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The Senate Select Committee on Property Tax Reform heard invited and public testimony regarding interim charges related to evaluation of the effective tax rate, operations of Appraisal Review Boards (ARBs), and the feasibility of replacing the property tax with sales tax or other consumption tax revenue.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing, but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Sen. Bettencourt – Will be talking about rollback rates (including school taxes), operations of appraisal review boards, & property tax feasibility compared to alternate revenue streams (sales, severance, etc.)
  • Rebecca Riley, President of Lone Star College Montgomery, welcomes the committee to Lone Star College
  • Sen. Bettencourt – One of the best bills I carried was expansion of dual credit, sure that many at Lone Star College took advantage of this
  • Sen. Bettencourt – Have local elected officials here in Montgomery recognizing that as values go up, taxes need to go down
  • Sen. Creighton – Have heard from many local governments that as the tax rate has remained the same, then taxes have not gone up; however, appraisals going up results in increase in taxes
  • Sen. Creighton – Looking to reform this system rather than provide temporary relief that is washed away by rising appraisals, had a bill last session to do this that passed the Senate 5 times
  • Sen. Hancock – Property taxes are going up faster than people can pay, have heard different info at every property tax hearing so far
  • Sen. Bettencourt presents a slideshow on property taxes, highlights include:
    • Provides overview of rising taxes in different counties and cities across Texas across a multiple year period
    • All sectors have seen property taxes increase, lack of rate reductions combined with increasing appraisals have led to higher tax bills
    • City of Houston has a property tax rate cap currently, has cut tax rate by several pennies over recent years and has seen much lower tax increases as compared to other areas
    • Ability of citizens to pay taxes becomes an issue with increases of 30%-40% that come without tax rate reductions

 

Evaluate the effective tax rate and rollback tax rate calculations and identify modifications that would yield a rollback process that is meaningful for local governments and for citizens. Evaluate whether the current rollback election trigger serves modern objectives.

 

