House committee endorses boost to homestead property tax credit

Rep. Lanny Fite, R-Benton, is shown in this file photo.
Rep. Lanny Fite, R-Benton, is shown in this file photo.

A bill that would implement Gov. Asa Hutchinson's plan to increase the homestead property tax credit from $350 to $375 per parcel cleared the House Revenue and Taxation Committee on Tuesday.

With no audible dissenters, the committee recommended House approval of House Bill 1321 by Rep. Lanny Fite, R-Benton. If enacted, the bill would become effective for assessment years starting on or after Jan. 1, 2019.

Fite told the committee that the state can afford the $25 increase in the homestead property tax credit because there is a surplus in the state account used to pay back counties for the credit.

Chris Villines, executive director of the Association of Arkansas Counties, said voters approved Amendment 79 to the Arkansas Constitution to create the homestead property tax credit in 2000 and "so we pay a half cent in sales tax to the state to fund a property tax relief fund held by the state.

"Out of that fund, they pay up to $350 per homestead back to the counties when the counties exempt up to $350 on that homestead," he said.

The trust fund has continued to grow significantly in the past three years after some lean years, "so we approached the governor's office about increasing this credit a year and he was pleased with the idea," Villines said.

[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]

Paul Gehring, an assistant revenue commissioner for the state Department of Finance and Administration, said about 700,000 parcels claim the homestead property tax credit, and the state pays the counties about $229 million a year for these credits.

"As the collections of the half-cent sales tax come in, there is a surplus over and above that's required to actually fund the credits, the money going back to the counties to pay for the credit," he said.

The trust fund's surplus balance is about $100.4 million, and "we are comfortable with saying, 'Going to $375 would not jeopardize the fund balances that we have,'" Gehring said.

Rep. Les Eaves, R-Searcy, questioned if there would ever be the possibility that there wouldn't be enough money in the trust fund to cover the homestead property tax credit at $375 per parcel.

In response, Villines said, "It's impossible [to] predict that.

"I think we have seen that fund go as low as $40 million, and I am sorry that I used the word 'surplus.' That always has a connotation with it. It is really a balance fund. It has to keep some balance to preserve itself year to year," he said. "But there have been years when it has approached $40 million, and what we have seen in the last three years is about $20 million a year of growth.

"The lean years have been right after the Great Recession, and that sales tax collection when it dips down has a direct impact on this fund," Villines said.

Gehring said state officials projected increasing the homestead property tax credit by $25 per parcel would cost the trust fund about $12.5 million in calendar 2020 and $12.8 million the next year.

Fite said HB1321 also would authorize an interim study by the House and Senate Revenue and Taxation Committees of a formula under which the homestead property tax credit would increase automatically under certain conditions and "see if it works and anything else that anybody might propose."

"I would expect that we'll some proposal by the next session that will impact this fund," Villines said. "When you see a balance grow to this amount, you need to ensure that that goes back to its true purpose in order to fund homestead increases."

In 2007, then-Gov. Mike Beebe signed legislation raising the credit by $50 to its current $350. Hutchinson took office in 2015 and was re-elected last year.

A Section on 02/06/2019

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