SB2 & Property Tax Reform
As we come to the close of the 85th Texas Legislative Session, some of the larger issues that have been under consideration are finally coming up for a hearing; most importantly, Senate Bill 2 (SB2), which would make large scale changes to the state’s property tax system. I want to take a moment to go over some of the provisions in both the House and Senate versions of this bill and how they would affect our district.
The key difference between the House and Senate versions of SB2 is how much a city or county can raise its property tax without an expensive election.
At the core of the property tax discussion is the “effective tax rate” which the house version will re-name the “no new revenue rate”. The effective rate is calculated by taking the amount of revenue received by the city or county in the previous year, looking at the new calculation of property values in the city or county, and, if the values have gone up, find a lower rate that will not raise the property taxes but will keep the revenue constant. That rate is their “effective tax rate”.
Currently, a city or county can’t raise its effective tax rate more than 8% in a year without having to hold an election to approve the increase. The legislature placed that limit on local governments to keep them from running wild with tax increases, but we also have to respect local control and the ability of elected officials to make the decisions the voters elected them to make.
As I have said before, local control is an essential tool for good governance. It allows cities and counties with different economies, populations, infrastructures and other varied characteristics to make decisions based on their needs. One size does not fit all in these matters, and property tax reform is a perfect example of how the same set of rules will have very different effects on urban and rural areas of the state.
Take the example of Milam County. In the last two years, a major industry in Milam, Luminant Energy, decided to challenge their property value assessment, and thereby their overall tax bill. As a result, in 2015, Luminant’s assessment went from just over $470,000,000 to $315,000,000.
That one change caused the county to lose $1,200,000 in revenue that year, 10% of the revenue for the entire county government. An 8% increase in the effective tax rate, from $0.65 to $0.70 ended up raising $600,000, only half of what was lost. Larger metropolitan areas have their share of challenges, to be sure, but having one property assessment change cost you 10% of all revenue isn’t one of them.
The idea of reducing the property increase cap from 8% to 5% came from the attempt to bring cities and counties in line with school districts, which have a 4% cap. However, this is another place where things just don’t scale the same way between districts. While school districts have a 4% rate increase cap, they also have an effective tax rate of around $1.17 per $100 taxable value, where counties often charge a fraction of that rate.
The more robust economies of major metropolitan areas produce hundreds of times more revenue than do more rural areas, and they are not subject to one event devastating their revenue. The bigger problems in these areas are the disconnects that exist between the people and their elected officials.
In rural Texas you are highly likely to know most if not all your elected officials. You can have a meeting with them easily to express your frustration or needs, and you can more easily vote them out of office if you don’t like the job they are doing. Larger cities and counties don’t really have that connection, and so, for them, automatically triggering an expensive special election when a large increase in taxes in proposed is a great idea. It gives power back to the public who don’t really have as much of a voice in their representation as do people in more rural areas.
Even though the original bill exempted nearly all cities in our district from its provisions, Burnet, Milam, and Williamson counties themselves, along with the city of Georgetown, were still subject to the new caps. As a result, I like the changes the House made to SB2, eliminating the automatic elections, keeping the tax rate increase cap at 8%, and adding in provisions to keep taxpayers in the loop about how their local governments are handling their tax rates.
The original provisions from the Senate are excellent ideas for Houston, Dallas, and other big cities. But when it comes to rural and suburban Texas, we should be able to handle these things on our own.