Jennifer Rabb, Rice University’s Baker Institute for Public Policy

  • Speaking on the effective tax rate and whether it is a useful red flag for tax increases
  • Highlights portions of the effective tax rate statute, statute includes notice and hearing requirements, in theory a political subdivision must provide notice and hearing for tax levy increases
    • Statute provides that total taxable property calculation uses property on the roles for the current and previous year only, essentially comparing the same properties in a 2-year period
    • Effective tax rate calculation divides previous year’s total levy by current years total value, if the proposed tax rate is greater than the effective tax rate resulting from the calculation, then the subdivision must provide notice and hold a public hearing
  • In practice, calculating the effective tax rate is much more complicated; part of the complication comes from allowing exclusion of portions of property, e.g. adjusting value based on new homestead exemptions or new growth
  • Also excludes Tax Increment Finance (TIF) Zones, these are thrown out of effective tax rate calculation and thus can grow entirely outside of calculation, avoids notice and hearing req.
  • Sen. Bettencourt – Tax Increment Reinvestment Zones (TIRZ) were initially authorized 25-30 years ago, designed to funnel incremental tax revenue increases into “blighted” areas
  • Sen. Bettencourt – City of Houston blocks off >$125 million in GR to funnel into these zones & these zones bypass the principals of “truth in taxation,” governing entities are not elected
  • Sen Hancock – What was the thought process behind these TIRZs?
    • Expect it is something to do with dedicating increment to repayment of bonds
    • Deborah Cartwright, TTARA – City of Houston does not have access to these funds, put into separate accounts, but don’t want this counted against them
  • Sen. Hancock – But the cities created these, and asked for them, and they decide where they go, so maybe I am missing something
    • Rabb, Rice University – Maybe you aren’t, exclusion helps create more of these
  • Sen. Hancock – We have all of these exempt revenue streams leading to a misleading tax increase
    • Essentially “truth in taxation” is not really truthful
  • Sen. Hancock – I don’t feel like “truth in taxation” is anywhere close to being honest
  • Sen. Bettencourt – Agrees
  • Sen. Creighton – Do you have any suggestions for reform of TIRZs? And can you go into the Constitutional basis?
    • This revenue is thrown out of effective calculation due to statute subjecting calculation to exceptions in general law, but there are issues with this interpretation
    • One argument points to TIF value and revenue as being separate streams, but exception can override the purpose of the effective rate statute
    • TIFs could be easily reformed by putting them back into the effective calculation
  • Sen. Bettencourt – We will be adding this into SB 2
  • Portions of the statute seem to point to need for something similar to the appraisal notice detailing the total tax levy and what taxes would be if rates were not increased
  • These provisions need close study to ensure taxpayers are receiving this notice
  • Sen. Hancock – Has anyone questioned this before?
    • I just read this provision this week, not aware of other attempts
    • Cartwright, TTARA – Has not been challenged before, previously other notices have been assumed to satisfy this requirement, legislation last session would have actually satisfied
  • Sen. Bettencourt – Would the real time notice system in Travis County satisfy this requirement?
    • Rabb, Rice University – It would detail the values if taxes did not increase
  • Sen. Bettencourt – Highlights Travis County notice system, allows taxpayers to look at each taxing jurisdiction
  • Sen. Bettencourt – Harris County made a decision to slow down the use of TIRZs because they understood how this was trending
  • If taxpayers don’t understand the effective rate, then it is not useful
  • Effective is also a misnomer for this rate, does not match what an “effective tax rate” would be, e.g. levy divided by market value of property
  • Sen. Bettencourt – So this would give you a percentage? Would be a marker for how much you are actually paying
    • Correct
  • Effective rate calculation does not include new improvements under the theory that communities are not penalized for new growth, but the calculation does not ask how much is needed to support the growth
  • Sen. Bettencourt – Problem is you can’t let government grow at 7%-9% per year, citizen’s income does not keep up with this growth
  • Recommendations on how to improve notification of tax increases
    • Provide real time tax notice & include effective tax rate
    • Legislature can change the name to more accurately reflect calculation, could call it benchmark and offer the actual effective rate alongside
    • Reconsider exclusions and growth assumptions
    • Use a less complex comparison, e.g. comparing homestead exceptions, or real effective rates
  • Sen. Hancock – What pushback do you hear on these recommendations?
    • Property owners will likely get more accurate information and likely support
    • Local governments who believe revenue will go down will likely push back
  • Sen. Creighton – So we should publish last year’s real effective rate to this year’s real effective rate? Does this relate to your testimony that the effective rate is something different? You would also recommend changing the terminology
    • Yes, would be some confusion initially, but better in long run
  • Sen. Creighton – There is confusion now
  • Sen. Bettencourt – I especially like the idea of including a marker for what you are paying versus your value

 

