By Ender Reed
In our effort to take a closer look at Senate Bill 2 (SB 2) by Sen. Paul Bettencourt (R-Houston), the revenue cap bill, we are highlighting and discussing specific sections of the bill as part of a series of four articles in County Issues.
In this fourth, and final, article in the series, we discuss some alternative solutions to improving the property tax system that won’t create a negative impact like many of the provisions of SB 2.
It is well established that the overall tax burden in Texas is low. As mentioned in a Forbes article last year regarding tax burden, Texas has the 5th lowest tax burden of all 50 states:
“With tax day drawing near, it's the time of year to gripe about why taxes are so darn high in your state. If you live in New York, New Jersey or Connecticut, that gut feeling you have is dead on. Resident of the Golden State? At least you're better off than in New York. And Texas, we’re completely jealous.” (Emphasis added.)
In fact, key arguments and statistics being touted as reasons to support lower revenue caps have been called “nonsense” and “worse than meaningless” by economists that have studied the issues.
But this doesn’t mean that the tax system in Texas is perfect, and certainly there are improvements that could be made to the property tax system which do not impact the effectiveness of county government like some of the draconian changes proposed in SB 2.
The following are five alternatives to SB 2 that the Legislature can adopt which would make long-term and substantial improvements to the property tax system:
- Fix the School Finance System: The bulk of property taxes (approximately 54%) go to paying for the public school system. By increasing the state’s share of school financing, property taxes will fall. As mentioned in a Texas Tribune article regarding the state’s decade-long decline of supporting public education, “had the state kept its share of school funding constant for the past 10 years, voters might not be griping about rising property taxes.”
- Unfunded and Underfunded Mandate Reform: One consistent theme across all counties is that the state passes down unfunded and underfunded mandates, and counties are forced to increase property taxes to pay for the mandates. Indigent defense funding is a prime example of this state practice. The Legislature would do a lot to improve the property tax system if it would fully fund mandates that have been imposed on counties and pass a constitutional amendment banning the practice of passing unfunded and underfunded mandates.
- Appraisal System Reform: Due to loopholes and inadequacies in the statutes governing appraisal districts, residential properties are appraised much closer to their actual market value than commercial properties. When this happens, property tax burdens are shifted from the commercial properties to the residential properties. Fixing loopholes (such as the “equal and uniform” statutes) and giving appraisal districts proper tools (such as requiring the sales price to be disclosed when a commercial property is sold) would create a more fair and equitable property tax system and lessen the property tax burden on homeowners.
- Tax Exemption Transparency and Reform: Most homeowners are unaware that they are subsidizing the property taxes of other homes. The lost value from county property tax exemptions and special appraisal methods — from which the resulting loss in tax revenue is generally subsidized by non-exempt property tax payers — grew by more than $54 billion in 2014 and now sits at just a bit above $666 billion. In other words, certain property tax payers are subsidizing $666 billion dollars of property tax value for their neighbors. For tax exemptions that a community wants to support, the Legislature should create a transparent method to see how much of a person’s tax bill goes to paying for these exemptions. Further, the Legislature should have a process for reviewing all tax exemptions so exemptions that are not beneficial or desired can be easily identified and removed.
- End the Process of Diverting Dedicated Funds: Using certain accounting practices, the Legislature can use “dedicated funds” that have not been appropriated as part of its budget, even though those funds have been specifically collected and dedicated to a certain purpose. The Dallas Morning News noted that this legislative session, “without large unspent sums in dedicated accounts, such as the driver responsibility fees that fund trauma centers, the general fund's opening balance would not be in the black.” Ending the diversion of dedicated funds to the state for use in certifying the budget would free those funds to be used for the purpose for which they were intended and would help to lessen counties’ reliance on property taxes.
Read the first three County Issues articles in the series:
A Closer Look at Senate Bill 2: Lowering the Current Revenue Cap
A Closer Look at Senate Bill 2: Automatic Rollback Elections
A Closer Look at Senate Bill 2: Appraisal Districts