Op-Ed: The Social Crisis of Property Taxes
The state is on the cusp of a social crisis. Continued reliance on local property taxes to fund certain government services, most notably public schools, is literally driving families out of their homes. A report published recently by an Austin neighborhood group confirms the terrible impact that property taxes are having on long-time residents of East Austin.
The East Austin Conservancy (EAC) report notes that one in three homeowners in East Austin’s oldest neighborhoods are delinquent on their property taxes, and that homes in East Austin have had a 33 percent turnover rate over the past decade. As a result, EAC is launching a fundraising campaign to help people pay delinquent property taxes and stay in their homes.
Despite a legislatively-mandated one-third reduction in school district property tax rates that took effect in 2007, it took just one year before the total revenue being generated from school property taxes exceeded 2006 levels. Appraisal increases across the state, combined with school districts raising rates through “roll back” elections, conspired to undercut the tax relief that the legislature had tried to provide to home and business owners.
Even without any rate increases, appraisal increases (which are generously capped at ten percent per year for residential property) can double the taxes on a home in just eight years. Commercial property has no appraisal cap at all, meaning that businesses’ property taxes can increase almost unchecked. And it is not just school property taxes that are a problem. Although school property taxes account for more than half of all property tax revenues, the Comptroller of Public Accounts’ annual property tax report shows that city and county property tax revenues are growing more than ten percent faster than are school district tax revenues.
Although total property taxes vary by jurisdiction, an annual tax bill of more than two percent of the value of a property is not unusual in many parts of the state. Indeed, most Travis County residents have a total rate of 2.38 percent in 2012. Median home values in Travis County are $200,300, meaning that the average homeowner in the county could face a $4,767 tax bill. For comparison’s sake, the average household income in Travis County is $54,074, which means that a family living in a median value house earning the median household income could owe 8.8 percent of their income in property taxes.
When property taxes get close to consuming ten percent of a family’s income (in addition to the billions of dollars paid by businesses each year), it is clear that permanent property tax relief is imperative. Aside from the fact that property tax bills can rise unabated and regardless of the homeowner’s ability to keep up with increasing appraisals, they also present a serious challenge to property rights: while a homeowner can pay off a mortgage, the government will extract property payments in perpetuity and can seize a property for delinquent taxes.
As a starting-point, eliminating school district maintenance and operations (M&O) property taxes (which make up more than half of a typical property tax bill) would provide permanent relief while also reaffirming the state’s commitment to low taxation and home ownership.
Over the past decade or more, school district property taxes in particular have proven to be an intractable problem. They are responsible for endless cycles of school finance litigation and they obscure meaningful debate about the appropriate levels of funding for our public schools. With serious attention likely to be given to school finance issues in the 2013 and 2015 legislative sessions, beginning the shift away from school district property taxes is a realistic proposition.
The benefits of shifting away from property taxes are multitudinous, especially for encouraging and maintaining homeownership and fostering increased economic development particularly in capital intensive industries. With our economy and social structures so fundamentally different from when property taxes were first imposed in the 19th Century, the system can and must change.
John Colyandro is Executive Director and Tom Aldred is Director of Policy & Research at the Texas Conservative Coalition Research Institute, based in Austin. This opinion-editorial was published by the Austin Business Journal on May 25, 2012.