Deborah Cartwright, Texas Taxpayers and Research Association

  • TTARA has discussed and support using the “No New Revenue” tax rate label instead of effective rate
  • Speaking on rollback rates, rollback rates are not a cap, but instead are a trigger to allow input from residents
  • Currently 8%, petition process is also set unrealistically high
  • Sen. Hancock – What was the rollback rate originally?
    • Originally it was 5%, inflation was 12%; after rollback was set to 8%, inflation dropped & has been this way for 30 years
  • Ratification elections have served as effective ways to keeps rates at reasonable levels for school districts, will also work for other political subdivisions
  • Sen. Hancock – Difference between inflation rate and rollback rate currently is crazy, inflation is currently 2% and you still have local governments complaining about dropping the rollback threshold below 8%
  • Sen. Bettencourt – You start with rollback of 5% and inflation of 12%, then rollback moved to 8% and inflation dropped significantly, but rollback remained
    • Bringing up rollback isn’t to really argue if it should be a certain percentage, more to say that rollback rate is not a cap, but a trigger for voter engagement
  • Rollback rate should be used to ensure tax rates of local governments meet the needs of taxpayers
  • Recommending a more meaningful way of notifying taxpayers of taxes through real-time tax notifications
  • First, estimated taxes should be taken off of notifications of appraised value, appraisal districts should send special notice by August 7th that directs taxpayers to website and providing info on taxes and public input options; appraisal districts are in support of this concept
  • This is coupled with appraisal district website detailing the “no new revenue” rate, proposed rates, and date/time/location for public hearing and adoption meeting for each property owner; will consolidate all relevant information
  • Can also allow taxpayers to communicate electronically and not require them to be present at hearings
  • Sen. Hancock – We received huge pushback in trying to go back to 5%, even though inflation is much lower than when it was originally passed
  • Sen. Bettencourt discusses intent with SB 2
    • Sen. Bettencourt – Everyone needs to not underestimate Lt. Gov.’s resolve to get this problem solved, rollback rate is not the limiter on revenue given the exemptions available
    • Also need to not underestimate Gov.’s and Lt. Gov.’s resolve to have elections, petitions are not workable
    • With the election of the new speaker, this will likely be discussed and passed; SB 2 theory is lowering the rollback rate and allowing elections
    • Also need to get rid of Summer elections & date shopping for measures
  • Highlights data showing percentage of levy increase being smallest for school taxes, likely due to tax ratification elections (TREs)
  • Petition requirements are very high, e.g. Harris County would require ~150k signatures within 90s days to challenge tax rate; petition process does not work well and TREs are a more effective means of voter participation
  • Goes over information to be included on the real time tax notice website again
  • Sen. Bettencourt – And this website is in operation in Travis County?
    • Yes, Travis County did this on their own
  • Taxing unit should also have a website or access to a website, be required to use tax calculation worksheet developed by Comptroller, worksheet be certified
  • There have been circumstances where figures used on worksheets were not taken from certified appraisal roles
  • Sen. Bettencourt – Code of ethics for appraisers would not allow use of made up figures
    • Appraisers don’t always prepare these worksheets, could be any officer of the taxing unit
  • Sen. Hancock – So you would require them to sign an affidavit certifying the information is correct?
    • Yes
  • Sen. Hancock – Had an incident where revenue stream was left off school revenue calculation to cushion numbers before presentation to the school board, certification could’ve prevented this; local elected officials are depending on accurate information
    • Agrees, because the forms are not required to be used or certified, could also lead to incorrect information given to the public
  • Sen. Bettencourt – You have TIRZs, etc. without worksheets and without accurate information; looks like we found an addition to SB 2
  • Sen. Bettencourt – Not everyone is doing this, but if you are, you need to stop; this will be addressed in the next legislative session
  • Comptroller is also going to prescribe the format of forms and websites across the state, will be helpful
  • Another recommendation is that taxing unit must have all of this information available on the website 7 days before hearing is held, if not then decision must be delayed
  • Also suggesting bolstering the injunctive relief portion
  • Rabb, Rice University – Notice requirements were made with newspapers in mind, if you pass real time notice would likely see a strong grass roots response
  • Sen. Creighton – Agrees with the suggestions, notices and improvements to the notices are powerful; how does TTARA feel about legislative efforts to reform the property tax system?
    • TTARA believes in direct voter participation in tax rates that exceed a reasonable level, TTARA testified that it supported the 4% and 6% rates, 8% is high and should be reduced
    • TTARA has not taken a position on Gov.’s plan of 2.5%, but have been in support of reductions generally
    • Reduction coupled with real time tax notice means reform, relief will likely take longer to be felt
  • Sen. Creighton – Appreciates the input, need this to deliver reform; would like to know of additional measures that can be taken

 

Maria Crigler, Travis County Central Appraisal District

  • Sen. Bettencourt – How much did your real time notice system cost to develop?
    • Around $30k, currently working on more improvements; anyone wishing to do this can use our vendors at a reduced cost
  • Travis County has found that taxpayers do not understand the rate setting portion, taxpayers tend to come to us to protest taxes rather than value appraisals
  • Travis developed the system to help offset increased burden of protests about tax levy

 

