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Prop 117 – Two Years Later…easy as (Prop) 1 – 2 – 3

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Arizona’s Dual Value System

• FCV (Full Cash Value)– Constitutionally required to reflect market value– Value basis for secondary taxes which fund voter approved

bonds and overrides, and special taxing district budgets

• LPV (Limited Property Value)– Growth limited to 10% over the previous year or 25% of the

difference between the current year’s FCV and the previous year’s LPV, whichever is greater

– The LPV cannot exceed the FCV– Primary taxes are levied against the LPV to support local

government budgets

2

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Proposition 117• Proposition 117 approved by Arizona voters November

2012. Effective calendar year 2014, it first impacted 2015 property tax assessments.

• FCV is synonymous with market value and can change dramatically year to year while the LPV cannot increase more than 5% per year. The LPV cannot exceed the FCV, as before.

• Property taxes are now computed based solely on the LPV.

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Can an Owner Protest Values?• Property taxes are based on the LPV, however the

property FCV is the appealable assessment. This is because the FCV represents market value.

• Due to Proposition 117, there are certain instances where a successful appeal will not impact property taxes, specifically, when the FCV exceeds the LPV and the market value is well above the LPV.

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Proposition 117 – Example #1

Owner’s Opinion of Value $190,000

If the property owner wins the appeal…• The new FCV will be reduced to $190,000. • The LPV will also be reduced to $190,000, since the LPV cannot

exceed the FCV. • Tax liability is based on the LPV, and would be reduced in this case.

$200,000FCV $190,000

LPV $195,000 $190,000

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Proposition 117 – Example #2

Owner’s Opinion of Value $180,000

If the property owner wins the appeal…• If the owner is successful in reducing the FCV to $180,000, it will

not be low enough to impact the LPV. • The LPV will remain $175,000 and yield NO reduction in taxable

value since the FCV is no longer used to calculate property taxes.

$200,000FCV $180,000

LPV $175,000 $175,000

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Proposition 117 - Apartments

FCV LPV PARCELS FCV CHG LPV CHG

2014 $13,295,024,010 $11,232,393,724 11,877

2015 $15,772,810,717 $11,843,451,445 11,725 18.64% 5.44%

2016 $17,702,838,189 $12,441,092,824 11,650 12.24% 5.05%

2017 $21,551,005,408 $13,801,574,529 11,675 21.74% 10.94%

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Proposition 117 - Hotels

FCV LPV PARCELS FCV CHG LPV CHG

2014 $2,715,750,544 $2,684,925,284 982

2015 $2,967,955,185 $2,801,600,144 990 9.29% 4.35%

2016 $3,345,959,202 $2,878,756,767 985 12.74% 2.75%

2017 $4,192,557,683 $3,072,135,439 987 25.30% 6.72%

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Proposition 117 - Commercial

FCV LPV PARCELS FCV CHG LPV CHG

2014 $14,598,797,007 $14,361,947,128 22,566

2015 $16,017,485,231 $15,173,665,363 22,782 9.72% 5.65%

2016 $17,988,879,976 $15,248,454,228 22,360 12.31% 0.49%

2017 $20,481,215,361 $16,510,503,871 22,676 13.85% 8.28%

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Proposition 117 - Office

FCV LPV PARCELS FCV CHG LPV CHG

2014 $9,752,657,465 $9,414,344,669 9,861

2015 $10,783,950,089 $9,418,576,745 9,639 10.57% 0.04%

2016 $12,282,412,581 $9,883,169,928 9,543 13.90% 4.93%

2017 $13,532,944,534 $10,575,735,458 9,624 10.18% 7.01%

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Proposition 117 - Industrial

FCV LPV PARCELS FCV CHG LPV CHG

2014 $11,071,097,084 $10,836,080,709 10,613

2015 $13,412,853,646 $11,523,011,598 11,521 21.15% 6.34%

2016 $16,050,161,088 $11,858,626,577 11,463 19.66% 2.91%

2017 $18,436,799,010 $12,983,271,229 11,605 14.87% 9.48%

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Prop 117 – Single Family Residential

FCV LPV PARCELS FCV CHG LPV CHG

2014 $154,390,347,437 $147,381,573,412 723,957

2015 $190,534,589,574 $156,645,593,117 725,095 23.41% 6.29%

2016 $216,105,637,617 $175,001,568,276 841,278 13.42% 11.72%

2017 $226,578,237,561 $185,912,338,300 842,534 4.85% 6.23%

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Proposition 117 - Totals

FCV LPV PARCELS FCV CHG LPV CHG

2014 $205,823,673,547 $195,911,264,926 779,856

2015 $249,489,644,442 $207,405,898,412 781,752 21.22% 5.87%

2016 $216,105,637,617 $175,001,568,276 897,278 13.42% 9.60%

2017 $304,772,759,557 $242,855,558,826 899,101 7.51% 6.84%

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Pillar / The Catherine Townhomes COMP

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Pillar / The Catherine Townhomes Assessment

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Pillar / The Catherine Townhomes Taxes

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Pillar / The Catherine Townhomes Summary

• Sold on October 1, 2015 for $95,750,000

• Assessment at next lien date (January 1, 2016)

– FCV $67,902,500 (~71% of purchase price)

– LPV $59,605,119 (~62% of purchase price)

• 2015 Property Taxes Paid $732,949.98 (~0.8% of purchase price)

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Proposition 117 AnalysisFCV Increase LPV Inrease

Apartments 62.10% 22.87%

Hotels 54.38% 14.42%

Commercial 40.29% 14.96%

Office 38.76% 12.34%

Industrial 66.53% 19.82%

Single Family 46.76% 26.14%

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“Market” / “Taxable” Spread

1 2 3 40.00

50,000,000,000.00

100,000,000,000.00

150,000,000,000.00

200,000,000,000.00

250,000,000,000.00

300,000,000,000.00

350,000,000,000.00

YearFCVLPV

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Proposition 123• The Arizona Education Finance Amendment, Proposition 123 was

on the May 17, 2016, ballot in Arizona as a legislatively referred constitutional amendment.

• The measure was designed to increase education funding by $3.5 billion over the course of 10 years by allocating money from the general fund and increasing annual distributions of the state land trust permanent funds to education.[2][3] – A "yes" vote was a vote in favor of devoting $3.5 billion of the general

fund and state land trust fund toward education.

– A "no" vote was a vote to keep the current education funding levels from the land trust fund.

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the end