Getting Things Wrong
Mr. Thomas Pauken, it will be recalled, was the chairman of the Texas Task Force on Appraisal Reform, a 15-member panel appointed by Gov. Rick Perry in 2006. The Task Force was charged with studying virtually every aspect of property tax appraisal and rate-setting in Texas. The final report was released in early 2007; its recommendations called for voter approval of municipal spending “in excess of reasonable levels,” limiting the growth of appraisals (regardless of market value), and much more. While some of the recommendations had merit, most would have harmed local government. City and county officials opposed those recommendations, and none was enacted by the legislature. In response to the opposition of local government officials, Mr. Pauken said they were “tone deaf” about high property taxes and that “they want to spend all the money they can get…” City officials refused to join in this descent into mud-slinging and went about the business of serving their constituents.
Mr. Pauken is now the chairman of something called the Texas Property Taxpayers Association. In that position, he continues to be the head cheerleader for the Task Force’s recommendations and occasionally releases analyses designed to advance his cause. In late January, he widely distributed a letter with which he included a statistical comparison of property tax bills in Dallas with those of other cities.
The Letter
Mr. Pauken points out that for tax year 2006 (the first tax levy after the school finance reforms enacted earlier in 2006), school district maintenance and operations tax rates dropped. According to Mr. Pauken, local governments seized this opportunity and “raised property taxes far in excess of what was necessary to fund reasonable levels of government growth these past two years.”
The problem with this statement? It’s based on fantasy. To begin with, the Texas comptroller has published property tax data for only the first year following school finance reform. Neither Mr. Pauken, the comptroller, nor anyone else has any idea what has happened over the full two-year period.
And what does the comptroller say about city property tax rates in the first year following school finance reform? Here’s the data:
| Levy Date | Average City Rate | City Taxes on $250,000 Home |
| October 2005 | $0.4863/$100 | $1,215.75 |
| ***School finance reform is enacted in May 2006*** | ||
| October 2006 | $0.4865/$100 | $1,216.25 |
| (Source: Annual Property Tax Reports, Tax Years 2005 and 2006, Texas Comptroller) | ||
It appears that Mr. Pauken is right—city taxes did go up for the owner of a $250,000 home in the first year after school finance reform. They went up exactly 50 cents.
But surely some $250,000 homes were worth more in 2006 than in 2005, right? Yes, and in those cases taxes went up by an amount commensurate with the appraisal increase. Where is the evidence that taxes increased far in excess of what was necessary? Where is the evidence of an effort by city officials across the state to raise tax rates in response to school finance reform?
The Interstate Comparisons
To reach an even more ridiculous conclusion, Mr. Pauken relies on a comparison of the “effective property tax rate” on a $250,000 home in eleven different cities. Mr. Pauken provides the following chart, in which “Effective Tax Rate” is the annual tax as a percent of $250,000.
| City | Annual Tax | Effective Tax Rate |
| Atlanta, Georgia | $944.00 | 0.38% |
| Denver, Colorado | $1,332.27 | 0.53% |
| New York, New York | $2,417.70 | 0.97% |
| Chicago, Illinois | $2,681.60 | 1.07% |
| Oklahoma City, Oklahoma | $2,750.00 | 1.10% |
| Little Rock, Arkansas | $3,165.00 | 1.27% |
| Albuquerque, New Mexico | $4,240.00 | 1.30% |
| St. Louis, Missouri | $3,320.39 | 1.33% |
| Miami, Florida | $3,699.66 | 1.48% |
| Los Angeles, California | $3,766.55 | 1.51% |
| Dallas, Texas | $6,139.44 | 2.46% |
The analysis purports to be “a fair representation of comparative taxes among large cities across the country.” For reasons outlined below, it is nothing of the kind.
As a seasoned player in the public arena, Mr. Pauken should be well aware of the danger inherent in interstate comparisons: to compare entities on the basis of merely one statistic is inevitably misleading. For example, here are a few things Mr. Pauken’s analysis doesn’t tell us:
- In St. Louis, 30 percent of the general fund revenue comes from a local “earnings” (income) tax, which is allowed under Missouri law, and another eight percent comes from a local “payroll tax,” a tax on employers.
- In Albuquerque, 38 percent of the city’s general fund revenue is derived from a local business gross receipts tax (sounds like a business income tax to us).
- New York City has a commercial rent tax, a business and personal income tax, a real estate transfer tax, and a massive amount of unrestricted financial aid from the State of New York.
- Chicago has a local income tax that provides 14.5 percent of the city’s general fund revenue, a real estate transfer tax, and a substantial amount of state financial aid in the form of grants.
- Little Rock benefits from both a county sales tax and a city sales tax. The city’s sales tax revenue is 4.6 times as much as its property tax revenue. Little Rock also receives a portion of the state gasoline tax in the form of a grant.
- Oklahoma City has a sales tax rate of 3.875 percent and receives significant amounts of state financial aid.
- Los Angeles has a hefty tax (over nine percent of its general receipts) on utility users, a “business tax,” a documentary transfer tax, and revenue from the state motor vehicle license fees.
The list could go on and on, but the point is made: these other cities to which Mr. Pauken compares Dallas have many revenue sources (often including an income tax and state aid) that don’t exist in Texas and aren’t likely to be available any time soon.
Mr. Pauken’s statistics illustrate what TML has long maintained: because the State of Texas gives its cities few revenue sources and gives them no general purpose financial aid, Texas cities must rely more heavily on property tax revenue than do the cities of other states. If it was Mr. Pauken’s goal to prove that point, he succeeded. But if it was his goal to demonstrate that Texas cities are profligate spenders, that they “want to spend all the money they can get,” or that they should be subject to state-enacted revenue restrictions, he failed utterly.
Given Mr. Pauken’s interest in interstate comparisons, we wonder if he has been able to identify a single state that: (a) imposes the kind of revenue restrictions he proposes for Texas cities; and (b) does so without providing cities with numerous revenue sources (including state aid) not available in Texas.