The purpose of the TAC NoTaxCap is to provide Texas county officials information about how the property tax system works, typical factors that drive local county budgets, the impacts that tax caps would have on local services and talking points about appraisal and revenue caps.
Below are links to multiple tools and studies that county officials may review, download and disseminate as needed. (Linked files are in PDF format.)
Why Counties?
Local Control for Local Services
County governments provide the underlying infrastructure – the glue – that enables Texans live productive lives in harmony with each other. Many county services and responsibilities mandated by state law, including such examples as public safety and jails, support for the court system, reliable record-keeping for deeds and public documents, operating elections and certain health and human services. Provision of many other services are discretionary – it is up to local commissioners courts to determine the level of service for providing county roads, EMS/firefighting services, economic development, parks, seniors services and libraries. But discretionary services are not the only services affected by reduced funding. For mandatory services, reductions in funding could mean cutbacks in services – longer lines, curtailed office hours and reduced availability of access.
- List of services provided by Texas counties.
- Review a one-page explanation of how county services will suffer.
- Review the worksheet for calculation of mandatory versus discretionary services.
- Read a study of Texas County Government Finances
What Drives Local Taxes Up?
Unfunded Mandates and Uncontrollable Expenses
While some anti-government activists at the state level would place severe caps on the ability of local governments to raise revenue, they are not able to place caps on the fiscal pressures that have been placed on local decision-makers.
State and federal government actions often force counties to take on new jobs and responsibilities. Many times, these additional responsibilities cost money, but come with no additional funding or with so little funding that local tax money must be spent to take on the responsibility for new services. These are generally referred to as Unfunded Mandates.
In addition, counties are forced to cope with unanticipated increases in the cost of doing business. For example, when the crime rate goes up, counties must still find a way to keep lawbreakers behind bars, despite overcrowded jails. When gasoline prices skyrocket, counties must still keep their law enforcement officers on patrol to maintain residents’ safety and security. And when the cost of health care explodes, counties must still pay for the medical needs of their indigent community.
Similarly, when a disaster occurs leaving hundreds or even thousands homeless, local officials know it’s their job to step up and meet the unplanned need. In 2005, Hurricanes Katrina and Rita had significant economic impacts on many counties.
Arbitrary Solutions Will Not Work: Revenue Caps
Anti-government factions have proposed that if local governments increase their budgets by one cent more than the amount received the previous year (adjusted to account for changes in appraised value, i.e., the “effective tax rate”), then governing bodies must call an election to seek voter approval. Asking voters to approve each revenue increase flies in the face of one of county government’s traditional strengths: local control. In our representative democracy, we elect policymaking elected officials so that they will weigh the options, establish priorities, and make decisions best for the county. Voters who dislike the decisions that elected officials make have the ability to remove them from office at the next election.
In 2005, world-renown economist Dr. M. Ray Perryman conducted a study of proposed limitations on Texas local governments. Dr. Perryman concluded that revenue and appraisal caps restrict the flexibility of local governments to respond to changing needs, emergency situations, and state and federal mandates; bear no relation to the legitimate demand for costs of public services provided by local governments, such as demographic shifts and industrial development; and particularly constrain the capacity of high-growth areas to meet service and infrastructure needs, among other findings.
Finally, as local community leaders, county officials frequently are called upon to help promote a community’s economic growth. In many counties, the proposed revenue caps would destroy the capacity to provide economic development assistance.
The highly respected Standard & Poor's bond-rating agency, published a study questioning whether tax rate caps are desirable, noting that "unless alternative revenue sources are put in place to counter the effect of property appraisal caps, the potential for a significant budgetarymismatch remains.” Review their conclusions in Are Property Tax Caps in Texas an Unnecessary Fix?
Making Matters Worse: Proposed Lowering of Appraisal Caps
In 1997, Texas voters approved a constitutional amendment to limit the annual increase in appraised values of taxable real property to 10 percent a year. Studies have shown that this artificial cap has created inequities among property owners and is in direct conflict with the spirit of the Texas property tax system. In 2005, some anti-government legislators sponsored measures that would lower this destructive cap to 3 percent.
In 2004, the Local Government Ways & Means Committee voted to approve an interim study of the proposal to lower the appraisals. The study cited two facts that have overburdened local property taxpayers: “the State of Texas relies very heavily on local governments (school districts, cities, and counties) to generate the revenue needed to pay for public goods and services that citizens want and need” and “local governments rely very heavily on property taxes for revenue.”
Standard & Poor's, the bond-rating firm, issued a report stating that appraisal caps will result in "fiscal stress and budgetary pressures that could potentially affect credit quality," meaning local government are likely to pay higher interest rates when bonds are issued and delay capital investment for infrastructure. Read the S&P report Potential Credit Implications.
Other Potential Solutions:
Other Ways of Reducing Property Taxes
Under pressure from court orders, the Texas Legislature must do something to provide fiscal capacity for local independent school districts. The courts have said that because so many districts are being forced by state mandates to tax at their full $1.50 per 100 valuation capacity, the Legislature has created a de facto statewide property tax, which is not authorized by the Texas constitution.
Potential Solution: Relief for School Taxpayers.
When the state addresses this issue, they should provide payers of the school property tax with significant relief from their school taxes, which comprise 61 percent of the Texas property tax burden.
- View a graph that shows the relative property tax burden imposed by local governments in Texas.
Potential Solution: Real Estate Sales Price Disclosure.
When real estate changes hands, local appraisal districts in Texas are not informed of the sales price. In particular, price information on high-end homes and on business property is very hard to obtain. To remedy this, the state could require that sales prices in all real estate transactions be reported to the appraisal district. Disclosure is required in 35 states; Texas is the only state so highly dependent on property taxes that tries to function without knowing actual sales prices.
- Review the recommendation from the Texas Legislative Budget Board on mandating sales price disclosure.
Potential Solution: Encourage Citizens to Use Exemptions Appropriately.
Over the years, voters have approved several exemptions from property taxes for specific groups of property owners. For example, current law permits homeowners age 65 or older to defer collection of property taxes as long as they own and occupy their home, and for 181 days thereafter. A tax lien is placed on the property and interest of 8% a year accrues until the deferred tax bill is paid. In other words, an elderly homeowner never has to sell his or her home to pay property taxes. The taxes can be deferred until after the owner moves or dies and the house is sold, and then paid from the proceeds before distribution to any heirs. Unfortunately, this provision is little-known and infrequently used, despite explicit statutory language requiring all chief appraisers to annually publicize this option.
Potential Solution: Constitutional Amendment on Unfunded Mandates.
As noted above, much of the cost to local taxpayers is the result of state laws and regulations requiring counties to tackle additional responsibilities – without providing adequate, if any, funding to pay for the new task. Rather than raise state taxes, lawmakers simply pass the buck to local governments.
Information About How Property Taxes Work
Tax Cap Presentation
This is a powerpoint presentation for county officials to use for educating members of the public. You can download this powerpoint presentation to personalize it for your county. Please contact the legislative department if you have any questions.
County Official Presentation (.ppt)
Instuctions for downloading files:
- Using your mouse, right-click the link to the presentation
- Choose 'Save Target As...' and save the file to your computer
- After saving to your computer, you can edit the file
Review the worksheet for calculation of mandatory versus discretionary services.
Revenue Cap Levy Loss Calculator A calculator to help you understand the fiscal impact of revenue caps on your county. The model is designed to calculate each fund one year at a time.
Download this MS Excel workbook to create a county bar chart similar to the Denton and Travis County charts seen in this presentation. Be sure to save the file to a working directory before entering any data.
County Bar Chart Cost Template
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