Business Group: Local Taxes and Spending to Blame
A recent report addressing controversial 1997 appraisal legislation claims that increased local taxes and spending, rather than appraisal loopholes created by the legislation, are the real problem with property taxes. “Property taxes are rising because schools, cities, counties, and special districts are spending more,” according to a July 28 report by the influential Texas Taxpayers and Research Association (TTARA). “Whether those increases are justified or not, there is no denying they occur.”
Setting aside the issue of the 1997 appraisal law changes for a moment, was TTARA right to say there’s a problem with local taxes and spending? With respect to cities, the answer is certainly “no.” From 1990 to 2011 (the last year for which total levy numbers are available from the Texas Comptroller), total city property tax levy rose an average of 5.48% per year. Certainly an increase, but is that a problematic increase given that our state has grown dramatically and that a dollar is worth less today?
Government critics like to say that taxes shouldn’t go up faster than population growth plus inflation, so let’s apply that metric to city property taxes. For that same period in question, 1990 to 2001, Texas’ population grew 2 percent per year. Consumer inflation during that period increased about 2.7 percent per year. Combining those two figures yields a 4.7 percent average yearly increase, certainly not out of line with the tax growth of 5.48 percent.
To the extent there’s outrage over taxes, it clearly isn’t caused by cities. Cities are essentially taxing and spending about the same as they did in 1990 when population growth, inflation, and newly taxing cities are factored in.
If not cities, could it be the changes made by the 1997 law that are – in fact – causing citizen discontent? That law (S.B. 841) gives property owners a “second bite at the apple” when challenging appraisals. In addition to claiming that a property is valued above “market value,” the traditional measure, the law permits an owner to alternatively claim that a property is valued lower than an average of comparable properties. The appraised value of the comparable properties might be significantly lower than market value. Taxing entities and appraisers are sounding the alarm that this alternate appraisal option is creating a “race to the bottom” where settlements reached in costly appraisal lawsuits (that only commercial and industrial owners can afford to pursue) serve as artificially low comparables that drag averages lower and lower.
The potential deleterious effects of S.B. 841 are sure to get more scrutiny in the lead-up to the 2015 legislative session. In the meantime cities should be aware that the business lobby appears to be trying to deflect the blame towards us.
Interestingly, a handful of cities are starting to take a look at the appraisal loophole problem through the lens of economic development. At least one city has even proposed restricting companies that receive tax incentives, such as property tax abatements, from subsequently suing to challenge their appraisals during the period of the incentive. Cities are free, after all, to place conditions on the granting of incentives, or to not grant them at all. Whether that becomes a trend may depend on whether the business community tries to bite the hand that helps it – through infrastructure construction and judicious incentives – or instead becomes a partner in addressing the side effects of a possibly ill-conceived law.
 Comptroller’s Property Tax Report, Tax Year’s 2010 and 2011 (December 2012).
 U.S. Census data.
 CPI index tables.
 Actually, if one factors in that urban population grew at a faster rate than total Texas population, and adjusted for the fact that there were fewer cities levying property taxes in 1990 (to get at the effect on an average citizen), the growth rates would likely be even more comparable. In 1993, for instance, there were 968 cities levying a property tax; by 2011 that number had grown to 1,064. The fairest comparison would be to look only at tax increases attributable to the cities taxing in both 1990 and 2011. While that seems difficult, if not impossible, to do using available comptroller data, the effect of doing so would be to lower the total increase somewhat, probably quite close to the 4.7% combined inflation and population growth.
TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.