Property Tax Relief Proposal for Wyoming Seniors

What constitutional amendment do you propose?

We propose a tax exemption to be applied to the principal residence of an owner-occupier, where the owner-occupier, or the spouse of the owner-occupier, is sixty-five years of age as of the assessment date, and the owner-occupier has lived in the same principal residence for ten years as of the assessment date. The amendment will exempt one-half of the fair market value of the property, with a limit of $100,000 of fair market value. The legislature would be obliged to compensate local taxing entities for the loss of revenues resulting from the exemption.

The text of our proposed amendment is Attachment A.

What is an illustrative tax value of such an exemption?

Using an average statewide mill levy on residential real property of 67.135 mills, and assuming a residence with a fair market value of $200,000, the tax value of the exemption would be $638:

$200,000 times one-half equals $100,000;

$100,000 times the 9.5% assessment rate for residential real property equals an assessed value of $9500;

$9500 times 67.135 mills equals $638.

Actual results vary county by county and property by property, due to variations in mill levies and variations in local housing markets.

What was the inspiration for the proposal?

After a survey of all fifty states, we found a similar constitutional amendment in Colorado which we have modified. The text of the Colorado amendment is Attachment B.

What other approach did you consider?

We considered creating residential real property as a separate class of property under Article 15, '11. We rejected this idea because (1) a similar approach, House Joint Resolution 7, was rejected by the Legislature in 2003; (2) under Subsection 11(b) of Article 15, the minimum percent of fair market value which could be used as taxable value for such a separate class [see Wyo. Stat. Ann. ' 39-13-103(b)(iii)] would be 8.22%, a modest reduction from the present 9.5%; and (3) we perceive the tax burdens of rising property values to fall most heavily on Wyoming residents at or above retirement age.

Would the Legislature have authority to modify the proposal?

We do not wish to prejudge the fiscal condition of the state, and believe it is wise to vest the legislature with discretion to adjust the cap up or down. Authorizing the legislature to do so will enable the amendment to address future escalation of property values in a manner sensitive to economic conditions then prevailing.

Are there other differences?

There are two.

First, we have adjusted the Colorado language so the exemption will apply if either the owner-occupier or the spouse of the owner-occupier is sixty-five years of age. One spouse of retirement age should be sufficient for the household to qualify for the exemption. This would also remove any impetus for otherwise non-qualified households to incur legal fees or interfere with estate plans in order to modify title arrangements in an attempt to qualify for the exemption. It will also eliminate any perceived inequity resulting from how the title is held by a married couple when the amendment is adopted.

Second, the Colorado amendment was modified beginning January 1, 2007, to apply to disabled veterans, but restricting the taxpayer to only one exemption B either as a qualified senior, or as a disabled veteran. We did not elect to displace the existing Wyoming veterans exemption, nor to force an election between exemptions.

We view the exemption for qualified seniors as addressing a property taxation problem. We view the veterans exemption as recognition for military service. These are different purposes.

Would the surviving spouse of a previously qualified owner-occupier continue to receive the exemption if he or she continued to live at the same principal residence?

Yes.

Who would administer the program?

The county assessors already calculate fair market value, and are in the best position to apply the exemption. The resulting valuation would be provided to the county treasurers in the normal course of existing procedures.

Adaptation of computer assisted mass appraisal (CAMA) systems used in each county could facilitate calculation of the exemption.

We do not propose to follow the Colorado model of a state government program Administrator. The functions of that Administrator include review of the exemptions granted in each county to assure that no taxpayer has claimed more than the one exemption authorized by law. We view this as an unnecessary layer of government.

Can the assessors make the necessary adaptations to the county computer systems?

This would require an expenditure by the Department of Revenue. The Department originally provided for the systems now in use and is responsible for determining the systems to be used by the counties. To make the changes, the Department would contract with the vendor of the system.

These adaptations would include, among other things, a routine for summarizing taxes lost by local entities. The preparation of such a summary may be complex, since mill levies are not uniform across any given county, due to the eight (8) mill levy allowed cities and towns, special tax districts, and the like. However, similar problems are handled when assessors submit annual mill levy reports to the State Board of Equalization for approval, so we do not anticipate that the problem will be unmanageable.

How would a taxpayer claim the exemption?

By application to the county assessor. The minimum contents of the application would be set forth in a statute.

As in Colorado, we propose a statute providing that approval of a single application governs until the exemption ceases to apply.

Why would this program be more successful than other programs requiring applications?

