The State of Taxes

 

 
​​Editor’s Note: This article is the final in the year-long series examining issues in the Texas property tax system that drive tax increases. This article gives an overview of the many issues related to property taxes. There are links listed throughout for articles on the TAC website from past issues of County magazine that dive deeper into specific issues.

Back in late September, Austin Independent School District Chief Financial Officer Nicole Conley told a House committee that her district could cut its tax rate by 35 cents if it weren’t for recapture, the state plan that takes property tax revenue from property-wealthy school districts and distributes it to property-poor districts.

The cut, she said, would save the average property taxpayer more than $1,400.

Eyes went wide, and eyebrows arched. Fixing school finance is on many legislators’ minds, and so is property tax relief.

School property taxes are about 55 percent of a property tax bill in Texas, a little more in some areas, and a little less in others. It’s the biggest part of the bill, and a natural place for legislators to look when trying to enact meaningful property tax relief that homeowners and businesses will feel. But it’s not the only place they’re looking.

“The Senate right now is looking at city and county budgets,” said TAC Legislative Director Paul Sugg, “They’re trying to sell a lowering of the rollback rate as tax relief. The revenue cap proposals we expect to see would squeeze enough blood out of that stone — so to speak — to maybe provide the average homeowner an extra cup of coffee or a good dinner out once a year. In most of the state, though, it won’t offer any relief at all — just restrict local control.”

Sugg says unfunded mandates top the list of places for legislators can look for tax relief. A review of existing property tax exemptions, along with appraisal system reform and sales price disclosure, also rank high on the list of ways to offer relief on the county portion of a property tax bill.

ARE PROPERTY TAXES REALLY EQUAL AND UNIFORM?

A fundamental barrier to fairly taxing property in Texas is getting an accurate value for the property in the first place. Structural problems in the appraisal system leave chief appraisers working in the dark, and with one hand tied behind their back.

“We have a problem in our property tax system with equal and uniform,” said Hunt County Chief Appraiser Brent South at TAC’s Legislative Conference in August. “We don’t have any real standards for what an equal and uniform appraisal should look like.”

In Texas, appraisers are tasked with determining the accurate fair market value of property — a task made difficult because Texas is one of a small handful of states where sales prices paid for real estate are not publicly reported. Without that market data, an accurate appraisal is harder to come by, particularly for commercial properties where fewer comparable exist.

Defending appraisals is made difficult, too, by a change in the law that disconnects the protest process from market value, allowing those with the time and money — typically large businesses — an advantage in lowering their appraisal well-below market value.

“We have a problem in our property tax system with equal and uniform,” said Hunt County Chief Appraiser Brent South at TAC’s Legislative Conference in August. “We don’t have any real standards for what an equal and uniform appraisal should look like. Property owners are going outside of county lines to choose comparable properties, they’re not making appropriate adjustments — and also, there’s issues with litigation.”

South says his appraisal district sees about 10 lawsuits each year in Hunt County. The costs add up quickly, and they affect the outcome, too. He explained that if he went to district court on just one of lawsuit, he’d have to hire expert witnesses, pay his attorney’s and risk paying for the other side’s attorneys, to say nothing of the reallocation of resources within the appraisal district.

“We could very easily eat up our whole litigation budget,” he said. “We basically have to settle these properties just to stay afloat.”

Many large properties owners have used this constellation of problems in the appraisal system to lower their taxes, but the devil is in the details. No one wants to pay more taxes than the law requires, but quirks of the law mean a win on their part — lowering their appraisal below market value — is a loss for other taxpayers who ultimately pick up the tab in increased tax burden, paying more than their fair share when tax rates are set.

“When you have a group of property owners who are not paying on market value, and homeowners who are paying on market value, that’s not fair. It absolutely shifts the tax burden to the homeowners,” South said.

Read these articles from previous issues of County magazine to learn more about how the problems in the appraisal system are affecting counties and tax payers and some of the proposed solutions.
Appraisal Woes
March 28, 2016 This article is one in a series this year that will examine issues in the Texas property tax system that drive tax increases...


Making Taxation Equal and Uniform Again
May 23, 2016  This is the second of a two-part article. Part one looked into the language in the statutes chief appraisers must follow and the problems it causes for local governments and homeowners. This part looks at possible solutions.