Tommy Williams, Office of the Governor

  • Presenting on the Governor’s tax plan
  • Gov. Abbott believes establishing a property tax cap of 2.5% is important and would defend against increasing tax levies
  • Gov. Abbott is focusing on the school district tax bill, will likely require more funding from state to correct public school levy, but funding alone will not solve the issue
  • Should rebalance state share of public education funding, increase state funding and compress local property tax rates, decrease increasing property tax bills, and we need to treat students equally based on need rather than on district property values which will help offset increasing recapture
  • Current system guarantees that state share of public education contribution will continue to fall as local values rise
  • If nothing is done, recapture will continue to increase and at a much faster rate
  • Sen. Bettencourt – Recapture increase is on an alarming trend upwards, need to ween off of Robin Hood financing
    • Agrees, recapture could exceed state share of public education funding in 10 or 15 years
  • Fixed tax rates coupled with increasing property value growth cause levy to outpace ability to pay
  • While putting some money in is crucial, long term solution depends on addressing Tier 1 M&O rates
  • Sen. Bettencourt – When we talk about tax rate compression, we are speaking to the need for rates to decrease as values increase
  • Williams discusses the imbalance in the recapture rate, recapture is tied to an equalized wealth level and will pay recapture before entitlement is funded; state must do more to support public education to solve this issue
  • Proposal to increase state support includes targeting state resources to data-proven strategies improving outcomes & ease reliance on property taxes, reducing reliance on recapture by resolving flaws in the calculation, etc.
  • Generally, Commission on Public Scholl Finance is on the right track, but increasing state funding without addressing local rates and recapture will not resolve the current trend
  • For the Tier 1 2.5% cap to work as intended, additional state revenue will be needed; as long as districts tax at compressed tax rate, they would still be entitled to full Tier 1 M&O
  • Reiterates that limiting property tax growth would balance the state share and slow recapture growth, projects $1.87 billion decline in recapture by 2023
  • Could look at other avenues as well, like using charter attendance credits to help reduce recapture and funnel dollars local tax dollars back into charter schools & not opening these to recapture
  • Sen. Creighton – Can you explain what is meant by the entitlement and what taxpayers believe is happening with recapture?
    • What must people assume is that school districts always get the basic Tier 1 funding under recapture, but formula is based on designated wealth level meaning a district can start paying recapture before Tier 1 funding is received
    • Important to tie this to student need, not the wealth of the district
  • Sen. Creighton – Considering charter schools, it’s important to understand there are other dynamics involved
    • Not suggesting changing the amount of money charter schools receive, but could lower recapture by keeping these tax dollars local
  • Sen. Hancock – Would this be voluntary?
    • Would be up to the legislature to mandate or not, but could have an election to decide whether to send dollars to the state or keep funding local
  • Sen. Hancock – Have you done long term projections?
    • State share is designed to go down as property values increase
  • Sen. Hancock – Local taxpayers’ participation for education has increased at twice the rate than any other sector
    • With 2.5% compression, would see a balancing out of state and local share and also diminish effects of recapture
  • Sen. Hancock – Without the 2.5% this does not work
  • Sen. Hancock and Williams discuss the rebalance of state share, Sen. Hancock states there are elements that are easy and elements that are difficult legislatively
  • Sen. Bettencourt – It is time to do the hard things, there is no tax relief at all at the 5% rate
  • Sen. Bettencourt – Asks Williams to go over ability to pay again
    • Ability of taxpayers to pay levy is in jeopardy with rates increasing as they are

 

Public Testimony

 

David Edwards, Resident

  • Property taxes are essential to support the services provided by local governments, taxpayers are often less inclined to pay for the services
  • Taxpayers can vote those who propose higher rates or expensive public works projects out of office, rollback elections
  • Sen. Hancock – Rollback elections give opportunities for taxpayers to vote on public decisions

 