We believe that means testing has been unpopular. Existing programs require the taxpayer to provide income and other personal information that many find unduly intrusive. Income information would not be required to determine eligibility for this program.

Colorado requires a social security number of all applicants. We believe this is unnecessary.

Did you consider using a simple in-state residency requirement of ten years, rather than residency in a specific residence?

Yes. One can argue that Wyoming seniors commonly purchase smaller residences after retirement, or move from a rural setting into town to be closer to medical facilities. Under our proposal, these individuals would not be eligible for relief until they had lived in the same principal residence for ten years.

Why did you reject that alternative?

For three reasons: First, we were concerned that the administrative burden of verification on the county assessors could prove to be unmanageable.

The assessors have ready access to information regarding residential real property. They do not have ready access to other information which has customarily been used to establish residency, such as driver's license records, in part because the necessary information would have to be available dating back ten years. We also do not know how reliably such records can be used to establish duration of residency. For example, an individual may establish a primary residence out of the state without acquiring a new license.

We are reluctant to presume the assessors would have the staff necessary to implement a program with a general residency requirement. In addition to the availability of information, there may be issues of judgment regarding alternative means of demonstrating residency. This would place a greater burden on smaller counties where the assessor's office is often lightly staffed, even though the senior population is a proportionally larger segment of total population. We prefer not to risk exposing any assessor to claims of mal-administration without a surer grasp of administrative solutions.

Second, the fundamental problem for seniors is that their property taxes are increasing due to unrealized capital appreciation in their homes, while cash income in retirement lags the rate of tax increase. If a home has been recently sold, the owner-occupier has had the opportunity to realize all or a substantial portion of the gain as liquid assets. This may be particularly true if seniors downsize. Such seniors stand in a different position than those who have not sold their homes and hence do not have cash from sale at their disposal.

Third, our proposal fits more squarely within a rationale expressly approved by the United States Supreme Court. The Court has recognized that a State legitimately can conclude that a new owner, at the point of purchasing his property, does not have the same reliance interest warranting protection against higher taxes as does an existing owner, who is already saddled with his purchase and does not have the option of deciding not to buy his home if taxes become prohibitively high.

Is legislation necessary to implement the program?

Yes. A draft of proposed statutes is Attachment C.

As in Colorado, legislation will be needed to define some critical terms, prescribe minimum application requirements, and to provide penalties for improper applications. Legislation is generally necessary to address details which would be too cumbersome for a constitutional amendment.

We propose administrative provisions simpler than those of Colorado.

Would the program apply to mobile homes?

Some, but not all. The exemption applies only to residential real property. A mobile home is generally taxed as personal property until it is permanently affixed to a foundation, and its title is surrendered.

Would the program apply to agricultural properties?

In part, yes. Although agricultural lands are taxed at a reduced rate that would not be affected by the exemption, farmsteads are taxed as residential real property and would be eligible for the exemption.

Would the exemption apply to an inter vivos trust or other estate planning device?

Yes, through a statutory definition of owner-occupier, which includes a trust created solely for estate planning purposes.

Would the exemption apply where an occupying senior has transferred title to his or her children, but retained a life estate in the property?

Yes, depending on the details. For example, our proposed statutory definition of owner-occupier includes a maker of a trust created solely for estate planning purposes.

Will a married couple be able to claim more than one principal residence?

No. That rule would be clarified by legislation, and penalties provided when a married couple claims more than one exemption.

Will persons whose principal residence is in another state qualify for the exemption?

No.

Have you investigated potential constitutional restrictions on the amendment?

Yes. We found no authority that would prohibit our proposal. A report prepared by State Board of Equalization staff is Attachment D, together with staff notes of a survey of constitutional tax relief provisions of the fifty states.

What deadline will be used for qualification requirements?

The assessment date referenced in the proposed amendment is January 1. By statute, "All taxable property shall be annually listed, valued and assessed for taxation in the county in which located and in the name of the owner of the property on January 1." [Wyo. Stat. Ann. ' 39-13-103(b)(i)(A)]. The owner-occupier or the spouse of the owner-occupier would have to be sixty-five on or before January 1, and the owner-occupier must have occupied the residence for ten years on or before January 1. There is no provision for waiver of these deadlines.

Is that also the deadline for qualifying also the deadline for submitting an application for an exemption?

No. We propose a March 1 statutory deadline (the same as the date for personal property renditions) for submission of an application for exemption.

We believe the March 1 deadline is both practical and consistent with existing statutory deadlines which govern administration of the ad valorem tax.

How would the local tax entities be reimbursed by the state?

