This year there are eight constitutional amendments on the November 8 ballot. Some are a bit complicated, and all require a little homework before you cast your vote. To assist, we’re breaking the list into bite-size chunks. Leading up to the start of early voting on October 25, we will highlight one amendment every few days to give you the background and context you need to understand what they do. And for lagniappe, we offer CABL’s recommendations on each of them.
Amendment # 6 Limit Increases in Property Assessments in Orleans Parish
What It Does: Limits the increase in the assessed value of a residential property covered by the Homestead Exemption to no more than 10% per year in Orleans Parish.
Background: For the second time in recent years, voters are being asked to amend the constitution to address the issue of soaring home values in parts of Orleans Parish. In 2018 voters approved an amendment to phase in property tax increases statewide over a four-year period on residences where the assessed value went up 50% or more.
Apparently, that has not been enough. Testimony on this amendment in committee indicated that thousands of residential properties in New Orleans with a Homestead Exemption saw property assessment increases of more than 50% since 2019. This has been driven by short-term rentals, gentrification of neighborhoods, historically low interest rates at the time, extensive renovations, and more people moving into New Orleans. According to the Orleans Parish Assessor, the result has been that homes in some neighborhoods with prior assessed values in the range of $150,000 are now seeing property valuations ranging from $325,000-$400,000. But the same is happening on high-end properties, as well.
The impact falls most squarely on retired homeowners, who might not yet be 65 years old and unable to qualify for another available tax break, and low-to-moderate income families who have been in a house for some time, but do not have the income to afford the steep rise in property taxes. The concern in both cases is that those families would be displaced from their homes because of taxes, and either be forced into the rental market, which is also expensive, or face other consequences.
So, this amendment would limit property tax increases on residential households with a Homestead Exemption to no more than 10% per year. It would continue to increase at that rate until eventually reaching the assessed value. Improvements or new construction on the property would not be covered. If the property were sold, it would be taxed at fair market value, as would all commercial properties.
This amendment applies only to Orleans Parish and would have to be approved by voters statewide and in Orleans.
Comments: Rising property values are usually a good thing and seen as a healthy indicator of a community’s vitality. But that typically happens gradually over time and short-term spikes in property taxes can be devastating, particularly if incomes are fixed or not rising at the same rates. This same dynamic is being seen in areas outside of Orleans, but for different reasons. In communities with widespread hurricane destruction, rebuilt homes are often costing significantly more because of supply chain issues, inflation, and higher labor costs. Those communities would not be impacted by this amendment, however.
Language in the amendment states that local taxing authorities will have to absorb the impact of the reduced tax collections, but it’s unclear just how much that will cost them. According to the fiscal note accompanying the legislation, in 2021 there were more than 7,000 residential properties in New Orleans that had an assessed value of more than 10% above the previous year. So, this amendment would apply to all of them. Theoretically, owners of these properties would eventually catch up to paying taxes at fair market value, but in some cases that could take years, particularly if property values continue to rise.
While it’s true that current higher interest rates could put a damper on continued construction and renovation of properties which could tamp down the rise in property values for the future, New Orleans will reassess properties next year. That reassessment will be looking backwards to the last four years of a hot market when interest rates were low and activity in the housing market was booming.
In looking at the New Orleans housing market overall, we should point out that this amendment will not provide any relief to the thousands of people in the city who are renters. They are essentially living in commercial properties which have no Homestead Exemption and are taxed at market rates. That is reflected in their rising rents.
The bottom line is that this does seem to be a significant problem in some areas of New Orleans. Housing is a major issue in cities across the country which are struggling to keep people in their homes and make housing as affordable as possible. At this tenuous time for the economy, no one wants to exacerbate that situation.
But we question whether this is the best, or only, policy option to address the problem. It seems overly broad and goes beyond just the homeowners most in need. We can also see the distinct possibility of unintended consequences in the future which could require yet another constitutional fix. Yet we are also torn by our long-held belief that local governments should have the autonomy to deal with local tax issues as they see fit. When it comes to property taxes, much of what local governments can and cannot do is unfortunately prescribed in the constitution.
But for New Orleans citizens to be able to make that decision, it will require voters statewide to give them that permission by voting yes on this amendment.
CABL Recommendation: NO POSITION