Nathan Watkins, City of Mont Belvieu

  • Mont Belvieu has grown significantly in recent years, have delivered services and projects that residents want with the increased revenue
  • Tax caps are ultimately revenue caps
  • Sen. Creighton – A rollback election is not a tax cap, how is your revenue limited when you have the ability to raise the rate given an election, notice, etc.?
    • We have kept our tax rate the same, residents are happy with the projects delivered & can see where revenue is going
  • Sen. Creighton – Taxpayers are asking to reform the system to be better warden of taxpayer dollars; how is your revenue limited when your rates can still be raised?
    • I don’t believe our residents are unhappy with the city revenue, city revenue is essential to continue delivering services and rate increases would likely be approved
    • Local governments are negotiating the incentives bringing businesses into Texas
  • Sen. Creighton – I still don’t understand how revenue would be limited and capped by the election, pleased citizens will approve the rate when election is triggered
    • Wondering if this argument would be made for sales tax at the state level
  • Sen. Creighton – I would make the argument that taxpayers are looking to a consumption tax and abolish property tax, this is a different issue, but I am ready for it
  • Sen. Hancock – I think rollback elections would allow residents to approve of revenues and services
  • Sen. Hancock – What is the most common incentive local governments can give to businesses?
    • Often looking for Chapter 312 property tax abatements
  • Sen. Hancock – Property taxes are the biggest incentive we can supply; would like local governments to work with us on this
    • Very much in favor of lowering tax burden, have discussed expanding homestead exemptions, but need revenues to provide essential services
  • Sen. Bettencourt – Under an 8% rollback rate currently, this is not a revenue cap; why is this a revenue cap?
    • The current legislation is not a revenue cap
  • Sen. Bettencourt – Why would a 4% rate be a revenue cap?
    • Reduces ability to bring in revenue based on successes
  • Sen. Bettencourt – Can you give me your rollback rate from recent years?
    • Don’t have this available
  • Sen. Bettencourt – At an 8% cap, you could be growing taxes 12%-14% per year, is Mont Belvieu increasing this much year to year?
    • I don’t believe so
  • Sen. Bettencourt – What do you believe your increase to be? Would seem to be something you should look at before you speak to the Senate on this issue
  • Sen. Bettencourt – Would argue that you are not increasing rates 12%-14% per year, which is likely why residents are happy; I don’t believe lowering the rollback rate would affect you
  • Sen. Bettencourt – Lowering the rollback rate does not equal a cap
  • Sen. Bettencourt – Staff identified a 6% increase for Mount Belvieu from 2016-17, 4% rollback rate would barely affect you
  • Sen. Hancock – We need cities like Mont Belvieu, not one of the entities we are going after

 

James Quintero, Texas Public Policy Foundation

  • Expresses concern over current structure of rollback system; provides inadequate taxpayer protection against levy growth, tax system is structured unfairly without voter input, etc.
  • TPPF has made property tax reform the number 1 priority, seeking low tax rate, a broad base reform covering all local governments, automatic elections, and November elections
  • Sen. Bettencourt – So you want to move all bonds, tax elections, etc. to November?
    • Yes, all elections with a fiscal impact should be moved to November to increase turnout
  • Sen. Bettencourt – Agrees, data shows turnout is much higher in November
  • Sen. Bettencourt and Quintero go over TPPF objectives again

 

Thom Kolupski, City of Seabrook Mayor

  • Does not think the rollback is a one-size fits all
  • Relies on taxes for essential services
  • Questions what happens when property comes off the books due to HI way construction
    • Same as FEMA buy-out
    • Loss of the property means that no tax revenue from the property with no means to replenish the tax base
  • If there was a one-time emergency provision it may work but would not likely work for many towns on a long-term basis
  • Bettencourt – why would the highway be so devastating?
    • We won’t see the tax loss for the next few years and we are trying to keep head above water currently
    • Not seeing where these types of emergencies are covered in these bills
  • Bettencourt – there are disaster declarations in each of the bills, but why would a 4% rollback rate that much different than an 8%?
    • Selling it to the constituents when it is a state mandate is very difficult, and we will be handcuffed with a cap
  • Bettencourt – it sounds like you’d still be able to raise your rate to cover that loss
    • We have lost that property for good
  • Hancock – history shows that the impact of roads in Texas is a positive for communities
    • The commercial base is being devastated
  • Hancock – projections show highways expand the commercial base?
    • Estimates say that there would be some growth but we have lost a significant percent of the current commercial base

