Early voting began in Georgia on October 15. Besides the presidential race at the top of the ballot, congressional races, the state legislature and local government offices, Georgia voters will also see three statewide ballot referendums — including one measure designed to provide property tax relief.
No issue has prompted more response in recent years to state and local officials – and the Georgia Public Policy Foundation – than shock at property tax bills. This has arisen primarily from exponential increases on homestead values, but steadily rising millage rates are also a cause of frustration.
The General Assembly passed H.R. 1022 and HB 581 earlier this year to provide property tax relief. H.R. 1022 enables the local referendum that Georgians will see on their ballots to enact HB 581. Constitutional Amendment 1 reads:
“Shall the Constitution of Georgia be amended so as to authorize the General Assembly to provide by general law for a state-wide homestead exemption that serves to limit increases in the assessed value of homesteads, but which any county, consolidated government, municipality, or local school system may opt out of upon the completion of certain procedures?”
Even if the majority of local voters approve the floating homestead exemption amendment in November, the local taxing entities – counties, cities, school districts – can still choose to opt out of this system.
Notably, this legislation only applies to homesteads; commercial, industrial and agricultural properties are not affected, nor are any non-homestead residences.
Despite a common misconception – that the state is taking the power away from local governments to determine home values and millage rates – this statewide referendum preserves those functions at the local level. Nor is there any equalization of home values across county lines.
Capping home value assessments
The first portion of HB 581 is designed to limit annual increases on the assessed – or taxable – value of homesteads to no more than the rate of inflation.
If approved, homesteads would first be eligible to receive this exemption in tax year 2025, which means that the home value in 2024 would be established as the base year. However, for those homeowners who have a home value locked in at a previous year’s rate for 2024 – such as those after a successful appeal – that would be the base value.
For example, if the base year value of the home is $400,000, and the following year the fair market value has increased to $425,000, the millage rate would not be levied against $425,000. Rather, in this proposed system, the home value would be determined as $400,000 multiplied by the inflation rate (likely the Consumer Price Index) over the previous year. So, if the CPI was 3%, then the taxable value of that home would now be $412,000, instead of $425,000 under the current system (this example does not take into account any existing homestead exemptions).
Millage rates and property values would still be determined at the local level by the respective parties. By implementing the option for this cap on assessed values, the state is attempting to resolve the ongoing disconnect between the unelected tax assessors who compute the formulas to determine home values and the citizens who don’t understand – or are unable to pay – the resulting increases on a home they have owned for decades.
Importantly for Georgians concerned about the impact on their existing local homestead exemption, the calculation that ultimately takes precedence is the one more beneficial for the taxpayer, whether it is this proposed model (if enacted) or an existing floating exemption that provides greater tax relief. As for those local governments with frozen homestead exemptions, they will remain in place. In short, this bill is designed for the homeowner to come out better than or the same as today, not worse.
While those local exemptions may yield varied results when evaluating the cumulative effect on local property tax bills, consider this: Each local taxing authority – counties, cities and school boards – retains the choice of opting out if local voters approve the referendum. This process includes three public hearings and must be completed by March 1, 2025.
Since each governing body retains the independent decision whether to opt out, the possibility remains that a home can have different taxable values for each of them when the property tax bill is issued. Thus, certain millage rates could still be applied to the fair market value of a home.
New sales tax: FLOST
This bill also amends existing state law regarding local sales taxes. This is designed to offset potential revenue losses for cities and counties, which receive the majority of their funding from property taxes. By creating a new exemption to the two-penny local sales tax limit under state law, local governments can hold a future referendum for a Floating Local Option Sales Tax (FLOST) – if the homestead exemption referendum is approved and all local governments that tax property choose not to opt out.
The FLOST can be raised in 0.05 increments up to a penny of local sales tax, and the proceeds would be divided based on a local agreement between the county, the cities that opted in, and any local municipalities that do not assess property taxes.
What happens to the FLOST if some local governments choose to opt out, but not all? In short, this bill represents an all-or-nothing proposition for residents. If a county opts out of the floating homestead exemption, all of its cities are ineligible to receive the FLOST. If any city that taxes property chooses to opt out of the floating homestead exemption, then the entire county is ineligible for the FLOST.
School boards that opt out do not have any impact on whether the FLOST vote is held because they cannot participate in the FLOST under this amendment. This is primarily because schools currently receive local sales taxes from ESPLOST and ELOST funds. However, there is nothing to prevent another constitutional amendment from adding local schools as recipients of FLOST funds.
Property tax bills
Finally, this legislation also includes elements to improve transparency for both taxpayers and local governments.
Property tax assessments would display an “estimated roll-back rate” rather than the expected millage rate liability under the current system. Information would also be provided on how much the homeowner’s property tax liability has been reduced due specifically to FLOST revenues.
The chief tax appraiser would also be required to appraise every parcel in their county once every three years. One consequence of this is that it reduces the likelihood of massive valuation increases at once, as has been the case in some counties that have fallen years behind in reappraising properties.
Local governments previously raised concerns about the existing appeals process, so that has been modified. If taxpayers, or their representatives, do not appear for the settlement conference, then they are not eligible for a temporary reduction in the amount of taxes due or for their attorney’s fees. In addition, the three-year lock for home values now only goes into effect if the appeal results in a reduced valuation – previously, values that were unchanged were also eligible.
When considering the multifaceted aspects of this legislation and referendum, a simple, comprehensive answer is difficult. However, this will hopefully give homeowners some much-needed context and some insight into what to expect.
Read Part II on the mechanics of Amendment 1 by the Foundation’s Kyle Wingfield.