The upcoming 2009 legislative session will definitely be an important one for counties. Key state House members and legislative staff predicted during the Texas Association of Counties’ Annual Conference that this will be the session that “something happens” to alleviate residents’ complaints over increased property taxes and the appraisal process.

By the conference’s close on Aug. 29, it appeared that most of the state’s leadership was on the same page.

“I do believe that something will happen this session,” warned Julia Rathgeber, the director of policy in Lt. Governor David Dewhurst’s office. “I think there are two things to look at. One is the process associated with developing appraisals, the people who create those appraisals, the way that process is handled, the way that people can fight in that process, argue about their appraisals, the way property taxes are generated, the whole process of putting together your property tax bill. … And I think personally we will see something that happens associated with those rollback elections.” That belief – specifically regarding the appraisal process – was supported by strong words from Representative John Otto, chair of the Select Committee on Property Tax Relief and Appraisal Reform. That committee has the charge of examining the possible effect limiting appraisal values would have for both the state and taxpayers. The committee will release its findings in a report sometime before the legislative session begins in January.

As part of its charge, committee members traveled around the state, holding eight public hearing meetings on the issue. The meetings were largely attended by upset property owners who have seen their appraised values increase significantly in the last few years due to growth, land usage and other factors.

“A taxpayer brings me his notice, and his house in 2007 was on the rolls for $150,000 and his lot was at $30,000… in 2008, his land value went to $350,000 and his house went to $30,000,” Otto said. “You may as well just say we just condemned that man’s property, because he has to sell it. He can’t afford to live there, even if it’s his homestead. And that is what is happening, and I understand why people are upset. Those are the kinds of things that we have to try and fix.”

Otto gave county leaders an unofficial preview of what to expect in the committee’s forthcoming report.

“What used to be perceived as an issue that primarily affected Harris County and the Metroplex and parts of Travis County is now a statewide issue, and if you don’t believe that, then you are fooling yourself,” Otto told county officials during a frank panel discussion. “Two of the most active, participated-in meetings that we held were in McAllen and El Paso. … We heard testimony of subdivisions being built right across the border in New Mexico for the people of El Paso to move to because of property taxes, and that was the sole reason.”

Taxpayers are clearly voicing frustration and anger, most of which has been directed at the appraisal process and local appraisal review boards. Voters perceive the process to be unfair, confusing and impossible to challenge, among other grievances.

Currently, there are 253 central appraisal districts in place in Texas, which mostly share boundaries with counties. The appraisal districts each have a board of directors, appointed by the local taxing entities, and the board of directors appoints an appraisal review board. The districts assess the value of all properties within a county, and local governments use the assessed values when calculating local tax rates. Theoretically, if appraisal values go up across a county, local tax rates could decrease. However, due mostly to local school taxes, as well as unfunded state mandates and increased construction costs and other factors, many homeowners are finding that their property taxes are increasing. While local government officials are held accountable through local elections, taxpayers feel that the appraisal boards are not held accountable for faulty appraisals.

“If you tell them, ‘well, there’s an agency called the Board of Tax Professional Examiners, and testimony before the Ways and Means Committee last session (showed that) in the last 10 years, on complaints filed with them, they have issued two reprimands,’ then that is not going to instill a lot of confidence in the taxpayers,” Otto said. “One of the issues that we’ve got to confront is the fact that the pubic perceives that this is a stacked deck to start with, in the way our current system is set up.”

Taxpayers who have attended the committee’s public hearing meetings have asked for a variety of solutions, some good and some bad.

Some have asked that appraisal boards employ taxpayer advocates to help homeowners through the process, and give homeowners advice on how to best present information regarding their property value to the appraisers.

“The biggest complaints we heard were taxpayer treatment by appraisal review boards, and I don’t know how you legislate that,” Otto said. “This appraisal system that we have is a mass appraisal system. It is not like the fee appraiser goes out and looks at each individual piece of property. … What we have to do is try to find a way to make it work better, so that taxpayers feel like they have a chance.”

Other potential ideas that could wind up as legislation, Otto said, include ensuring that commercial and small business property owners have access to arbitration, and creating a pilot regional appraisal review board, staffed by professional appraisers, which homeowners could use if they want to bypass the local review board.

Funding for the professional appraisers would somehow come from the local central appraisal districts, since they would be saving money on litigation.

“This is something I came up with, and I am looking seriously at trying,” Otto said, stating that he believes the regional boards would give taxpayers more faith in the appraisal system. “I think it would cut down on the cost of litigation, and in the metropolitan areas, that is a major part of the central appraisal board’s budget.”

The committee may also look at placing new emphasis on the standards review process for the appraisal boards.

Currently, the Comptroller’s office conducts standard reviews on an as-needed basis, but no agency exists to ensure that the Comptroller’s recommendations for improvement are followed. The Comptroller’s office has some authority when it comes to replacing a district’s chief appraiser and board of directors, but it has never utilized that authority. “We have learned that there is no consistency around the state of what is going on in appraisal districts,” Otto said, adding that some appraisal districts give annual assessments, whereas others reassess property values every other year. “There are these standard reviews being done, but I don’t think anybody is paying attention to them, so therefore appraisal districts are just going to continue operating just like they have been.”

