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F I S C A L I M P A C T R E P O R T

SPONSOR Berry

ORIGINAL DATE

LAST UPDATED

2/22/07

HB 1074

SHORT TITLE Revaluation Upon Change in Property Ownership

SB

ANALYST Earnest

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($0.1) Non-Recurring General Obligation

Bond Capacity

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates Senate Bill 695

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 1074 amends the property tax code to eliminate the provision for revaluation of

residential property upon change of ownership and any language related to “change of

ownership". Change of ownership would not trigger an upward revision of property valuation to

something approximating the market value of the property.

FISCAL IMPLICATIONS

HB 1074 would limit increases in value of property to no higher than 103% of the value in the

prior tax year or 106 1/10th% of the value in the tax year two-years prior to the tax year being

valued.

DFA finds that such a limitation could have a substantial fiscal impact on NM local

House Bill 1074 – Page

2

governments, but does not provide an estimate. A cap on revaluation would reduce the amount

assessed and taxed. This reduction to the NM local government coffers could directly impact

operating and capital budgets, thus affecting provided services.

However, rather than face a reduction of revenue from elimination of revaluation, counties may

choose to raise property taxes, making the fiscal impact indeterminate.

HB 1074 would impact 2008 general obligation bond capacity. Current projections show

residential property growth of 3.1 percent, but past years have been much higher.

SIGNIFICANT ISSUES

DFA also notes that the bill would freeze the notorious inequities in the property valuation

system, with no means of fixing the inequities.

According to TRD, provisions of the proposed measure would:

1.

make property tax obligations more predictable to home purchasers than they currently

are;

2.

limit growth in bonding capacity

1

and thus the amount of projects that could be

constructed with voter-approved bond issues repaid with property taxes;

3.

perpetuate existing differences between market value and assessed value among property

owners, partially because many properties were assessed at much less than market value

when the 3 percent limit on residential valuation was enacted in 2000;

4.

increase prices of properties subject to the new legislation because their assessed values

would essentially never be allowed to increase by more than 3 percent annually, and thus

provide their owners with lower property tax bills than would be the case in the absence

of the proposed legislation; and

5.

decrease values of newly-constructed residential properties because taxes on the new

properties would typically be substantially more than taxes on comparable properties that

are subject to the three percent limitation. The proposal may also increase the cost of

borrowing among property tax recipients (counties, school districts, the State of New

Mexico and other entities) due to decreased ratings and increased interest charges on

bonds.

DUPLICATION

House Bill 1074 duplicates Senate Bill 695.

BE/nt

1

Bonding capacity is the extent to which governments are allowed to borrow – typically to repay debt on capital

construction projects. In New Mexico, for example, counties and municipalities may issue general obligation bonds

totaling no more than 4% of net taxable value.