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Local property taxes: Tax rate-setting process

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Issue
From 2004 to 2013, local property taxes increased dramatically. For example, local property tax revenue for Special Purpose Districts (MUDs, PUDs, hospital districts, etc.) increased by 64%—or $2.16 billion—over this time period. Similar increases can also be attributed to counties, cities, and school districts. Overall statewide, local property tax revenue increased by 46%—or $14.29 billion—for property owners over this same period.

Part of the increase in local property tax revenue can be attributed to new property added to the appraisal roll and higher property values. However, an increase in property value should not be an automatic increase in property tax revenue. A more honest and transparent conversation needs to occur so taxpayers completely understand why more tax revenue is needed. But the current system is confusing, and it ends up with more Texans seeing a hidden property tax increase.

What does this mean for the real estate industry?
Texas has been a dominant force in the national economy, and the states’ housing affordability has been a contributing factor. But the increase in property taxes threatens this affordability.

According to the Houston Chronicle, “… the lack of affordable housing is being viewed as a crisis that affects Americans of all ages, races and income groups.”1

The Texas REALTOR® position
The Texas Association of REALTORS® supports various measures to ensure a more transparent and honest conversation occurs at the local level. These measures include supporting:

  • The reduction of the rollback rate from 8% to a lower percent, with support contingent on ensuring the new rollback rate is not an automatic property tax increase for property owners;
  • An automatic tax ratification election if the rollback rate is exceeded;
  • Updating the calculation of effective and rollback rates to include state-funded matters such as state-paid road maintenance;
  • Requiring all taxing entities’ effective and rollback tax rate worksheets to be filed with the State Comptroller and requiring a certain percent of worksheets to be audited;
  • Enhancing property tax notices (e.g. eliminate last year’s tax rate from notice, as including last year’s rate leads to confusion and inaccurate comparisons of tax rates); and
  • Simplifying the calculations of effective and rollback tax rates.

Legislative outlook
Many bills relating to local property tax will be filed during the 85th legislative session. It is anticipated that the Legislature will take action to improve the local property tax system and bring more transparency and honesty to the process.

Historical perspective
The current local property tax system has been in place for over three decades and is revered as the best property tax system in the country. Despite having the best local property tax system, several improvements have been enacted over this same time period.

 

1 “Affordable housing: Now it’s a problem for the middle class, too,” Houston Chronicle, June 29, 2015. http://www.houstonchronicle.com/local/gray-matters/article/Affordable-housing-It-s-a-problemfor-the-middle-6356250.php

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