As a result of the public hearings, Otto said the committee will “for sure” recommend changing the effective tax rate calculation, a formula that takes into effect the prior year’s taxes and the current year’s taxable value.

“Nobody understands it. It takes up a half page in the paper, and no one knows what it means when you put it in there. I don’t think anybody on my committee could explain it to you, either,” Otto said. “It’s basically time to scrap that. … People have tried to fix it, it’s beyond fixing. We need to go back and rework it.”

While county officials attending the conference seemed to agree with that approach, Otto made it clear he disagrees with other solutions that have been suggested, such as requiring that property owners provide appraisal districts with the property’s sales price, which would in theory make it easier for appraisers to assess the property’s value.

“I am totally against it. No. Not until you get all 253 appraisal districts doing what they should do,” Otto said, calling sales price disclosure a “crutch” for districts that do not make necessary adjustments to property values. “Until I see them doing the job they should be doing, and adjusting things the way they should be adjusted, all I am going to see is appraisal creep go to appraisal leap.”

Regardless of what recommendations the committee eventually makes, Otto said it’s clear the time has come to fix the issues, before taxpayers lose patience.

“Every city that I went to, I had somebody, several somebodies, come up and say, ‘Well, you know what, why don’t you just peg my value at what I paid for my house and leave it there till I sell it.’ Some of them are willing to let some inflation factor in,” Otto said. “That’s what people want, because they are just so tired of their taxes going up. They are blaming the appraisal, and they’re figuring if they can get the appraisal locked in, then they won’t have to fight this battle. So that request is out there.”

While not touching on caps – a key area of concern for counties – Otto was not the only state leader to warn county officials about the Legislature’s assumed focus on “fixing” property taxes.

The issue has been brewing for a long time, said Terral Smith, the chief of staff for House Speaker Tom Craddick.

“There is no doubt that the Legislature is extremely frustrated,” Smith said. But he added that legislators are mostly aware that if the issue is handled haphazardly, counties will have a difficult time providing necessary services to residents. That is a message that county officials and TAC have been carrying to the Legislature frequently for the last several sessions.

“We cannot just totally cut off the ability of cities and counties, and primarily school districts, frankly, to be able to access property taxes,” Smith said.

However, legislators said the message is being muddied by organizations with opposing interests, such as the Texas Taxpayers and Research Association (TTARA), a foundation that is well-respected among legislators whose membership includes mostly large business and property owners. “As elected officials, with all the calls, with the emotion, with the situation we have on property taxes, there is going to be something done. There is no pretending that it is going to go away this time,” said Representative Jim Keffer, chair of the House Ways and Means Committee. “(TTARA) is out there. … (TTARA’s Web site) is what people are looking at, and this is what people are taking as gospel.

Misleading stats blame local governments for tax increases

When Texas lawmakers revamped and increased the state’s margins tax in 2007, their stated goal was to decrease school property taxes by one-third, but many are now lamenting that for many property owners, little or no decrease in property taxes resulted. Texas’ largest organization of corporate taxpayers recently laid a significant part of the blame at the doorstep of local governments, specifically counties, cities and special districts whose total tax collections began to increase just as the school taxes decreased, according to an August study released by the Texas Taxpayers And Research Association (TTARA) Research Foundation.

To make its point, TTARA compared local property tax increases from 1995 to 2005 with the rates of increases since then.

“During the previous 10 years, city, county and special district taxes had risen with school taxes—with average annual increases of roughly 7 to 8 percent,” the report concluded. “Increases of that magnitude alone would have obscured school tax relief had they continued; but in fact, since 2005 average annual tax growth in these jurisdictions has accelerated to roughly 11 to 12 percent—well above the 3.6 percent inflation increase in the municipal cost index (published by American City and County Magazine) and the 2.2 percent average annual Texas population growth.”

That information concerned Rep. Jim Keffer, chairman of the influential House Ways and Means Committee, when he spoke at the TAC Annual Conference a few days later. Keffer didn’t say he necessarily agreed with the report but that the conclusion could have an impact on lawmakers when they meet in January. “All I’m saying now is that this is out on a Web site, and this is what people are looking at and this is what people are taking as gospel.”

But advocates for local governments indicate that while it’s hard to refute the TTARA numbers until more data is available, there are underlying facts that make the information misleading.

Donald Lee, executive director of the Texas Conference of Urban Counties, pointed out that TTARA’s figures failed to make proper adjustments for tax base growth caused by new construction.

“Their numbers are misleading and don’t factor in the value of new construction,” Lee said. “I think if you’ll do a good study, I think you’ll see the vast majority of growth of the tax base is coming from new construction. Every time you hear someone say county taxes went up a certain percentage, they’re referring to tax collections, which are being driven by new construction and not appraisal creep.”

“The vast majority of growth in tax base is from new construction, referring to tax collections, not appraisal creep,” he said.

The executive director of the Texas Municipal League (TML) made a similar comment to the press.

“The TTARA figures for local property taxes unfortunately are very misleading because they include revenue growth from new construction, annexation and creation of new taxing districts and voter approved bonds,” said TML chief Frank Sturzl. “They do not accurately indicate how much city taxes on existing properties increased from one year to the next.”