Smith criticizes cap on property value increases

An influential state senator on Monday spoke out against a law that changed the way New Mexico taxes residential properties, saying the 2001 measure was meant to help low-income people but instead hurt them while providing a boon to wealthier owners.

Senate Finance Committee Chairman John Arthur Smith, in an address to the Senate, also said the law deprived counties of needed tax revenue.

Smith, D-Deming, called the law’s fallout “an unintended consequence of the beneficence of the legislature.”

The senator made the remarks in response to an article in the Sunday newspaper new mexican, which examined the history and effects of the law. It was designed to protect longtime homeowners in gentrified neighborhoods like the east side of Santa Fe from having their residences taxed due to rising property values.

Under the law, which applies statewide, the market value of residential property for tax purposes cannot be increased by more than 3% per year as long as the owner remains the same. Resold and newly built residences are taxed at full market value.

the new mexican reported that the law created an unfair tax system, with tax breaks for about 26,000 homeowners in the city but not 8,900 others. Last year, tax breaks ranged from a few dollars to tens of thousands of dollars.

The owner of a residential complex worth $2.8 million received a tax break of more than $16,500 last year. Owners of an apartment complex and a seniors’ residence each received tax breaks of more than $40,000.

Also, because of the law, a home buyer often pays significantly more in property taxes than owners of similar homes in the same neighborhoods.

“We’re hurting low-income people if they’re ever able to buy a home,” Smith said. “We did real damage to them.”

At the same time, he said, “There are people who have very, very low property taxes who can pay many times as much money, but the legislature did it out of the goodness of their hearts.”

Smith said the state’s property tax system is “completely out of balance” because of the way residences are now taxed.

“We’ve basically destroyed and devastated the county revenue stream,” he said.

Santa Fe County estimated it would collect $9.5 million more per year in property taxes if all residences were taxed at full market value.

Smith’s comments about the change in how residential properties are taxed were part of longer remarks about the unintended consequences of tax policy changes.

He said the elimination of the gross receipts tax on food products in 2005 resulted in lower tax revenues for local governments. And Smith renewed his opposition to the use of the state’s $17.5 billion Land Grant Permanent Fund to help pay for pre-kindergarten education.

“I plead with my colleagues when they look at tax policy to start thinking long term rather than what they can go back and sell to voters…” he said. “Let’s look at the damage we could possibly cause.”

Smith’s comments came as the legislature considers sweeping changes to the way taxes — including personal income and gross receipts taxes — are levied.