America’s construction “boom” during the previous decade was particularly dramatic in Nevada, where property values skyrocketed, in some instances, several hundred percent. The escalation in assessed property value resulted in a corresponding increase in property taxes, which threatened the economic welfare of commercial and residential property owners, to say nothing of the ripple effect such would have on related industries such as lending. To stem the tide of rapidly increasing taxes, in 2005 Nevada Gov. Kenny Guinn and the Nevada Legislature approved restrictions on annual increases in real property taxes. Stylized as abatements, these restrictions, or “caps,” curbed the impact of rising property taxes by limiting annual tax increases on commercial properties and owner-occupied single family residences, regardless of the percentage increase of the corresponding assessed real property value.1
Although the 2005 legislation placed a ceiling to protect property owners from unbridled tax increases, it failed to address the contingency of poor market performance. Applying the statutory cap, assessed values on commercial property during the “boom” years resulted in a staggering nine-year average and assured a cap of 8 percent. However, each year following the “Great Recession,” high assessed values fell out of the average and were replaced with low post-recession values, resulting in a steady decline in the cap to amounts often far below the 8 percent cap. Accordingly, when the market crashed in 2008, assessed values plummeted and tax rates plunged unimpeded, leaving state agencies and local governments without the resources to sustain services. Since that time, assessed property values have stabilized and charted an upward trend, however, Nevada’s property tax caps have prevented state and local governments from restoring their revenue streams commensurate with economic and population growth.2
In addition to the absence of safeguards against a recession, the caps have no “sunset” and run into perpetuity. Accordingly, in the event the legislature decides to address the caps, affirmative legislative action must be taken vis-à-vis a bill passed by a supermajority (two-thirds) of each house. While tax increases (in this case, restoration) are always unpopular and a supermajority is an extremely high bar, the prospect of legislation challenging the caps has increased dramatically ahead of the 2017 Legislative Session.
Overburdened and starving for revenue in the post-recession economy, Nevada state agencies and local municipalities have been forced to hunt for income from various sources. Although Nevada’s caps on real property taxes have always been part of the revenue herd, it appears as though sights have been universally trained on real property tax caps as an easy target with substantial yield. Following years of disagreement on how to raise revenue, Nevada’s city and county managers are now singing in unison: real property tax caps must be addressed in a substantial way.3 Adding harmony, first responders, local school districts, and Nevada state agencies have also begun to very publicly call for reconsideration of the caps. More than ever before, interests have aligned to such an extent that legislative action on real property tax caps seems imminent. Combined with the Legislature’s passage in 2015 of the Nevada Revenue Plan, a historic tax plan generating approximately $1.3 billion in new revenue, the political climate may be favorable to addressing and substantially amending Nevada’s real property tax caps in 2017.