DO WE GET WHAT WE PAY FOR WITH PROPERTY TAX EXEMPTIONS?

Structural problems in the appraisal system aren’t the only way that tax burdens are shifted. Exemptions take $666 billion off the books each year in Texas. They include numerous universally favored exemptions for homesteads, veterans, agriculture land and religious organizations, but myriad more carve-outs exist.

There is, in fact, no record of how many other exemptions there are, and scant data for lawmakers to use to measure their success. And each session, changes are made to existing exemptions and new ones are added.

The exemptions tend to have the same effect as an unfunded mandate for counties. In other words, exempting a certain amount of a property’s value from taxation does not exempt the county from needing to pay for the mandated and essential services the county delivers. So, the burden of paying is shifted to those properties not benefiting from the exemptions.

Residential property tends to disproportionately bear the brunt of the shifted burden, and while it is absorbed in most counties without much of a problem, some counties stand out. In counties with a disproportionate number of properties qualifying for certain exemptions, the impacts to the budget and residents’ tax bills are more apparent.

Read this article from a previous issue of County magazine to learn more about how some property tax exemptions affect county budgets and shift tax burdens and what the state can do to make sure Texans are getting what they pay for with these exemptions.
The Cost of Property Tax Exemptions
Sept. 21, 2016   This article looks at the unintended consequences of the increasing number of property tax exemptions and the shifts in burden they create....



 ​HOW MUCH GOVERNMENT IS ENOUGH?

No look at property taxes would be complete without a look at some of the cost-drivers that grow county government budgets.

As the debate over property taxes percolated during the interim, the oft repeated question — one heard regularly at the traveling meetings of the Senate’s special property tax committee — was, “How much government is enough?”

“When you stop telling me what more I have to do — from the state and federal government — in unfunded mandates, then I can tell you what enough government is,” said Nueces County Judge Lloyd Neal at TAC’s Legislative Conference.

Unfunded mandates might be the biggest driver of county budgets, but with county government accounting for just 16 percent of the average property tax bill, counties cover a lot of ground. From public safety and funding the lion’s share of the court system to holding elections, maintaining important records and building about half the roads in the state, Texas counties are asked to do a lot with a little. But more continues to be asked of them.  

“We don’t know from one day to the next whether the state or federal government is going to come down and say, you need to spend $20 million to make your polling sites accessible, you need to build more jail sites and spend more for the beds; you need to increase health care costs — we have roofs to fix, like all of you do, and air conditioning, computer and technology updates, and 144 new beds for our jail, and all of those other things that keep coming in,” said Neal.

And not all mandates come down from the state or federal government, or even local voters. Some are the product of the steady march of progress. As Denton County Judge Mary Horn pointed out in a recent issue of County magazine, there’s no official mandate requiring a county to have things like a human resources department or a robust IT staff, but both are essential in running an efficient and effective, modern county government.

Read this article from a previous issue of County magazine to learn more about how unfunded mandates from the state and federal governments drive county budgets.
Who's Going to Pay for All of This?
July 13, 2016   This article examines how unfunded and underfunded mandates from the state and federal governments fuel the growth of county budgets...


 ​WHAT HAPPENS IN THE 85TH LEGISLATIVE SESSION?

The next session of the Texas Legislature is fast approaching and school finance and reducing property taxes are high on the agenda for many lawmakers. There seems to be broad interest in the House to tackle school finance, which in effect could kill two birds with one stone, also reducing property tax burdens. In the upper chamber, however, focus will be more narrowly on city and county budgets.

“We expect to see some kind of revenue cap bill come up. They’ll propose a rollback rate at 3 or 4 percent, and include automatic rollback elections,” said Sugg. “Until the bill is filed, we won’t know the exact shape it will take except to say that it will reduce the ability of locally elected officials to make decisions for their communities.”

Sugg and TAC’s Legislative Department will monitor revenue cap bills and some 1,500 other bills that could affect counties in both positive and negative ways during the session.

County officials can be among the first to know about important bills by reading the County Issues e-newsletter that is delivered weekly during session, watching for periodic Legislative Alert emails, following

@TexasCounties on Twitter, and by signing up for TAC’s Core Legislative Group. Information about all of these can be found at www.county.org/legislative.

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