Owners should be delighted to see the value of their property increase, but in our current tax environment, higher property values have become synonymous with higher property taxes. School districts, municipalities, counties, and other taxing units have the power to limit property tax bills by lowering their respective tax rates as property values rise. Instead of doing this, however, many taxing entities opt for a tax revenue windfall.
Remarkably, as they collect this additional revenue, these same taxing units claim that they have not raised taxes because they have not increased their tax rate. This distinction has afforded taxing units a convenient escape from the ire of taxpayers. But is it fair?
The Texas property tax system has two components: appraisal districts and taxing authorities. First, appraisal districts assess the market value of taxable property within their boundaries. They then participate in protest hearings initiated by property owners about those values and subsequently certify appraisal rolls for taxing entities.
Second, the governmental bodies that levy and collect taxes prepare budgets and, with their certified appraisal rolls in hand, adopt tax rates sufficient to meet those budgets. Then these municipalities, school districts and other institutions send out tax bills and collect tax revenue.
Both appraisal districts and taxing authorities have the power to affect property owners’ ad valorem tax liability. Nevertheless, many media outlets and news publications have blamed appraisal districts exclusively when tax bills have increased.
For instance, on April 11, 2016, the Austin American-Statesman reported: “Home values rise 9 percent in Travis County.” The San Antonio Express-News reported on May 4, 2016, “2016 Bexar County property value is up $13 billion over year before, real estate values up 7.5 percent.” Similarly, on May 25, 2016, the Dallas Morning News warned about “A taxing problem,” specifically discussing how “Dallas property taxes squeeze middle class” because homeowners in that demographic saw an average increase in the value of their homes of over 11 percent.
These news articles focus on the distress that rising appraised values have inflicted upon taxpayers as property tax bills have increased. Is it fair, though, to malign appraisal districts when they are simply fulfilling their charge to assess property values, especially when they do not participate in the tax rate setting process?
State Sen. Paul Bettencourt (R-Houston), who served as the Harris County tax assessor-collector from 1998 through 2008, formed the Senate Select Committee on Property Tax to look into the issue. The Committee has held public hearings all around the state to listen to taxpayers’ concerns and frustrations about the system.
It has become apparent that the root of the rising property tax burden lies with tax rates set by taxing units, not in appraised values assessed by appraisal districts. Indeed, at a hearing in Arlington earlier this year, there were hundreds of property owners in the audience, but not one complaint about the Dallas Central Appraisal District or the work of its Chief Appraiser, Ken Nolan.
The issue has caught the attention of a number of politically astute organizations, including the Texas Association of Realtors, which has taken a strong interest in Texas’ property tax policy. Its Director of Legislative Affairs, Daniel Gonzalez, has made it his mission to educate the public about what he describes as the “hidden property tax.” This includes spending resources to maintain the informational website, hiddenpropertytax.com, which provides videos, articles, and other details about the problem.
Likewise, certain taxing entities have spoken out against this “hidden property tax.” The mayor of Fort Worth, Betsy Price, in a May 19, 2016, Fort Worth Star Telegram opinion piece, wrote, “What to do about high property tax assessments? Cut the tax rate.” The Dallas Morning News echoed this sentiment on May 25, 2016, when it explained, “The only way officials can reduce the burden on taxpayers is by lowering their tax rates.”
And, why shouldn’t taxing units do this? Our truth-in-taxation laws are supposed to prevent excessive taxation by limiting tax rate increases that lead to higher tax revenues. The same principle should apply when tax rates remain steady, but through the increase in property values, tax revenues soar. That is an unintended consequence of the prosperity of a community that governments should not be able to exploit.
Texas has one of the nation’s best property tax systems. To make it work, however, appraisal districts and taxing entities alike must do their part in maintaining the system’s integrity and fairness. Local taxing units should not be allowed to hide behind increased appraised values to raise their budgets, nor should the Texas legislature be able to take advantage of higher appraised values by sending less funding per student to school districts.
Instead of vilifying appraisal districts and complaining about a “broken” property tax system, property owners should put pressure on school districts, cities, counties, and other taxing entities to exhibit greater accountability and transparency over tax rates.
— Daniel R. Smith serves as General Counsel to The Tax Equity Council and writes a blog for the organization. He also serves as General Counsel to the Austin, TX law firm Popp Hutcheson, P.L.L.C., the Texas member of American Property Tax Counsel(APTC), the national affiliation of property tax attorneys. Mr. Smith represents commercial property owners in property tax appeals across the state.