January 24, 2007
Appraisal caps no, revenue caps yes

The good news, as we already knew, is that the Governor's Task Force on Appraisal Reform will not recommend another attempt at mandating a lower appraisal cap for property taxes. The bad news is that they've chosen an even more insidious approach - revenue caps.

The panel, chaired by Dallas businessman Tom Pauken, proposed that all local governments, except school districts, be prohibited from increasing tax collections by more than 5 percent a year without voter approval.

At present, voters can petition for a rollback election if taxes increase by more than 8 percent a year. The new rollback election would be automatic, and, unlike now, the value of new construction would count against the 5 percent limit.

The task force also proposed that counties be given the option of increasing local sales taxes by one-half cent per dollar in exchange for lowering local residential appraisal caps from the current 10 percent a year to 5 percent and providing other forms of property tax relief.

The sales tax option was designed to soften local officials' opposition to new limits on their property taxes. But even Gov. Rick Perry, who appointed the panel and endorsed its report, conceded proposed limits will continue to generate controversy.

"I'm under no illusion there is a complete and absolute consensus on this issue," Perry said.

But there is a constituency for these things that's wealthy, loud, and which stands to benefit greatly from them, so it remains at the top of Perry's to-do list. That's pretty much all there is to this. Major kudos to Rick Casey for seeing through the task force's smokescreen.

The Texas Association of Counties, which has helped kill previous efforts to lower the appraisal cap, said the lower revenue limit would fly in the face of ever-increasing costs of county governments.

The group said the task force recommendations wouldn't adequately address unfunded mandates and said the proposal to let taxpayers calculate their property taxes on a five-year rolling average would hurt fast-growing suburban communities because the average would include lower values from previous years.

Rep. Mike Villarreal, D-San Antonio, said he liked the sales price disclosure recommendation, which is similar to a bill he is sponsoring. But overall, he said, the task force report, including the sales tax proposal, would transfer the tax burden from "families of higher income to families of lower income."

I'll have more from Rep. Villarreal in a minute, but first here's a statement from the Center for Public Policy Priorities:

In August, the Governor appointed the Texas Task Force on Appraisal Reform, chaired by Tom Pauken, to address complaints about the property tax appraisal system. The Pauken Commission has now released its final report, but it is not really about the appraisal system. In fact, the report offers no evidence that the appraisal system is overvaluing property. Instead, the report is about two things: 1) keeping taxes unrealistically low, leaving local officials unable to meet local needs; and 2) shifting those taxes that we do pay off those with higher income and onto those with lower-incomes.

The full article is here (PDF), and as always it's worth your time to read. If you want to see the task force's report, it's here (PDF) - thanks to Capitol Letters for the link.

Now then. I had a chance to speak to Rep. Villarreal yesterday about the task force report, and he made several points that I want to highlight:

1. On the question of why we don't need revenue caps, Villarreal said "We elect people to make these decisions, we give them the power to tax. Along with that comes our commitment to pool our tax dollars together and make public investments." In other words, if you don't like what your Mayor and City Council are doing with tax revenues, vote 'em out of office.

2. For most homes, local tax assessors can do a pretty good job of determining their true value. This is because there's plenty of publicly available data, from things like MLS listings, that provide clues for them. It's the high-end properties that are bought and sold through private transactions that are much harder to evaluate. This is the rationale behind sales price disclosure requirements - to improve the quality of data available for tax assessors on top of the market homes, which will enable them to more fairly assess those properties.

3. This is even more the case with commercial properties, where undervaluations can mean a lot of lost tax revenue - this Statesman editorial cites an estimate of $4 billion annually. Villarreal noted the case of La Mansion hotel in San Antonio (which he mentions in this Statesman op-ed), which he said had fought its assessment by the county and eventually settled for a $25 million price tag, then was sold a few days later for $100 million. It doesn't make sense for commercial real estate to be so improperly assessed; the effect of such distortions is to put a bigger burden on homeowners. This is why Villarreal supports sales price disclosures (he has submitted HB133 to address that), and there's bipartisan support for that. Which of course the task force doesn't want - they're recommending that purchasers submit an estimate of the property's value along with a justification of it. Why they consider that a better answer than simply supplying the actual price is left as an exercise for the reader.

4. While there's been much noise made, by the task force and others, about how much property tax collections have gone up, other factors affecting homeowners have been remarkably un-commented on. Rick Casey noted how state sales taxes went up a nearly equivalent amount as property taxes during the 1985-2004 time period cited by the task force, while state fees went up more than twice as much. Villarreal told me that in the past four years - which is to say, since deregulation - the average homeowner in Houston has seen a 17.5% annual increase in utility bills. Yet that's not on Governor Perry's radar screen.

5. The big question is whether any of this can pass. Nobody thinks that anything requiring a constitutional amendment will get the requisite 2/3 support, which is why appraisal caps are off the table. Revenue caps need just a majority, but Villarreal thinks the gains made by the Democrats this cycle will help them to kill this proposal. It will definitely be a fight, however, and it could go either way.

That's all I have for now. I expect there will be much more to be said in the coming weeks. Stay tuned.

Posted by Charles Kuffner on January 24, 2007 to Budget ballyhoo