure would occur in Harding, Sierra, Catron, Luna, and De Baca Counties. These are counties with combinations of relatively low per capita income and high fractions of population aged 65 and over.
	Illustration 2 provides an indication of tax benefits provided by the current low-income elderly property tax value cap. It assumes a property's assessed value is initially $80,000, that the property increases in value by over 3 percent annually, the owner qualifies for the $2,000 head of family exemption and the 3 percent limitation on assessed value increases is currently in place. The 65 and over low-income cap therefore provides tax benefits totaling roughly $20 annually, or 3 percent of the $617 tax bill. The tax saving provided by the valuation cap increases with the market and assessed value of the property.
	The owner may also qualify for the low income property tax rebate administered through the personal income tax program. If, for example, taxpayer's modified gross income assumed to be under $16,000, the taxpayer would receive a rebate of $250, hence pay property taxes net of the rebate totaling $367 ($617 less the maximum rebate of $250). Additional property tax reductions may be available to the taxpayer, depending on the extent of participation in local option rebate programs by the county in which the taxpayer lives.

ADMINISTRATIVE IMPACT: No significant administrative impacts would be imposed on the Department due to enactment of the proposed measure. County governments would be required to qualify additional taxpayers for the cap currently in place, however. Administrative impacts would vary greatly by county.  A significant impact could occur if county assessors have to apply this new limit retroactively.  This impact could be avoided by making this bill apply to the 2002 and subsequent years.  

TECHNICAL ISSUES: none.

Illustration 2: Annual Savings, Valuation Freeze	

Year	Assessed Value*	
Tax	
Savings	
0	     80,000 	616.67		
1	     82,400 	636.67	20.00	
2	     84,872 	657.27	20.60	
3	     87,418 	678.48	21.22	
4	     90,041 	700.34	21.85	
5	     92,742 	722.85	22.51	
6	     95,524 	746.03	23.19	
7	     98,390 	769.92	23.88	
8	   101,342 	794.51	24.60	
9	   104,382 	819.85	25.34	
10	107,513	845.94	26.10	
Assumes owner qualifies for $2,000 head of household exemption, rate is $25 per $1,000 in net taxable value, the 3% limitation on assessed value increase applies, and that  market value of property appreciates by more than 3% annually, but assessed value increases are limited to 3%.	

Illustration 1: Effects of HB-718	
				
(1)	(2)	(3)	(4)	
		Percent of	1/Col (3)	
	Per Capita	Population 	x Col (2)	
County	Income, 1999	65 or Over	x 10,000	
Bernalillo	26,434	11.5	4.4	
Catron	15,167	19.1	12.6	
Chaves	18,979	14.0	7.4	
Cibola	13,521	13.3	9.8	
Colfax	18,960	16.3	8.6	
Curry	20,201	11.1	5.5	
De Baca	16,324	20.2	12.4	
Dona Ana	16,599	10.0	6.0	
Eddy	19,546	14.3	7.3	
Grant	17,409	15.3	8.8	
Guadalupe	14,120	15.2	10.8	
Harding	16,645	25.2	15.1	
Hidalgo	17,623	11.7	6.6	
Lea	18,756	11.9	6.3	
Lincoln	19,375	16.9	8.7	
Los Alamos	38,350	12.0	3.1	
Luna	13,902	17.4	12.5	
McKinley	13,482	6.8	5.0	
Mora	12,667	14.6	11.5	
Otero	18,310	12.6	6.9	
Quay	17,497	18.1	10.3	
Rio Arriba	14,340	9.9	6.9	
Roosevelt	17,717	12.4	7.0	
Sandoval	20,313	10.6	5.2	
San Juan	18,161	9.0	5.0	
San Miguel	15,291	10.9	7.1	
Santa Fe	28,040	10.7	3.8	
Sierra	19,406	29.2	15.0	
Socorro	15,368	11.2	7.3	
Taos	17,905	12.0	6.7	
Torrance	15,726	8.8	5.6	
Union	23,568	18.8	8.0	
Valencia	17,999	9.6	5.3	
  Average	21,164	11.5	5.4	
Information source: University of New Mexico, Bureau of Business and Economic Research.	

OTHER IMPACTS AND ISSUES: