Should Texas Roll Back Or Roll Forward With Senate Bill 2? It’s A Taxing Question

As property tax levies increased and the state began to base more aid to school districts on property values, centralized local appraisal became necessary.

by, Kristin Gordon

There are 254 counties in Texas and each year the appraisal districts in these counties assess your property taxes and send you a bill. The final day to pay your 2016 property taxes without being penalized was Jan. 31.

Funds collected from property taxes are shared with school districts, cities, counties and special districts like community colleges. They rely on property taxes to fund their operations. Local property tax remains the largest tax assessed in Texas with sales tax being the second largest revenue source.

Property taxes levied by taxing units statewide exceeded $49 billion in 2014 and $52 billion in 2015. Property taxes are based on the value of property, as estimated by the appraisal district in each county.

The appraisal reflects the market value of a property, but many properties are eligible for exemptions that reduce the appraised value.

Before the Legislature created appraisal districts in 1981, thousands of taxing units appraised property and imposed taxes independently, resulting in wide disparities in value. As property tax levies increased and the state began to base more aid to school districts on property values, centralized local appraisal became necessary.

The Texas Constitution sets out five basic rules for property taxes and in one of those rules it states that property owners have a right to reasonable notice of increases in the appraised value of their property.

Taxing units can assess and collect property taxes for two primary uses.

They can collect a maintenance and operations tax that is used primarily to pay for the day-to-day functions of the government.

An interest and sinking tax (I&S) is collected to pay bonds, including interest, to finance capital projects such as buildings, facilities or other infrastructure. While I&S property taxes are not the only way for taxing units to pay for infrastructure, it is one of the primary tools available for this purpose.

In March, city and county officials and homeowners gathered in Austin before the Senate Finance Committee to discuss Sen. Paul Bettencort’s Senate Bill 2, which seeks to limit property tax increase to no more than 4 percent.

This property tax reform bill requires the rollback tax rate to be lowered from 8 percent to 4 percent and would require an automatic election if the rate exceeded 4 percent. The bill also includes a long list of other changes to appraisal and tax laws aimed at easing the property tax burden.

It would increase the minimum value from $500 to $2,500 for taxable personal property used to generate income, make changes to procedures for challenging and reviewing appraised property values, establish an advisory board in the state Comptroller’s Office to oversee local tax offices and appraisal offices and require appraisal board members to be elected officials in the county.

The bill would also set deadlines for all property tax protests and establish review panels in counties with populations of 120,000 or more to hear more complex taxpayer protests.

There are those who have already started protesting SB 2 due to the potential loss of funding.

Others find the bill to be fair for the taxpayer. Some protested by passing a resolution. The city of Montgomery called on Sen. Robert Nichols to speak out against the bill. Montgomery council members voted to pass a resolution which will allow city administrator Jack Yates to ask Nichols to oppose the bill. Other cities have filed similar resolutions.

Dr. Charles Starnes, mayor pre tem of Plainview, spoke in front of the finance committee during a hearing and thanked them for listening to a small city in rural west Texas. “Our O&M (operations and management) budget is supported by just $13.4 million total revenue, property taxes supporting about 45 percent of that,” said Starnes.

“Public safety is 55 percent of our budget. Citizens and businesses who created our comprehensive plan were supportive of up to a $25 monthly increase in property taxes to pay for city development projects. We’ll gladly hold an election for those important projects, but being required to hold an election for routine budget development is an unnecessary imposition,” Starnes continued.

Austin City Council member Ellen Troxclair said the bill would provide more control at the local level by putting additional power over tax rates in the hands of voters.

Troxclair spoke about a woman who wanted to buy a condo in Austin, but decided against it out of fear that she wouldn’t be able to later afford rising property taxes. “She was scraping together everything she had to begin with,” Troxclair said.

Catherine Morse, an attorney for Samsung Austin Semiconductor, said that high property taxes could force companies to relocate to other states. That the infrastructure her company needs to be profitable was paid for by the government and asked if she’d rather pay property taxes or a state income tax. “There is no free lunch,” Morse said.

Following the Senate Finance Committee hearing, the committee voted and made recommendations to substitute, in lieu of the original bill, a new bill known as a committee substitute. A committee report was then printed and distributed and the bill has been placed on the the Senate’s intent calendar.

This article originally published by Strategic Partnerships, Inc.