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By Elna Christopher
TAC Communications Staff
Rep. John Otto (R-Dayton), chairman of the House Select Committee on Property Tax Relief and Appraisal Reform, released an unusual draft report at the committee’s final meeting on December 8.
What Otto handed out at the meeting is unusual because interim reports are typically longer and contain cover pages and a member signature page, and Otto’s report does not yet have those things. However, Otto discussed a lot of ideas mentioned in the report that likely will result in numerous bills being filed regarding property taxes and the appraisal system, including bills to change the effective tax rate calculation. In fact, some legislators have already pre-filed caps bills.
The Otto committee held public hearings in eight cities throughout the state, and numerous county, city and school officials testified, along with appraisal district officials who were the main invited witnesses before the committee. Many other county officials and staff members of the Texas Association of Counties (TAC) monitored the hearings.
Here are some of the major ideas discussed in what Otto released:
- Effective tax rate: Saying that “simplification and transparency are needed in order to convey to taxpayers what taxing jurisdictions are doing,” the report says “the most basic approach” at change would be to “publicize the effective tax rate as the rate that would raise the same amount of revenue as the prior year (excluding new property added to the tax roll), disclose the proposed rate and percentage increase it represents from the previous rate, and state the amount of revenue the new rate would generate.” Although the report mentions taxpayer confusion about “numerous back-outs” that go into calculating the effective tax rate and says that “simplification and transparency are needed,” it does not specifically detail the changes to the calculation the committee will recommend. It does say that taxing entities should be required to disclose the previous two years’ fund balance and the projected fund balance at the end of the proposed budget cycle. “Such disclosure would enable taxpayers’ ability to discern increases in rates, revenues and whether fund balances were being increased beyond current needs,” it says – but fails to note that bond rating companies frown on entities without appropriate fund balances.
- Appraisal caps: Dispensed with in three paragraphs, the report says discussions have centered on lowering the current 10 percent annual appraisal cap to five percent. No recommendation is made.
- Comptroller’s property value study: After his 2007 bill to increase the margin of error from five to 10 percent tanked in the Senate due to a huge fiscal note for the state, Otto suggests changing the value study to a Comptroller review of appraisal district methods and procedures to make sure they are consistent with state standards.
- Consistent reappraisal cycles: The report puts forward the idea of two-year property reappraisals statewide, instead of one to three years as is currently the practice. With the property damage by caused Hurricane Ike as a backdrop, the report discusses the costs of disaster reappraisals vs. the fairness to taxpayers with diminished property – but does not make specific recommendations.
- Central appraisal district reforms: The report presents the ideas of mandating taxpayer liaisons in all appraisal districts, expanding the liaisons’ responsibilities and electing CAD board members.
- Regional appraisal review boards (ARB): The committee said “taxpayers throughout the state testified they did not see the ARB as an independent body and did not feel they would receive a fair hearing if they chose to protest their appraised value.” The report suggests a pilot program “in test markets around the state” of regional ARBs drawn from a pool of “qualified and trained” members.” The report also notes that business owners would like to see the $1 million cap on binding arbitration raised.
- Highest and best use: The report notes that “while agricultural land is protected from the highest and best use standard…, no protection exists for homes.” The report recommends changing the law “to protect homeowners from appraisals and tax increases on their homes that are based on the assumption that the property is valued on a higher and better use.”
- Sales price disclosure: Otto has publicly stated that he’s not in favor of requiring sales price disclosure, which would give appraisal districts more accurate information on commercial and high-end real estate, and the report does not recommend it. It does say the Legislature “should look into” clarifying Chapter 552 of the Government Code to definitely allow protesting taxpayers access to appraisal district data prior to their ARB hearings.
- Swap property tax with sales tax: The report mentions proposals to replace the school maintenance and operation (M&O) property tax with an expanded, higher sales tax and part of the state’s surplus (when there is one), an idea being touted by some of the Otto committee members. The report concludes that removing current sales tax exemptions (such as food, medicine) “could have adverse economic impacts and are politically difficult to accomplish.”
The committee members are Chairman Otto, Vice-Chairman Ken Paxton (R-McKinney), Reps. Drew Darby (R-San Angelo), Gary Elkins (R-Houston), Ismael “Kino” Flores (D-Palmview), Dan Flynn (R-Van), Dan Gattis (R-Georgetown), Joe Heflin (D-Crosbyton), Phil King (R-Weatherford), Tracy King (D-Batesville), Ruth Jones McClendon (D-San Antonio), Inocente “Chente” Quintanilla (D-Tornillo) and Larry Taylor (R-Friendswood).
The eight hearings were held in Travis, Hidalgo, Bexar, Tarrant, Jefferson, Lubbock, Harris and El Paso counties.
A separate Senate Finance Subcommittee on Property Appraisal and Revenue Caps, chaired by Sen. Tommy Williams (R-Woodlands), has not yet released its interim report. The Senate subcommittee held one hearing on caps in Austin earlier in the year.
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