Thursday, March 19, 2009

Local Option Appraisal Caps: An Assault On Property Tax

Texas is a property tax state. It has no income tax. The effect is that Texas counties have appraisal districts who appraise property values that are then used as the value basis for property tax rates. A property tax is calculated by multiplying the percentage rate (a sum of the rates of all taxing entities) by the value assessed by the appraisal district. Counties apply this to business property as well as to personal property, especially real estate.

The property tax is in many ways extraordinarily unfair and unreasonable. What could be the logic behind burdening property owners with almost the entire state financial needs? Yes, there are local sales taxes and some form of state franchise taxes on businesses, and god bless her Ann Richards got us a Lottery that was supposed to help fund education, but make no mistake the property tax is the staple of Texas state revenues.

I guess what bothers me most is this: someone could live in a modest home for 30 years and pay off their mortgage. They may never refinance or sell their property. But the county appraisal district has the power to raise the assessed value of the home over time to match or even exceed inflation in the district's sole judgment of property values. So the $150,000 home a person bought 30 years ago might be assessed today at $300,000 and at an average combined rate of 3%, this homeowner -- with her or his mortgage entirely paid off and even on a fixed income -- will have to pay $9,000 a year in state property taxes.

That's $750 every month to the state of Texas just for owning property that you might have entirely paid off and have held for 30 years.

Doesn't it make more sense to tax income? When someone makes income or converts investments into proceeds as taxable income, isn't it fair to ask for the good of society and its infrastructure that the recipient of the income pay a small share to the collective needs of the state? Wouldn't it make more sense only to tax income? Why tax savings or investments whose proceeds don't get tapped?

The idea that a person who has saved and paid off their house and is living on a fixed income (even if by choice) has to pay thousands a year on a house purchased 30 years ago but appraised at current value -- well it just strikes me as obscene.

But hey, we have no income tax. And that keeps Texas proud. Or something. I don't know.

Anyway, state representative Debbie Riddle of District 150 in Harris County includes an optimistic note in a recent email to some constituents about her "Option Appraisal Caps" plan, which would gut the state finance system as property owners concentrated in Harris County (the 4th largest in the nation and home to Houston), Bexar County (San Antonio), and Tarrant County (Dallas) would all surely go to the polls to limit annual appraisal raises to 3% of the prior year's assessed value.

It sounds democratic, and it is. It's a good plan. But the effect would be to force an income tax on the state. I don't think that would be such a bad thing.

From Representative Riddle's email:

As focused as I am on the budget right now, this week is exciting for me for other reasons. Tomorrow morning, I will lay out HB 46 before the Ways and Means committee. This is a bill I have been filing since 2005, yet I have never received a hearing because the previous chairman opposed Appraisal Caps in all forms. Finally, the time has come to let the legislature know about the need for appraisal reform in District 150.

House Bill 46 would allow counties to hold elections to determine their own appraisal cap, anywhere from three percent to 10 percent. In my mind, this is the ultimate solution to the ongoing appraisal cap debate. I understand that many of my colleagues would not be reelected if they mandated an appraisal cap any lower than 10 percent for the entire state. But areas such as mine are desperate for relief from appraisal creep and cannot receive it because of concerns from legislators who live hundreds of miles away. Under my proposal, the people of each county would be able to make their voices heard and set their own caps. It takes the decision out of the hands of legislators in Austin and into the hands of local taxpayers, where it belongs.

The bill has widespread bi-partisan support, and I believe it has an excellent chance of being passed out by the committee and put before the entire floor this session. It does require a constitutional amendment, which has to be approved by 100 of the 150 members of the House. I will continue to gather signatures on the bill, but I believe this could be the breakthrough so many of us have waited years to see!

Kudos, Representative. But I won't hold my breath.