Texas State Sen. Paul Bettencourt, the former tax assessor-collector in Harris County, is leading the charge for major property tax relief with the filing of Senate Bill 2, dubbed the “Texas Property Tax Reform and Relief Act of 2017.”
The proposed legislation from the Houston Republican includes multiple prongs — all designed to deliver lower taxes to property owners across the state. By some estimates the property tax burden in Texas is the fifth-highest in the country. Landowners in some Texas counties have seen tax bills rise 36 percent during the past three years, according to some reports.
The key element of SB 2 is regulating the appraisal process and providing property owners with more leverage when they challenge their annual tax assessment.
“The bill assures that there is honesty and transparency in the appraisal process,” said Daniel Gonzalez, director of legislative affairs for the Texas Association of Realtors.
Although previous legislative sessions have addressed some aspects of stemming the pain of rising property taxes, the attempts have fallen short.
Ned Munoz, vice president of regulatory affairs and general counsel at the Texas Association of Builders, is hopeful that SB 2 will garner wide support.
“Lt. Gov. Dan Patrick has made this a priority, and obviously that matters from our perspective,” Munoz said.
He conceded that some Texas municipalities aren’t too keen on the measure because it would cap cities’ ability to raise taxes without a vote at 4 percent rather than the current 8 percent. Those percentages are called “rollback tax rates.”
Austin Mayor Steve Adler is one of the government opponents. A couple of days after SB 2 was filed in late November, Adler sounded the alarm that delivering a minuscule discount to homeowners — about $2.50 — would cost the city about $15 million. He warned that passage of SB 2 would have dire impacts on essential government services.
Gonzalez said Adler’s comments were “disingenuous,” given how much the local tax base has increased in the past several years because of Austin’s “robust real estate market.”
Patrick slammed municipal and county officials for their stance.
"Quite frankly, the Texas Municipal League, the mayors, the Texas Association of Counties, the county commissioners and county judges are misrepresenting what our [property tax] bill says. We’re not capping their revenue. I want to be very clear. What we are doing is slowing down their automatic growth from 8 percent, which is the rollback rate today, to 4 percent," Patrick said. "So if you’re a city, county or school district you can increase your budgets by an automatic 4 percent, which is about the cost of population and inflation, and they still get the new construction. But if you want more than 4 percent you’re going to have to have a vote of the people."
Co-authored by Brandon Creighton, R-Conroe; Kelly Hancock, R-North Richland Hills; and Van Taylor, R-Dallas, SB 2 also bans the state from ever levying transfer taxes on a property when it changes hands. That’s why some states require mandatory price disclosure to assure that the correct amount of tax is assessed.
Prices to remain hidden
With the potential passage of SB 2 it’s doubtful that Texas will ever require mandatory price disclosure.
Many argue that without mandatory price disclosure, tax accessors are hindered in their ability to deliver a fair and equitable value — especially when commercial real estate is changing hands at a rapid clip and property values are increasing dramatically.
That argument doesn’t pass muster with Gonzalez, who said tax appraisers should already have deep resources and knowledge to determine those numbers. He also pointed out that fair and accurate appraisals are based on three methods of computation — only one of which is the price of comparable properties that have sold in the area.
The other two methods are the cost approach — how much it would cost to build an equivalent property — and the income approach — what kind of revenue and cash flow the property is generating.
Gonzalez said he fears that some appraisal districts are merely relying on comps and not looking at the total picture. Poor practices, in fact, were uncovered when the select committee Bettencourt chaired toured the state and asked taxpayers what their experiences were with local appraisal districts. A few horror stories emerged.
SB 2 would mandate certain written standards and procedures for appraisal that would be uniform across the state.
Other aspects of the bill include the creation of a Tax Administration Advisory Board in the Texas Comptroller’s office that would oversee the implementation of SB 2. Also in larger metro areas, appraisal review board panels would be created to handle taxpayer protests. Binding arbitration would also be available to taxpayers owning property valued at less than $5 million — rather than being limited to costly litigation.
Should a city’s rollback tax rate exceed the stated limits, an election would have to be held to ratify the tax increase. Such an election would have to be held on the date of a general election and not on a special election date.
Jan Buchholz Senior Staff Writer - Austin Business Journal