Bills to cut Georgia property taxes, with potential major impacts on local and state government, are at the center of attention in this year's Georgia legislature.
The Georgia Senate passed a bill to cut property taxes that is now being considered by the Georgia House of Representatives. Sponsored by Senate Republicans, it would strengthen a cap on annual property tax increases.
Georgia voters in November 2024 approved a measure capping property assessment increases on homestead properties — owner-occupied housing — to no more than the rate of inflation. The law allows local governments to opt out of the measure. About two-thirds of school systems, a third of county governments and a quarter of city governments did so.
A proposed Georgia state constitutional amendment to phase out homestead property taxes failed to gain passage out of the state House of Representatives Tuesday.
At the last moment Republicans, realizing the more far-reaching bill would fail, substituted a bill that would effectively cut the tax rate on single-family homes by 75% and would be phased in over a decade.
The new bill would have created a state grant program to offset localities' lost revenue. It would have allowed them to modify existing sales taxes.
Representatives voted 99 in favor and 73 against, largely along party lines, but because the measure would change the state constitution it required a two-thirds vote, which it was 21 votes short of getting.
House Speaker Jon Burns has strongly pushed for a law to eliminate homestead property taxes and his communications director, Kayla Green, said Wednesday morning he will bring the revised bill up for a second vote either Wednesday or Friday.
Georgia residential property values have grown faster than the rate of inflation in recent years, driving political interest in curbing property taxes. Whatever the outcome of the property tax bills this session, they are likely to return in future years.
"The idea of eliminating property taxes for homeowners would be appealing to many citizens at the ballot box but the negative impact on many city, county and school district finances would be seismic," said Walter Goldsmith, CEO of First Tryon Advisors, a public finance financial advisory firm.
The fact that many Georgia localities are struggling adds to the potential impact.
"Cities, counties and school districts across the state have been slashing spending, laying off workers and, in some cases, considering tax increases to cover budget deficits," said writers for the Atlanta Journal-Constitution's "Politically Georgia" column last summer. Atlanta closed a $33 million deficit through layoffs and a 5% budget cut across departments last spring.
Burns' original bill,
Many Georgia local bonds are backed by Special Purpose Local Option Sales Taxes, said Jonathan Pannell, managing partner at law firm Gray Pannell. However, the localities and school districts generally back up the sales tax promise with a general obligation pledge. In that way, the underlying property taxes support the credit and bond ratings, Pannell said.
Pannell said he is worried that many state legislators don't know this. "I think [HB1116] is a bigger hornet nest than they realize," he said.
"Investors value predictability and security and property taxes have long served as one of the most reliable revenue pledges in municipal finance," Goldsmith and Fort Tryon Managing Director Bryce Holcomb wrote in an email. "Any significant change to that framework — without clearly defined and tested replacement revenues — would likely lead to increased investor caution, wider spreads and heightened scrutiny from both investors and rating agencies."
The House likely has until the end of Friday to advance any bill on property taxes. The state House will vote on bills Friday after taking Thursday off. If the House doesn't pass a property taxes bill, the House proposals will not advance to the Senate and will likely be dead for this session. All Georgia measures are required to pass from one chamber to the other by the end of Friday unless they are later added to measures received from the opposite house.
If the House passes a constitutional amendment, the state Senate with 33 Republicans and 23 Democrats would then take it up, with all Republicans and five of the Democrats needed to pass the measure.
If Republican Gov. Brian Kemp were to sign a constitutional measure, voters would have to approve the measure in a November referendum for it to go into effect.
If the original HB 1116 hypothetically became law, it is unclear how local governments would pay for social services without an ad valorem tax, John Mousseau, executive vice president and chief investment officer at Cumberland Advisors, said on Monday. While there has been talk of a local sales tax, no plan has been set out.
"Sales tax is inherently regressive and therefore hurting the exact section of the populace it's purporting to help," Mousseau said. "It would most likely be a double whammy on them, with the regressive effects of the sales tax and higher home prices in towns and cities." Plus, governments would have a new administrative burden of applying and managing a sales tax.
The original bill has been "moving very quickly," Goldsmith and Holcomb said Monday. "While the bill contemplates replacing that revenue with sales taxes and other fees, we haven't seen any detailed fiscal impact analysis demonstrating the offset revenue would be sufficient or sustainable. Absent that clarity, the proposal introduces meaningful risk by shifting reliance from stable property taxes to more economically sensitive sales taxes. From a credit perspective, we could expect rating agencies, at least in the near term, to view this as a negative development."
Pannell said a phase-out of homestead property taxes would affect different localities differently. In rural areas, property taxes on homes and agriculture provide the overwhelming bulk of revenues and ending one of these would have a major impact.
Fulton County Commissioner Bob Ellis was more optimistic. "It is my view that any legislation that is ultimately passed will not impair local governments' ability to fund and deliver services or meet debt obligations as I believe state legislators understand the critical nature of local government as many of them serve at the local level."
Clint Mueller, deputy director for the Association of County Commissioners Georgia, said he thought if the HB1116 was adopted, it would have little effect on
Others disagreed. "Anything that destabilizes the finances of local governments and school districts is bad for the state and will pressure the state to provide additional support," Goldsmith and Holcomb said.
"The schools especially will be virtually forced to look to the state, especially in poorer jurisdictions," Krist said.
In Florida the House of Representatives