 

Gayle Cook, City of Seabrook

  • Available as a resource
  • Not opposed to a modification, but want to ensure that it is a percentage that is fair for the circumstances
  • Sen. Hancock – then we would like your help as opposed opposition
  • Sen. Bettencourt – requested the truth in accounting calculation

 

James Noack, Montgomery County Commissioner – Precinct 3

  • Noted that there are many challenges with limited resources
  • Constantly hear a need for property tax relief
  • We have to address school districts
  • Lowering the rollback rate would be the most effective way of lowering taxes and lead to better leaner government
  • Sen. Creighton – thanked the commissioner for his opinions and testimony, help from the cities and counties is needed to get this right

 

Evaluate the operations of appraisal review boards (ARBs), specifically the training and expertise of members concerning appraisal standards and law, ethics, and meeting procedures. Determine whether ARB operations are sufficiently independent of central appraisal districts and taxing units and whether ARBs and/or chief appraisers should be elected.

 

Roland Altinger, Harris County Appraisal District

  • Over 1.7 million parcels
  • 350,000 protests in a year
    • 200,000 are settled before getting to the ARB
    • 150,000 go to the ARB
  • 8,000 that go to SOAH
  • ARB member selection has changed over the years
    • Appearance of impropriety led to change from chairman appointments to judge appraisals
  • Any additional training would be a bonus and a solution to enhancing the process
    • Specifically recommends customer service
  • Discussed roadblocks with electing members, it is a large body and would have to mount elections
  • Discussed making the comptroller the payor, not the CAD
  • Chief appraisers need an official designation in statute, in addition to qualifications
  • Questions if we should return to Peveto
  • Bettencourt – reviewed number of ARB members (190 people serving 3 2-year terms) in Harris county – elections would mean as many as 400 people on the ballot
    • That is in addition to reviewing each of the applications to ensure qualifications in line with statute
  • Bettencourt – mentioned pay, would it be easy to shift the money and records to the comptroller?
    • There would still have to be a local timekeeper and other cross-references that would have to be maintained in the local office
  • Bettencourt – if there was some local management or electronically it could be shifted over to the comptroller
  • Hancock – isn’t there a provision in the law that means that appraised values have to be within a certain range?
    • That is correct
  • Bettencourt – noted the story told was to exemplify a point not a specific circumstance

 

