Tennessee weighs tax relief for seniors

By Dave Flessner Business Editor Chattanooga Times Free Press

July 19, 2004

     Roberta Darnell proudly displays a new porch, garage and Japanese maple tree she has added to her East Lake house since moving in more than eight years ago.

     But the improvements came with a price for Ms. Darnell, who retired from Big Horn saddlery five years ago.

     "The property taxes went up along with the value of our house, which didn’t leave us much money for anything," the 70-year-old homeowner said.

     Ms. Darnell got a break on her property tax bills four years ago when she found out about Tennessee’s tax relief program for elderly and disabled homeowners. Ms. Darnell is among more than 2,000 low-income seniors and disabled persons in Hamilton County participating in the state-funded tax relief program.

     "I am on fixed income, and by the time I pay all my bills, I only have about $17 a month left," she said. "I really needed this program to help me get by."

      But Tennessee’s homestead exemptions are far below what some neighboring states such as Georgia offer. Tennessee’s tax relief program is available only to seniors who earn no more than $12,710 a year, while Georgia extends some homestead exemptions to all homeowners and, in many counties, exempts all school taxes on retirees.

     Tennessee’s Constitution bars local governments from granting elderly homeowners any property tax breaks not offered to other taxpayers. To help more seniors, however, the Tennessee Legislature has begun a process to lift that ban and allow cities and counties to freeze property taxes for more elderly homeowners.

     Tennessee lawmakers gave initial approval this year for a constitutional amendment to allow local governments to freeze property taxes for seniors once they reach retirement age. If two thirds of legislators approve the plan next year, voters will decide on the constitutional amendment in the next gubernatorial election in November 2006.

     TAXING ANGLES     Proponents argue that such a change would help more needy seniors in Tennessee and, in so doing, remove one of the most contentious barriers for county commissioners to vote for property tax increases.

     "As property taxes continue to rise, many older residents feel they are being punished for a lifetime of fiscal responsibility," said state Sen. Mark Norris, R-Collierville, a former Shelby County commissioner who is sponsoring the constitutional amendment. "The solid investment they made in their homes seems to be coming back to haunt them."

     Hamilton County Commission Chairman Curtis Adams said he voted against a proposed property tax increase this year in part because of concerns about the impact of such a tax hike on seniors with fixed incomes. Mr. Adams said Tennessee’s property tax relief program remains too limited to help many seniors and low-income homeowners.

     Currently, low-income elderly homeowners are eligible for up to a $126.77 tax break on their county property taxes and $104.20 on their city property taxes through Tennessee’s tax relief program, according to Wava Brooks-Sales, the deputy clerk who administers the program for the Hamilton County trustee’s office.

     "There are a lot of elderly people really hurting," Mr. Adams said. "I’ve talked with elderly folks who say they have to decide sometimes between what they buy to eat and their medicine and they just can’t afford to pay higher property taxes."

     Last year, Tennessee offered less than $10 million to local governments to provide property tax relief payments for elderly homeowners across the state. By comparison, Georgia’s tax relief program provided $380 million in payments to local governments to offset homestead exemptions.     

     OTHER REGIONS     Local governments across the Peach State provided even more relief to homeowners, especially seniors, through local tax exemptions beyond those funded by the state. In Catoosa County, for instance, homeowners age 62 and older who earn below $14,000 are exempt from the county portion of local property taxes while those 72 and older are exempt from the school portion of their taxes, according to Tax Commissioner Sandra Self.     

     More than 40 states provide some type of homestead exemption, according to a recent study by the Institute on Taxation and Economic Policy. The tax breaks are intended to help limit the regressive nature of property taxes, which require low-income people to pay a bigger share of their income than do wealthy individuals. The institute’s study found homeowners with the lowest income typically paid 3 percent of their income in property taxes. But the wealthiest 1 percent of Americans paid only 0.8 percent of their income in property taxes — even with much larger homes.

     In 2000, former Hamilton County Commissioner and now state Rep. Jim Vincent proposed a freeze on property taxes for those age 65 and older in the county. But state officials said then the idea was unconstitutional.

     To broaden exemptions for the elderly, the Tennessee chapter of the American Association of Retired Persons has endorsed the constitutional amendment in Tennessee to allow local governments the ability to freeze or exempt property for seniors.

     "The biggest asset for many seniors is their home, and we should do what we can to help them keep their homes, not tax them out of houses they spent a lifetime to get," said Brian McGuire, Tennessee legislative director for AARP. "Tennessee’s tax system already tends to be regressive because of our relatively high sales tax."

     Sen. Norris said his proposal "gives local government, which is closest to the people, the opportunity but not the mandate" to freeze property taxes for seniors.

     While some younger homeowners might complain about age-based tax breaks, Mr. McGuire said expanding tax relief programs for seniors could help indirectly many families with children by reducing the opposition to more funds for public schools.

     "Raising property taxes for seniors on fixed incomes is always very difficult," he said. "If some relief is provided for such persons, that could help limit the hardships from a tax increase and change some of the political dynamics of a tax decision."

     Since most property tax revenues are generated from businesses, utilities and expensive homes, granting seniors a bigger tax break could help elderly people without much fiscal impact on local government operations, Sen. Norris said.

     Tennesseans for Fair Taxation, a statewide coalition that has pushed for tax reform in Tennessee including a state income tax, has not adopted a position on the proposed constitutional amendment to allow local homestead exemptions. But the group’s executive director, Brian Miller, said more seniors would benefit from a lower sales tax rate than from cutting property tax rates.

     "If the Legislature is serious about tax relief for elderly and low-income persons, then they should reform our tax system in a way that allows us to lower the sales taxes, especially on items like food and clothing," he said. "That would do more to help most seniors."

     But Sen. Norris said most Tennesseans he has talked with favor granting local governments the ability to freeze property taxes for people when they reach retirement age.

     "This would provide relief where it is needed the most," he said. "It’s clear that the benefits outweigh the burdens, and I would hope this amendment is adopted overwhelmingly by the people."

     E-mail Dave Flessner at dflessner@timesfreepress.com

     WHAT’S NEXT A constitutional amendment to allow local governments to freeze or exempt property taxes for elderly homeowners must get approval of two-thirds of the Tennessee House and Senate next year to be placed on the ballot for ratification in November 2006.

     FIND OUT MORE Tennessee homeowners 65 and older who annually earn no more than $12,175 may apply for tax relief through their county trustee’s office.

More information is available on the Web at www.comptroller.state.tn.us/pa/patxreld.htm