The Texas Property Tax Revolt Needs Education
I have seen several Texas State Representatives recently on YouTube.Â Their premise is abolishing all school property taxes and replacing them with an increased sales tax.Â In watching Representative Phil King on YouTube he gives an example of buying a house for $100,000.00 and suffering average valuation increases of 10% per year and at the end of 30 years the taxpayer is payingÂ taxes on aÂ home that is valued at $1,300,000.
To arrive at $1,300,000 Representative King assumes an increase ofÂ 8.93% per year with no down turns in the single family real estate market.Â Is it accurate for him to make such assumptions?Â I would say in my 29 years of experience I have never seen a real estate market that has appreciated at an annual average rate ofÂ Â 8.93% uninterrupted over thirty years.Â Representative King fails to consider the ebb and flow of real estate markets.
In 1978 I purchased a new home for $168,000 and sold it in late 2007 for 268,000.Â That basically is $100,000 in appreciation over twenty years or 3% increase in value annually.Â Additionally, because of the Sub-Prime crisis I was able to purchase a new home in 2007 for $440,000 which originally had been purchased in 2002 for $515,000.
We at P.E. Pennington & Company, Inc. just completed an exhaustive study of valuationÂ and tax rates on a yet to be built commercial property.Â Â We estimated a 4.5% “stabilized” annual increase in bothÂ value and tax rates over the next five years.
Additionally, Representative King completely ignores the “hard 10% cap” on homeowners taxable value, plus homestead and other exemptions.Â In-other-words his exampleÂ is not based on reality, however it is a great soundbite!
This is not to say that the Texas property tax system doesn’t need changes.Â We definitely need changes, however they should be studied and well thought out.Â I have previously written several blogs on needed changes to theÂ property tax system.Â I stressed the need to strengthen taxpayers rights, education and remedies.
I believe the idea of replacing school funding with a regressive sales tax is not sound public policy.Â I think the legislature should enact a “hard 5% cap” on the taxable value of homesteads.Â Additionally, I suggest that the legislature enact clear language for truth in taxation, so taxpayers can easily understand tax rate increases.Â I also believe the Comptroller’s Office needs to get out of the valuationÂ study business.Â I believe their methodology is flawed and only increases pressure on appraisal districts to raise appraised values.Â Appraisal districts get enough political pressure from county, cities and school districts to raise values.
With all this in mind, we must not forget thatÂ Texas population growth is the engine driving the property tax train.Â Texans must come to terms with the fact that local government goods and services cost money.Â Our population is expected toÂ almost double from 25 million to 45 million by 2040.Â At some point in the future we must put everything on the table and come up with long term strategies to deal with the reality we find ourselves in.