The Take on Taxes
The event, introduced by TCDP Executive Director J.D. Gins, was headlined by Shea and Mike Collier, candidate for state Comptroller, who each spoke briefly and then responded to audience questions. Among the several dozen attendees, Newsdesk counted at least a dozen local candidates – most of them for Austin’s fall City Council elections – and among them likely County Judge Sarah Eckhardt, who took the mic for a moment to rattle off some estimates of the financial benefits to county homeowners of substantial tax reform. The forum was also webcast across the state; Shea introduced a brief video produced by Real Values for Texas, a new statewide coalition “taking action to expose the impact of our state’s broken property tax system on homeowners, kids, and local communities.”
The gist of the problem, reiterated Collier and Shea, is that the property tax appraisal system has been allowed to become radically inequitable – even unconstitutional, said Collier. Under the Texas Constitution, properties are required to be assessed at market value for taxation purposes. For individual homeowners, said Collier, that’s mostly what happens; but big industrial and commercial property owners have managed, over the years, by various mechanisms – e.g., limiting exposure, concealing sales prices, and using greater resources to appeal – to be taxed at much lower valuations.
According to Real Values for Texas, the result is a system that, statewide, taxes major commercial and industrial properties at roughly 60% of market value, thereby moving much of that additional burden onto residential homeowners. Shea said that during her campaign visits, the subject is on everyone’s lips (especially in Travis County, where property values continue to surge). “It is hurting people all across our state,” Shea said, “literally driving people out of their homes.”
Collier noted that statewide, the problem must be addressed by the Legislature, which has largely relied on across-the-board spending cuts – especially to public schools – instead of attempting to make the system more equitable. He recommended three basic fixes: 1) tightening the definition of comparable properties*; 2) requiring some form of sale price disclosure (as is required in 46 states); 3) addressing the imbalance in “negotiating power.” Commercial property owners, he pointed out, not only have teams of lawyers to appeal their valuations, but also, if they should win a lawsuit, the appraisal districts must pay any legal costs (not so in reverse). As a result, appraisal officials are motivated to capitulate rather than risk losing contested appeals.
Collier acknowledged that substantial reform will require legislative action, but the comptroller has a “voice, and the data,” to press the Legislature to comprehend the problem and restore equity to the system. He said that the Republican Party in Texas has become the spokesman and representative of big business, and “small businesses need at least one comptroller.” Rather than think first about the needs of big business, he added, state officials need to consider, in order, the needs of “homeowners, consumers, small business, and then big business."
The discussion in the room ranged from the growing problem of income inequality to the more closely related issue of rising property values – as in Travis County, where rising taxes are driven more strongly by rising values than rising tax rates. Collier called that a “localized problem, requiring localized solutions,” and Shea warned against across-the-board solutions such as appraisal caps – like the 1978 California solution known as Prop. 13, which placed artificial limits on taxes that led to the devastation of the state’s public schools.
Shea argued that “fixing the broken system” of appraisals would mean additional revenue to local jurisdictions that should reduce the burden on homeowners. Asked about “unintended consequences” – e.g., shifting the burden onto renters (who mostly live in commercial complexes that might receive higher valuations) and small businesses – Shea responded that most local renters are already paying market rates, and that small businesses should in fact benefit from reforming a system that “unfairly tilts” evaluations in favor of the largest property owners.
Reiterated Collier, taxing properties by their market value is required by the Constitution, “so that’s the only place to start.”
*Correction: "comparable properties" -- originally read "capital property," in error.