The Senate Revenue and Taxation Committee on Wednesday advanced a bill that would increase the homestead property tax credit from $350 to $375 per parcel, while at the same meeting declining, for a second time, to approve a similar bill.
The bill that the committee advanced in a voice vote to the full Senate is Senate Bill 447 by Senate President Pro Tempore Jim Hendren, R-Sulphur Springs. It would also divert $8.2 million from the property tax relief trust fund to the county voting system grants fund and move additional excess money to state general revenue.
The legislation that the panel declined to endorse in a voice vote is the House-approved House Bill 1321 by Rep. Lanny Fite, R-Benton. Besides increasing the credit to $375 per parcel, it also would authorize a study by the House and Senate tax committees on the future use of the property tax relief trust fund that's financed by a half-percent sales tax.
In 2018, 716,525 property owners received tax credits totaling $229.9 million, according to the state Department of Finance and Administration. The trust fund is used to reimburse counties for what the credit costs them.
Hendren told the Senate committee that his bill is "similar to a bill that you have heard several times already. It is an attempt at a compromise. I am still hopeful that at some point we'll get to that point."
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But Fite said in an interview that he would try to persuade the House Revenue and Taxation Committee to defeat Hendren's bill if it clears the Senate.
Excess revenue in the property tax relief trust fund should be used either for property tax relief or sales tax relief, he said.
Hendren told the Senate committee that voters approved Amendment 79 to create a homestead property tax credit in 2000 and the Legislature enacted a half-percentage-point sales tax increase to finance the property tax credit in what was intended to be a revenue-neutral move.
But it turned out that the sales tax raised more revenue than needed.
The Legislature created the trust fund to store excess funds to use for future property tax relief, said Hendren, who served in the House from 1995 through 2001.
The trust fund has been raided a few times by the Legislature and the governor's office for different projects, to make up for funding shortfalls or other reasons, he said.
Money also has been transferred out of the fund to pay counties for their administrative costs of the tax credit, and the cities "got a piece of the pie as well" and that works out to about $5 million a year, Hendren said.
"The idea that this trust fund is only going to fund homestead tax credits is just really not historically accurate," he said.
SB447 would increase the homestead property tax credit from $350 to $375, beginning in 2020, according to the finance agency. The department forecasts a $149 million balance in the property tax relief trust fund on Dec. 31, 2019.
Hendren said the bill would allow for the secretary of state’s office to purchase the latest voting equipment for counties without that equipment with the counties paying their share of matching funds. It also would reimburse some counties "that didn't get the match that they thought they were going to get," he said. The counties' match rate ranges from 50 percent to 90 percent, he said.
"Essentially, I am putting about $8 million in this bill and the counties will have put about $5 million to finish off having the new voting equipment that the state has been asking for now for two, three or four years," he said.
The remaining excess funds in the property tax relief trust fund transferred to general revenue could be used "to offset some of the money we lost through tax cuts or provide future tax cuts or meet some of the other needs we have in the state," Hendren said.
He said the state has a pretty regressive tax code because it has such a high sales tax. He said it also has a high income tax relative to other states and incredibly low property taxes.
"So the scenario that we have right now is just bad policy. It takes sales tax revenue and reduces property taxes even further so it continues to add to our regressivity of the tax code," Hendren said.
"But if they decide they want to begin to reduce the sales tax ... they can do that, or if they decide they have got to fill some of the holes in our budget that might have been created because of the tax cuts in the past it gives them the ability to do that," Hendren told the Senate committee.
In calendar year 2020, the finance department projects the increased homestead tax credit would increase reimbursements to the counties by $12.5 million. The department forecasts a $135.7 million balance in the trust fund on Dec. 31, 2020.
In making a pitch for his HB1321, Fite told the Senate committee, "I feel very strongly that this is collected for property tax relief and it goes into the property tax relief trust fund.
"We should be giving this money back to the people in a tax break through property taxes or the sales tax and I propose studying that in an interim committee," he said.
The property tax relief trust fund "has been raided on many occasions to the tune of $172 million in the past and I think we address that issue," Fite said.
He said his bill would increase the homestead property tax credit by $25 to $375 per parcel and "probably does nothing more than keep up with inflation." In a divided voice vote, the Senate balked at recommending approval of HB1321.
The homestead property tax credit was last increased by $50 to the current $350 by the Legislature in 2007 at the behest of then-Gov. Mike Beebe.
A Section on 03/07/2019
CORRECTION: Senate Bill 447, which would increase the homestead property tax credit to $375, also would transfer money to the voting system grant fund to allow the secretary of state’s office to buy voting equipment for counties, providing the counties pay matching funds, said Senate President Pro Tempore Jim Hendren, R-Sulphur Springs. An earlier version of this article incorrectly described what Hendren said about the matching funds.