Texas Property Tax ‘Reform’ – Where’s the Beef?

Property Tax Reform

As the first week of the Texas Legislative Special Session winds down, and I read and watch the news stories, I’m under-whelmed. By most accounts, this court-ordered effort to change the way Texas funds public schools will be a success if Governor Perry’s plan passes, which will reduce the Property Tax rate by $0.50. What will a $0.50 reduction do for most people? It won’t amount to squat. Let me show you why.

First of all, we have to remember that politicians are generally not truthful people. Realtors are held to a very strict code of ethics and professional standards in what we say and represent to others. But politicians are allowed to stretch and bend the truth in ways that would cause me to lose my license if I did the same thing in a real estate transaction. Sadly, most people don’t spend the time to learn the truth. When you read or hear about politicians saying they are bringing a “33% reduction in school property taxes”, what that means is that the state cap portion of the tax rate, which is $1.50, might be reduced by $0.50. But since the total property tax rate in many areas of Austin and Texas is at or above 3.0% per $1,000 of assessed value, you have to chop that 33% number in half right from the start.

Another way to look at it is to say that an average South Austin home valued at $200,000 will see a $1,000 per year or $83 per month reduction in property taxes if the current effort succeeds and values remained the same. But wait! As we read in today’s paper (see my other blogs from earlier today) South and Southwest Austin are getting ready to get hit with an appraisal increase that will probably be 15% or more for most homes.

So let’s say your $200,000 South Austin home that you paid $5,500 (2.75% rate) in property taxes for in 2005 is assessed at $230,000 for 2006 (a 15% increase). And we know with 100% certainty the tax rate (against which the assessed value is multiplied) won’t be adjusted downward to offset the increase in assessed value. So your property taxes for this year, without tax reform, will be $230,000 x 0.0275 = $6325. That’s an increase of $825 this year.

But let’s assume Property Tax Reform, as it’s loosely called, succeeds, or at least accomplishes what our politicians will label a success. Our new tax rate in South Austin will drop from 2.75% to 2.25%. So our 2006 taxes on the new appraised value of $230,000 will be $5,175. Subtract that from the 2005 tax amount of $5,500 and the tax reform we hear so much about will have netted you a glorious tax decrease of $325. That’s your ‘Tax Reform’. WHERE’S THE BEEF??? This is a 6% reduction in actual dollars paid, not the 33% number the politicians want to use and say on TV. That’s $27 per month. Are we getting excited yet?

If you smoke a pack a day, kiss that $325 per year goodbye. You’re going to be paying an extra $1.00 per pack of smokes under the new tax plan. I’m not pro-smoking, and I don’t like smelling cigarette smoke, but let’s be honest, this is Property Tax Reform for Non-smokers only.

What about Landlords? On KXAN TV news at 6PM last Monday, the reporter covering the opening day of this important Special Session of the Texas Legislature gave a brief glazing over of the issue, then asked impishly “but will everyone get their equal share of tax relief?” Then the story cut to a slacker college student saying “I think Landlords should have to give that tax break back to the tenants. Most students are barely getting by as it is”. The reporter went on to do a piece on whether landlords should have to rebate some or all of their property tax ‘savings’ to tenants. This is what journalism has become. And I hope that student wasn’t a finance or accounting major.

If that reporter did his homework he’d know that landlords in Austin TX have watched rents plunge 20% to 30% during the past 5 years while our property taxes and insurance have simultaneously increased. Single family homes in Austin today still rent for less than they did in 1999 – yes LESS than the average rental rate of 1999 (See Austin 2005 Rental Market Summary). I wonder just how much of the $325 (or $27/mo.) the landlord should have to give the tenant who is paying $1225/mo. for a home that rented for $1525/mo. five years ago? I’m not a journalism professor, but the KXAN reporter gets an ‘F’ from me on this one.

So, as you read and listen to the Property Tax Reform story and the political bickering unfold, don’t believe the numbers quoted by the lazy news reporters and election-year politicians. Get out a calculator and do the math yourself. Then decide if “Reform” is the best word to describe what our political heros are giving us.

Posted by Steve
10 years ago

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Tom - 10 years ago

Steve – you are so on top of this. Thanks for the facts and the clarfication.

I’ve been noticing how inaccurate and I assume lazy much of the reporting is on TV.

Bloggers have their place in reporting too! Thanks for your perspective.


Steve - 10 years ago

Thanks Tom. Sure enough, in today’s (April 21) Austin Statesman, they quote the 33% number again on page A8, 4th column, second paragraph – “…Perry’s plan, which Craddick endorsed, would pay for one-third cut in school property taxes …”

The fact is, nobody in Texas is going to see a one-third cut in propetry tax dollars paid, so I wish they’d quit saying “one-third”. It’s a misrepresentation in terms of how the average citizen thinks, which is that their total ‘property tax bill’ will be cut by one third, which isn’t the case.

J.H. Chrysler - 10 years ago

It’s really too bad they can’t get a grip on this issue. My family was giving some thought to relocating to Austin from Phoneix until I discovered how high the property taxes were there. I am not alone…I’ve read plenty of forums with other potential residents saying the same thing. Texas is simply biting off it’s own foot when you consider how much new economy growth they are preventing because of it. We’re keeping an eye on it to see if they wake up, at very least they are aware of the problem and are at least making some steps toward change. Until a legitimate plan that makes sense comes around, we are staying put. Seems like lowering property taxes dramatically (around 1% would be what I would call fair and reasonable) while adding a state income tax would solve this problem and distribute the burden of the services that money provides fairly. Not just making smokers and home owners pay all the states debts.

'Doc' - 9 years ago

I organized a website to start a Prop 13 California style tax reform here in Texas. A mysterious individual showed up begging for the website name saying he was going to wage war against the tax people, I ‘gave in’ and relenquished the site and name, it’s now been 6 months and the website is not up and running as was promised! I believe “they” just wanted the name to get it off the internet. (“they” – you know who “they” are)
Anyway, I later found out that Texas government denies Texan’s the right to an Initiative & Referendum process, that which is necessary to garner voters signatures by petition and get tax relief on the ballot.
My tax assessments just went up $14k on one house and $20K on another house, everybody knows the tax people are just raising the assessments to make up for lost revenue due to the Texas Supreme Courts decision.

In view of the aforementioned, I’m planning on organizing a CLASS ACTION LAWSUIT against the Tax Assessors office seeking property tax relief… at the very least one’s taxes shouldn’t increase as long as you live in your house. Who cares if your neighbor’s house goes up and they sell to make the profit, you live in your home the taxes should stay the same until you cash out!

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