We propose an application by the assessor to the department, and hence to the state treasurer. The application would compile and summarize revenues lost due to the exemption, following the model used for the veterans exemption. [Wyo. Stat. Ann. ' 39-13-102(k)].

How much would the exemption cost?

We cannot estimate this with accuracy because we do not have data that would readily enable us to identify (1) the age of residential homeowners; (2) whether the homeowner has been living in the same principal residence for ten years; and (3) whether the household is comprised of persons sixty-five or older who are married to one another.

Can you estimate a worst case for compensation of local tax entities?

Yes. We can come up with a high estimate B a worst case B beginning with the 2006 census estimates by county. We reduce those numbers in each county by the 1558 statewide Medicaid eligible clients in nursing facilities and assisted living facilities. By definition, those clients have no assets. We then apply these estimates to average home values in each county in 2007, and an average 2007 mill levy for each county. These numbers would change if the program were implemented in 2010, but we preferred to make a calculation using best available data.

That high estimate is $4,856,217,600 of fair market value exempted; $461,340,672 of assessed value exempted; $30,786,139 of revenue for which local tax entities must be compensated.

To be conservative about the exposure to reimbursement, our estimate assumes that every person sixty-five or over, except for Medicaid eligible clients in nursing facilities and assisted living facilities, will claim the exemption. That total is 61,192 people. Because our estimate is based on a total number of individuals, rather than on residential properties, we are not concerned with accounting for individuals who might own more than one residential property.

In most Wyoming counties, average home values are less than $200,000, so the value of the exemption will be less than the maximum. County-by-county calculations are Attachment E.

We have also used 2007 mean (average) home values, rather than the lower 2007 median home values, to insure that our estimate is conservative about the exposure.

For ease of illustration, we have included three charts as Attachment F:

A county-by-county comparison of 2007 fair market values;

Average mill levies in 2007, county-by-county;

Percentage of population aged sixty-five and over in 2006, by county.

Do you expect the actual cost to be less than your high estimate?

Yes. We believe that in practice, the actual annual cost will be more on the order of $15 to $18 million, and perhaps less.

First, some sixty-five year olds will be married to one another, and there can only be one exemption for a married couple. For Wyoming folks over the age of sixty-five in 2005, 45.8% of women and 73.5% of men were married. The 2006 estimate of females sixty-five or over was 34,277; 45.8% yields 15,699 married females. The 2006 estimate of males sixty-five or over was 28,473; 73.5% yields 20,928 men (presumably a substantial number of men sixty-five or over are married to younger women). Using a conservative round number, we can guess that there are about 15,000 couples aged sixty-five and over, and reduce our pool of applicants by that number, to 46,192.

Second, some portion of households will have lived in the principal residence for fewer than ten years. We found no statistics that would enable us to judge this number. However, we know that many people sixty-five and over choose to move from an established principal residence around the time of retirement, for health, lifestyle, or family reasons. These people would cease to qualify for the exemption. Based on our own judgment, we guess that at least twenty per cent of the eligible pool of applicants would not meet the ten year requirement, reducing our pool to 36,954. [46,192 - (20% X 46,192) = 36,954].

Third, some portion of households will decline, or fail, to apply for the exemption. Many people are suspicious of government programs. Experience with the veterans exemption suggests that some applicants will reject tax relief as a form of charity. Some portion of the population may find the amount of relief an insufficient inducement to apply. Still others may be reluctant to sign a sworn application. We think at least ten percent of the applicant pool will never apply for the exemption, reducing the pool to 33,258. [36,954 - (10% X 36,954) = 33,258].

Fourth, some individuals or households will rent housing. However, in the west generally (specific figures are not available for Wyoming), 90.66% of married couples sixty-five and over owned a home in 2006. We did not attempt to estimate what a further reduction of the applicant pool might be based on rentals.

The final total of 33,258 represents 54.35% of the applicant pool we originally estimated. We have no way of spreading the reduced numbers around the counties, and will make a simple statewide estimate. The result of applying 54.35% to the original estimate of local taxing entity revenues lost by the exemption is $16,732,266. Allowing for some further margin of error in our estimates, our best guess is the actual reimbursements to counties would run between $15,000,000 and $18,000,000. There would also be relatively modest costs in the first year to adapt the statewide CAMA system.

What state oversight would there be on the county assessors' administration of the program?

Taxpayers may appeal assessor determinations to the county board of equalization, with further appeal to the State Board. By statute, the Department has general guidance functions as well as functions related to support of the CAMA system. The State Auditor would monitor claims for compensation made by taxing entities