Whether they’re silently creeping, dramatically hiking, or, God forbid, skyrocketing, property appraisals in Texas are placing an enormous strain on the budgets of homeowners. For decades, private-property owners have been responsible for paying more than their fair share in taxes.  Could it be that the Texas tax system is seriously out of whack?

Texas is one of five states without an individual or corporate income tax. Most states throughout the nation derive approximately 40% of their revenue from income taxes, a third from sales taxes, and the remainder from taxes on items such as business licenses and gasoline. But in Texas, it ain’t that way. We get half of our state revenue from sales taxes, and we rely more than almost every other state on local property taxes to pay for public education and other services.  Therefore, we have a high sales tax rate (compared to the rest of the country) and extremely high property taxes. And it seems that no matter what the Texas Legislature does, that annual property tax bill doesn’t go down. Our absolute dependence on property taxes to fund education and other state programs has reached its tipping point. Homeowners are fed up. We want relief and we want it now.

Texas lawmakers did give property owners some relief. Last year, they succeeded in passing  the most comprehensive tax-reform package in decades. In addition to closing the loopholes on the business franchise tax and implementing a broad-based, low-rate business activity tax, the Texas Legislature gave property owners an approximately one-third reduction in school property taxes. This is the largest property-tax reduction in the state’s history. While definitely a step in the right direction, it certainly doesn’t solve the entire problem.

Most pundits argue, and many homeowners may agree, that the savings from the recent tax cut will be eroded as home prices rise and tax assessments go up. And in a way, it’s true. Although the average homeowner will save $500 or more each year as a result of the property-tax cut, skyrocketing appraisals threaten to wipe out any real savings. The comprehensive tax plan addressed the tax side of this complicated issue, but left the problem of rapidly increasing property values for future lawmakers. To combat rising property valuations, Gov. Perry assembled a 15-member panel, chaired by Tom Pauken, former White House chief of staff under President Reagan, to study and make recommendations for improving the state’s current appraisal process. The Task Force on Appraisal Reform (TFAR) has traveled the state, gathering input from Texans. This task force is expected to release its recommendations in the early part of 2007.

The Texas Legislature convenes Jan. 9 for the first day of the regular session. We can probably expect a heated debate regarding the task force’s recommendations for reforming the appraisal process. Opinions and ideas on this issue vary dramatically. Take, for example, the fodder on appraisal caps. Some Texans think it’s a smart way to curb rising property valuations. Others cite California as a prime example of how lowering appraisal caps freezes people into their homes and unfairly shifts the tax burden from wealthy to less wealthy homeowners. While the solutions and positions on each will likely differ, Texas REALTORS® are united on a proposed plan.

The Texas Association of REALTORS® has come up with an ten-point plan for reforming the appraisal system. I won’t go into detail on each piece of the plan, but would like to highlight the plan, emphasizing some of the main points. 

1. Lower the over-reliance on school property taxes. As we all know, Texas homeowners pay some of the highest property taxes in the nation, while the overall tax burden is low compared to national averages. This puts the burden of  taxes squarely on the shoulders of property owners. Until voters and taxpayers pressure lawmakers to stop tweaking an already overburdened tax system, no amount of review by task forces will alleviate the tax burden on homeowners.

2. Repeal the current calculation for an effective tax rate and replace it with a simpler calculation, as it once was. Does anyone know what “effective tax rate” means? Not  many, I can assure you. The effective tax rate is the rate that will bring in the same amount of total revenue to the taxing authority (such as a school district) as the previous year. So if appraisals go up on average in an area, the tax rate must come down. We need to simplify the system. The complicated process we have now essentially allows local taxing jurisdictions to “rig” the system in their favor.

3. Require all taxing jurisdictions to begin with the new effective tax rate and vote to increase or decrease the tax rate. Doing so will eliminate the automatic increases local jurisdictions currently have with higher property values. While a vote may not necessarily be “by the people,” there must be a more transparent process in place to allow for public input.  

4. Decrease the rollback rate for local taxing jurisdictions, other than school districts, to 3%. Right now, our system allows for tax revenues to increase 8% from one year to the next. Capping that at 3% will help eliminate some of the financial barriers associated with homeownership.

5. Repeal the petition requirement for a rollback-rate election for local taxing jurisdictions, other than school districts. Instead of forcing the public to draft and sign a petition in order to roll back a tax rate, there should be an automatic election. The petition process is onerous for Texas citizens. 

6. Require additional educational requirements for Chief Appraisers and Central Appraisal District (CAD) employees. While there are some educational requirements for Chief Appraisers and CAD employees, there is definitely room for enhancements.   

7. Require additional credentials and educational requirements of Appraisal Review Board (ARB) members before they are appointed to serve. The current credentials are baseline. Other than a clean tax record and valid identification, there is really nothing else needed.

8. Allow for more public representation on CAD board of directors. The current process allows local taxing jurisdictions to appoint five to 12 people to the CAD board of directors. The Texas Association of REALTORS® would like to see a little more public input.

9. Create separate ARB panels to hear cases on different classifications of real property. Real estate varies greatly. Look at commercial versus residential. Creating ARB panels that are more specialized in a particular area of real estate will benefit all property owners.

10. Stagger appraisal notices regarding proposed valuations of residential and business properties. Residential property owners looking to contest their appraisal are doing so at the same time as the hired guns contesting commercial appraisals. The Texas Association of REALTORS® does not believe this gives homeowners the due diligence that they deserve. To ensure a fair shake, the association would like to see residential property owners receive their appraisal notices 30 to 45 days before commercial property owners.

Sounds pretty simple, right? The Texas Association of REALTORS® plan addresses the problems with our current appraisal system head on. In the past, lawmakers have opted to tweak an already flawed system and ignore rising property valuations altogether. Look where that has gotten us. If you’re concerned about the state’s heavy reliance on property taxes and what the appraisal system might look like in the near future, now is the time to speak up.

If we unite together, we can sway lawmakers to act now – to fix this once and for all. We made enormous strides in reforming our tax structure in 2006. Let’s make 2007 the year we shift the tax burden off the shoulders of Texas homeowners, and find a more equitable way to fund our state’s programs.