January 05, 2007
No new appraisal caps?

The task force appointed by Governor Perry to study property taxes and appraisal caps has issued its report, and going by news coverage it's a little hard to tell what they said. Depending on who you read, you might come away thinking that they somewhat surprisingly recommended against lowering the 10% cap on appraisal increases.

A draft copy of a report by the Task Force on Appraisal Reform had said the group would recommend lowering the current cap on appraisal increases from 10 percent a year to 5 percent a year.

But task force Chairman Tom Pauken said the committee, which was appointed by Gov. Rick Perry, will recommend leaving the appraisal cap at 10 percent a year.


Pauken said the committee's recommendations will focus on slowing the growth of government spending.

He said it will recommend that any local government spending of property tax revenues that exceeds 5 percent growth in a year would be automatically subject to voter approval.

At present, growth of 8 percent or more can be subject to a property tax rate rollback election, but the election is not automatic.

Those wishing to hold a rollback election must gather petition signatures to force the election.

"All this is is a change in the threshold, changing the threshold from 8 percent to 5 percent," Pauken said.

Local governments also would have the option of a half-cent sales tax increase that could be dedicated to property tax relief. He said the money could be used to buy down rising appraisals or to increase homestead exemptions.

This is a surprise because a lower appraisal cap has been a wish list item for many Republicans for some time now. There have been previous attempts to legislate a lower cap, including in 2005, and Governor Perry's press release announcing the creation of the task force made his wishes pretty clear.

But then you read the Statesman story, and it sounds a bit different.

A working draft of the report, obtained by the Austin American-Statesman, includes proposals designed to curb rapid increases in property taxes.

The average bill for an Austin homeowner rose by almost 43 percent between 2000 and 2004, and Houston homeowners saw a 50 percent increase in that period, the report said.

The proposals include capping the annual increase in a home's taxable value to 5 percent -- it's 10 percent now -- and increasing the local homestead exemption from $3,000 to $6,000.

The 5 percent cap would apply only in areas where voters or local officials pass a half-percent county sales tax that would be dedicated to reduce property taxes by an equal dollar amount.

Pauken said that proposal would ease some of the burden for property owners but not cost local governments any money.

At the same time, the recommendations would curb local spending by requiring governments to get voter approval for tax rate increases above 5 percent. The limit now is 8 percent.

Pauken said many local governments are spending all the money from "skyrocketing appraisals rather than give any of it back to the people in terms of lower property tax rates."

Appraisal district officials across the state have said their ability to value properties accurately, especially commercial properties and high-end homes, is hampered because sales prices are not public in Texas.

The panel proposed a hybrid approach: Within a certain time after buying a property, buyers would have to submit a valuation, with justification, to the appraisal district. If they failed to do that, they would have to disclose the sale price, but only to the appraisal district.

Task force members also called on the state to stop passing laws that require local governments to meet certain mandates, such as legal services for poor criminal defendants, without coming up with the money to pay for them.

Make of that what you will. The actual draft report is here (PDF); thanks to Lone Star Times, who disappointingly did not have a reaction to it, for the link.

One thing that does stand out from both stories is yet another attempt to substitute sales taxes for property taxes. That was tried in the first failed special session on school finance, and apparently the fact that it simply shifts the burden from a small minority of wealthy folks to the vast majority of not-as-wealthy folks didn't made much of an impression on the Task Forcers. Call me crazy, but I'd venture to guess that 100% of the people Rick Perry appointed to this commission would come out ahead under this formula. Funny how that works, isn't it?

Two points to add before I take a crack at wading through that report itself. One, for the free market case against appraisal caps, I refer you to Houston Strategies. Two, looking back at the statistics quoted in that Statesman piece, it sure would be nice to know what the average sales price for new homes was doing in the same time period that the appraisals were increasing. Houston's been a pretty good market for real estate lately - see here, here, and more generally here for some data - but finding anything about average (as opposed to median) price increases is beyond the ken of my Google monkeys. The point I'm making is that if the average sales price were increasing at a similar rate as the appraisals over the same time period, then as I've said before it's hard for me to understand what the fuss is about. Isn't that how it's supposed to work?

Now, I know, for some people the rate of increase in their appraisals outstrips their gains in personal income, and this puts a strain on their household budgets. It seems to me there's a pretty simple fix for that:

Dick Lavine, senior financial analyst with the nonpartisan Center for Public Policy Priorities, said the major problem with the appraisal system is the lack of public confidence in the accuracy of the valuations.

That can be cured, Lavine said, through sales price disclosure, among other measures.

Another underlying complaint is that property tax bills are rising faster than an owner's ability to pay them.

"The answer is to attack the problem directly, through a circuit-breaker program that links tax liability to income, used in most other states, or a state personal income tax, not by distorting the appraisal system," Lavine said.

If people are going to complain about taxes being out of whack with their incomes, logic suggests tying the two together. It's only sensible, right? I'm just saying.

Posted by Charles Kuffner on January 05, 2007 to Budget ballyhoo

I'm still amazed at the amount of energy that goes into this artificial issue. Appraisal caps are an easy gimmick, a means to avoid having to come up with a realistic solution that would provide revenues needed by local governments. Caps result in a system of appraisals that is inherently unfair. But we are governed by cautious people who can't see past the next election and so they wouldn't dare actually try to solve problems.

Posted by: Dennis on January 5, 2007 1:21 PM