June 10, 2014
Everybody hates property taxes.
Can I get a witness? Can I get an “Amen”?
I thought so.
We’re all frustrated. We can’t control our property values but we have to pay the tax bills that are based on those values. We feel helpless as taxes soar because we live in a rapidly growing community and, well, a market economy. Lots of demand for houses and a relatively limited supply leads to higher property values, which leads to higher property taxes.
At the same time, we care about the schools and the parks and the roads those taxes pay for. We want infrastructure and services to keep up with the growth so that we all can have a good quality of life.
So where’s the balance?
Owning a home in Texas shouldn’t be so frustrating.
Those in control of the Capitol have allowed this to get out of hand. They’ll yammer about the need for reform. But they actually do very little to assure the system is fair and too often there’s not enough discussion about whether Texans get the quality services they deserve.
So I’m developing a reform plan. I’m doing lots of research and listening to people about how to better assure fairness in property taxes and improve affordability. I want your input. We’ll have a place on my website to seek thoughts and advice. I’ll be hosting a tele-town hall on the subject in the near future and we’ll use social media like Twitter and Facebook to get opinions.
Make the Commercial Appraisal Process More Fair
Commercial appraisals have emerged as the primary target for many who are concerned about affordability and the tax burden borne by homeowners. Both the City of Austin and Travis County are considering a formal challenge to the commercial appraisals.
I’m glad we’re having these discussions and encourage cities and counties to use every tool already at their disposal to provide homeowners some relief.
State law makes appraising commercial property harder than it should be. While a property’s sales price is arguably the single best determiner of actual market value (it’s only the price paid in the marketplace), state law blocks disclosure of that price.
A little transparency is such a basic tool. Texas needs to allow sales price disclosure. Almost every other state has it — yet the Legislature has resisted. Texans deserve better.
There’s also been a lot of discussion about commercial property owners taking advantage of a certain tax code provision to drive down their valuations through litigation. This provision has one of those great names you often see at the Capitol. It’s called the “equal and uniform” provision.
The problem is that it appears to be causing inequality and unfairness when it comes to commercial properties paying their fair share of taxes. There are some pretty simple ways to level the playing field.
Right now there are few, if any, substantive standards of evidence in these lawsuits. That’s silly. Well-established appraisal standards are already laid out elsewhere in the tax code so we don’t have to look very far for a solution. There’s really no good explanation for why a challenge under one part of the code doesn’t need to meet the same basic requirements as under another part of the code.
Also, the current system requires the appraisal district – that’s you and me, the taxpayers — to pay the property owner for legal fees if the district loses. But, amazingly, there’s no requirement that the property owner pay if it loses. So there is little downside for them to sue while the appraisal district has a big incentive to settle.
Let’s make it a fair fight: if the court sets a value within 10 percent of the appraisal, then both sides cover their own costs. But if the property owner loses, they pay the taxpayers (again, you and me) back for the costs of the failed effort.
These are two pretty simple fixes and there are some other things that can also help. I’ve listed some others in the working draft of my reform package.
A Homestead Exemption would help with Affordability
Anyone arguing for greater affordability or property tax relief should favor a homestead exemption. Not every jurisdiction has an exemption, even though state law allows one for up to 20% of the home’s appraised value.
So let’s enhance and expand this affordability tool. The governing bodies of cities and counties should have a choice: Adopt an exemption that would be a flat amount of $25,000 or at least 10% of the appraised value (it could go up to the 20% allowed in current law); or hold an election and let the voters decide whether to have an exemption of either $25,000 or at least 10% of appraised value (with a cap of 20%).
This approach would allow for a fair debate and discussion of exemption’s impact and it would preserve local control. We could smooth the transition by allowing a phase-in of the exemption so the cities and counties don’t take a sudden hit because of a reduction in the tax. For school districts, we should also consider adding $10,000 to the school homestead exemption on top of the current $15,000 flat rate. This hasn’t been increased since 1997.
Reforming our state’s property tax system for affordability and fairness won’t be easy and nothing will be perfect. But homeowners have been doing their part. It’s long past time for the Legislature to do its part and help relieve homeowner frustration.