LEGISLATIVE COMMITTEES CONTINUE TO STUDY PROPERTY TAXES AND TRUTH-IN-TAXATION
The Senate Finance Subcommittee on Property Appraisal and Revenue Caps met on August 20 to consider the following charge given to them by the lieutenant governor:
Predictably, there was testimony in favor of appraisal caps and property tax revenue caps, while numerous local government officials testified as to the harm such caps would cause. In addition, some legislators and influential business groups are suggesting that the truth-in-taxation statute is “broken,” and needs to be fixed. Various witnesses testified that when truth-in-taxation was created in 1979, the effective tax rate calculation was simple, clean-cut, and useful.
Some believe that amendments since made to the effective tax rate calculation and other notice provisions in the Tax Code have made the effective tax rate incomprehensible to homeowners. Specifically, the critics point to numerous exemptions from the rate for new mandates on local governments (pollution control, health care mandates, and many more).
To some degree, these critics have a point, and it’s rooted in the fact that the effective rate is designed to serve two distinct functions. The first function is to serve as a “hold harmless” rate for local governments to guarantee them the same level of property tax revenue as the year before after accounting for changes in appraisals and changes in service mandates. To this end, it is absolutely critical that the various exemptions for new service mandates in the Tax Code remain in place. Without them, a local government is unfairly penalized in its budget for new services it must provide because of new state laws and rules.
The other function served by the effective tax rate, though, is to give “typical” homeowners notice of whether their taxes will be higher. Assuming a home’s value doesn’t change, a homeowner could have expected, under the original Peveto bill, to experience no change in city property taxes if the city adopted the effective rate as its actual rate. That is no longer true, however. The various exemptions added to the effective tax rate over the years have eroded the ability of the effective rate to serve its role as a precise predictor of property taxes paid by a “same-value” homeowner.
An influential lobbying and research organization, the Texas Taxpayers and Research Association (TTARA), has drafted a “simplified” effective rate notice designed to address this issue from the notice perspective only. (A preliminary draft of the proposal that TTARA presented to an interim legislative committee can be viewed here: http://www.tml.org/legal_pdf/SimplifiedTaxRateinsert.pdf.)
The proposal notice excludes all the exemptions and adjustments to the effective rate that have been added over the years. (Note: the proposal does adjust for new growth, however, recognizing that failure to do so would have the effect of punishing cities for their growth). The effect of the proposal would be that if an existing, same-value homeowner is to pay $1 more in property taxes than last year for any reason, then that homeowner would receive a supposedly easier-to-understand notification of that fact.
The League will carefully monitor any related bills filed in 2009 to make sure that they address only notification issues (truth-in-taxation) and do not attempt to modify the underlying effective and rollback rates themselves and do not change the hold-harmless exemptions that are essential to those rates.