Local control over taxes would dwindle under appraisal and tax cap plans

Alternate title: "More regressive taxes on the way"

HJR 35 to be heard tomorrow on House floor;
HB 784, 1006 to be heard Wednesday

HJR 35 and HB 784, both filed by Dwayne Bohac (R-Houston), would implement new appraisal caps at 5 percent, which is lower than the current 10 percent cap set in 1997. The current cap, which applies only to residential homes, has already "cost local governments millions, and that the cap protects properties that tend to increase fastest in value," according to the San Antonio Express-News.

Appraisal caps seek to place a limit on the taxes paid by homeowners. While the proponents of appraisal caps claim that these measures would provide a great relief to homeowners everywhere, critics point to who would benefit the most - as you may have guessed, the numbers suggest that the richest Texans would receive the greatest windfall: those with property whose value increases the most are those who would benefit the most. Conversely, this means that the lower the price of the home, the less of a tax break that homeowner would receive. According to a CPPP Policy Page [PDF], "More than half of the benefit of the current 10 percent cap goes to families with incomes over $97,000 a year ... This tendency is so strong that the one-tenth of Texas families with incomes over $136,000 reap more than one-third of the benefit of the current cap."



HB 784 proposes lowering the appraisal cap to 5 percent, a move that Governor Rick Perry proposed during his "State of the State" address. Both Perry and Bohac have called the rising value of homes an "appraisal creep."

Despite the attempts by certain GOP members to drum up support for appraisal caps, it is possible that Republicans can't get 100 votes for HB 784 and its required constitutional amendment, HJR 35. If those two bills fail to pass, then HB 1006 - by Rep. Carl Isett (R-Lubbock) - would step in as Plan B. Instead of appraisal caps (that require a constitutional amendement), Isett's bill would force an automatic rollback election if overall tax revenue that a municipality raises exceeds 3 percent (this does not require a constitutional amendment).

NOTE: HB 1006 was once an amendment attached to HB 3 but was later pulled.

Consequences for municipalities

By restricting the amount of money that local governments may collect, HB 784 and HB 1006 would therefore restrict the amount of money that the local government may spend - consequently boosting the role of state government by determining what are currently decisions by local governments.

Fort Worth Mayor Mike Moncrief decried both appraisal and tax revenue caps, stating that "local officials know best what is needed to provide for their communities." He added, "If the state wants to provide police and fire protection and infrastructure for our cities, then fine, I'll get out of the business and go lower my golf handicap. This jerks the rug out from under local government and takes away our ability to do our job."

Municipal services include not only police and fire protection but also street maintenance and trash services.

Consequences for real estate

Regarding only HB 784 and HJR 35, the CPPP Policy Page on appraisal caps includes one aspect of appraisal caps not widely discussed: the negative impacts on the real estate market. It uses an example that they dub "Welcome, Stranger:" under a scenario where two neighbors pay the same in property taxes, when one sells their home, the hidden costs of the appraisal cap would be transferred on to the home buyer. The newcomer ("the stranger") would pay the taxes determined by the full market value of the home, whereas the neighbor who did not move would pay only the fraction taxes, as determined by the appraisal cap.

The policy page continues to say that local governments could therefore opt to lure in businesses, whose sales taxes (expanded under HB 3) could bring in additional revenues. Sales taxes would not be negatively - or positively, for that matter - by appraisal caps outlined in HB 784 and HJR 35.

The Texas Association of Realtors testified against Bohac's two proposals.

Consequences for businesses

Dr. Ray Perryman contends the opposite of CPPP's predictions for businesses: that new businesses would be negatively impacted by appraisal caps. His report [PDF] states that:

Appraisal caps penalize business startups. In an appreciating market, valuation change limitations benefit existing property owners at the expense of new buyers. For example, a business owner who had owned a location for many years might be paying taxes far below a competitor who recently purchased. This reduces the capacity of new owners to compete effectively, with corresponding detrimental effects on consumers.

Not to mention that the Texas Association of Business opposes these plans, the pro-property tax relief Dr. Perryman has been actively lobbying for the Texas Municipal League, Texas Association of Counties, and Texas Conference of Urban Counties against these proposed caps.

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Personally, I see these proposals as boons only to current businesses and the richest citizens, the latter of which comprises a small minority of Texans. In light of the other tax bills proposed this session, this is bad, unsustainable public policy that continues mislead Texans away from true progress.