The Appraisal Problem

Issue Summary | Appointees | Schedule

HB 3 went a long way toward helping taxpayers with increasing tax bills, however, HB 3 addressed the tax-rate side of the property tax equation, leaving to future legislatures the responsibility of addressing the other component to determining the size of Texans' tax bills: appraisal values.

Property taxes, from all taxing districts, increased by 7.2% from 2003 to 2004. In 2004, 3,748 local taxing units levied almost $31 billion in property taxes.

Property taxes have grown from a total levy of almost $9 billion in 1985 to more than $30 billion in 2004 (the last year for which we have data). That represents an almost 300 percent increase in less than 20 years. At the same time inflation only rose an estimated 76 percent.

For tax year 2004, taxable values increased in 933 school districts, with an average increase in value of more than 7 percent. In comparison, 764 school districts had an average increase in value of more than 8 percent in tax year 2002.

The final Comptroller's property value study showed an increase of more than 7 percent in the value of single-family residences, following an increase of almost 11 percent in 2003 and 12 percent in 2002. Single-family residences are the largest category in appraised value, representing 50 percent of the total school districts' appraised values.

Adding anguish to the rapid rise in taxable values is the rapid proliferation of taxing jurisdictions. Every time a home value goes up, it can mean that as many as seven or eight specific property taxes will rise. For instance, one homeowner sampled in Houston pays property taxes to the following jurisdictions: Houston ISD, Harris County, Harris County Flood Control, Port of Houston Authority, Harris County Hospital District, Harris County Education Department, Houston Community College District, and City of Houston.

Specific Examples on rising values:

Houston:

• 1998 total taxable value was $74 billion compared to 2003 at $104 billion; a 40 percent increase.
• 1998 property tax levy was $494 million compared to 2003 at $682 million; a 38 percent increase.

Dallas:

• 1998 total taxable value was $49 billion compared to 2003 at $66 billion; a 32 percent increase.
• 1998 property tax levy was $324 million compared to 2003 at $462 million; a 42 percent increase.

Summaries of Issues

Appraisal Caps:

• Under current law, residential appraisals are capped at 10 percent a year (commercial values are not capped, as evidenced in Houston where commercial taxable values are expected to rise 27 percent this year.) While this protection prevents enormous increases in a single year, a Texan's taxable value can still double in about eight short years (and many Texans have seen their taxable values increase 10 percent each year as the taxable value catches up with the market value.)
• Some argue that a lower appraisal cap at either 3 percent or 5 percent would distort the marketplace and shift the tax burden to others. Others argue that while appraisal caps can lead to different tax bills on similarly priced homes, they at least give homebuyers truth-in-taxation when they buy a home; in other words, they will have a much better sense of what kind of financial commitment they are about to make.

Revenue Cap:

• A revenue cap is another method of protecting taxpayers from stealth property tax increases caused by appraisal creep.
• The closest thing Texas has to a revenue cap is the "rollback" rate, which is the maximum tax rate allowed before voter approval is required. The rollback rate was reduced for school districts during the special session to a maximum of $1.04, but it still has not been reduced for cities, counties and other taxing units. Rollback elections are automatic for school districts and there is no petition requirement. Current law allows cities and counties to increase taxes on existing property by up to 8 percent annually without a public vote. However, before a vote can even take place, there is a petition requirement of 7 percent of registered voters in taxing units with tax levies of $5 million or more, and 10 percent of registered voters in taxing units with tax levies of $5 million or less, which is unattainable. Further, in 2004, of the 25 taxing jurisdictions that actually held rollback elections, in only four districts did voters pass the rollback rate.

Sales Price Disclosure:

• Sales price disclosure is advocated by many tax appraisers to improve the accuracy of appraisals, particularly for high-end residential and commercial property where sales data is not widely available.
• Texas relies heavily on property taxation at 100 percent of fair market value; therefore, the argument goes that it makes sense to provide sales price information for residential and business property to local appraisal districts. Without this data, basing an appraisal system on market values is like trying to collect sales tax while allowing businesses to keep their selling prices, and all the records of their transactions, secret.
• Texas is one of few states that does not have mandatory sales price disclosure. According to the International Association of Assessing Officers, 35 states have mandatory sales price disclosure. And while some appraisal districts have access to residential sales data through realtor databases such as MLS, others do not, causing appraisal inequities between counties.

Elected Appraisers:

• Chief appraisers and members of the appraisal district board of directors and appraisal review board (ARB) are not elected and directly accountable to taxpayers. Therefore, taxpayers do not have a specific elected official to turn to who oversees appraisal district actions.
• Tax assessor collectors are elected but generally have no role in the appraisal process.
• The five member board of directors is appointed by the taxing units in the county. They appoint the chief appraiser but do not get involved in appraisal issues. This is the job of the ARB which is appointed by the board of directors. No appraisal or real estate expertise is needed to serve on the ARB.
• A solution could be to establish a new appraisal certification board to sign off on certified appraised values each year. Or the chief appraiser job could be done by the tax assessors instead since they are elected.

Senior Tax Freeze:

• This is needed to ensure that senior citizens and disabled persons whose school property taxes are frozen receive tax rate relief in the same proportion as other property owners beginning in the 2007 tax year.
• Under current law the tax freeze is the amount of tax actually paid in the year a person turns 65 or qualifies as disabled. The appraised value and tax rate are not frozen, only the tax amount. If actual school taxes calculated at the lower rates in HB1 are less than the tax freeze amount, the taxes due would be lower but the freeze amount would not change. In general, the longer taxes have been frozen, the less likely the person will get any tax relief under current law.

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