Glen Whitehead, Fort Bend County Appraisal District

  • Have seen the change from the old system to the new system
  • Reviewed the code that refers to and defines the ARB
  • The ARB has a separate facility to maintain separation
  • Should the judge also appoint the secretary? Believes that needs to be cleared up
  • Should the ARB chairman be elected or appointed by administrative judge? Believes that appointment is appropriate as long as they can be unbiased and fair
  • Sen. Bettencourt – has an ARB member been removed ever?
    • Would pass that question to a more appropriate witness
  • Sen. Bettencourt – who can talk to the members?
    • The liaison officer, who can only give them reports or the commissioner in certain circumstances
  • Sen. Bettencourt – so there cannot be a discussion of what is failing or what needs to be fixed?
    • A written complaint can be filed to the administrative judge
  • Sen. Bettencourt – have you filed any?
    • No
  • Sen. Bettencourt – as a board member, what could they do with a complain of another board member?
    • It could go through the liaison
  • Sen. Bettencourt – there may need to be ways of opening communication without causing bias
  • ARB’s need “better customer service” and more training on how to handle difficult people; ARBs have largely not been trained on people skills
  • Sen. Bettencourt – Complaint that stood out the longest is one of Senator Perry’s constituents who drove 14 hours to speak with the ARB, Chief Appraiser asked if there was latitude to assist and was not allowed
  • Sen. Bettencourt – Have you seen anything like this and what would you do to stop this?
    • Altinger, Harris County – There will always be situations, there should be a process before court or arbitration for individuals like this, possible review by state personnel or ombudsman
    • Would hope to say it does not occur in Harris County, but cannot say for certain
    • Harris has had to use Taxpayer Liaison Officer as an assistant for some individuals
  • Sen. Bettencourt – I think an ombudsman is a good suggestion, asks Whitehead for his opinion
    • Whitehead, Fort Bend County – Have seen abuses where Chairman goes over to the Chief Appraiser, in my office we keep functions separate
  • Sen. Bettencourt – So you like the fiscal separation? I know you have a positive experience with that
    • Yes, I know there are rogue appraisers out there who do not understand the responsibilities and duties, but this does not happen as often
    • There does need to be a way for this to be reported so actions can be taken by the administrative judge or the courts
  • Sen. Creighton – As the Chief Appraiser for Fort Bend, there is always pressure from statute or Comptroller to increase values for benefit of revenue, have you heard of this?
    • We appraise at 100% of the market value, can be as low as 95% of value to pass the ratio study
    • We are required to look at actual value and I have never been told by Comptroller to raise values
  • Sen. Creighton – can you speak to how entities reacted to disaster reappraisals?
    • When Harvey hit, we had 29 jurisdictions request reappraisal although some would have been bankrupted by the reappraisal before FEMA reimbursements
    • A statewide mandate would hurt some communities
    • Would also like to see deadlines to request and approve reappraisals
  • Sen. Creighton – we do have to keep in mind that without reappraisals a family may be bankrupt
  • Sen. Hancock – related to letters from the comptroller’s office, have you heard about the situation in Tarrant County with the computer system? The comptroller sent a letter related to appraisal values?
  • Sen. Creighton – the comptroller sent a letter stating that they had to get the appraisals into accordance with the statute
  • Sen. Creighton – a disaster situation requires the state to have some responsibility to make it right with cities and counties so that there not an impediment to them providing relief

 

Tony Belinoski, Montgomery County Appraisal District

  • Agree that there needs to be deadlines related to reappraisals after disasters
  • Was able to get a list of 16,000 claims from FEMA only to verify 2,000
  • Sen. Bettencourt – this is stunning data
  • Working on a write-up related to the data to provide to the committee
  • Sen. Bettencourt- would like to get FEMA data and have all of you compare and verify data
  • Sen. Creighton – we have to safeguard the public from bad actors and fraud, how would you know on a claim like that that there were 2,000 out of 16,000 claims actually had or did not have damage?
    • There is no way to know unless the homeowner came to the appraisal district and let them know
    • There are likely many more instances of damage that were not reported
  • Sen. Bettencourt – it just shows that using the FEMA data as a direct measure of damage can cause a problem
  • Related to ARB training, it needs to be enhanced
    • Training supposed to cover 94 topics in one day of training
  • There does need to be better ways of communicating with the ARB members
  • Have 24 ARB members with varying amounts of experience
  • Had 60-70% of protesters settle informally
  • Customer service is a very big issue
  • Related to electing chief appraiser – they will never be re-elected if they do their job because nobody wants to pay more in taxes, even if the rate doesn’t go up
    • Could cause a revolving door in chief appraisers
  • Disaster reappraisals – one municipality in Montgomery county chose not to do it, this is not a one-year issue, without FEMA reimbursements some may not be able to afford reappraisals
  • Sen. Bettencourt – what would you say the time for recovery from a storm is?
    •  At least a year to two years, also noted homestead exemptions may need to be extended given disaster circumstances
    • It is area specific 2-5 years to recovery
  • Sen. Bettencourt – asked each witness related to using top level summaries for settlements
    • All are or are attempting to use top level summaries
  • Sen. Creighton – do you rely on MLS?
    • Have to use third parties to get that information

 

Ronnie Thomas, Harris County Appraisal Review Board

  • Within the post review survey required by the comptroller there are many items that help with ARB training
  • All of our ARB members have an additional week of training on top of the required training as well as having ongoing training
    • There is also post correction training after the reviews to look at what needs to be changed throughout the year moving forward
  • Sen. Bettencourt – what area needs more training?
    • Would like to know what the chief appraisers believe needs more training, believes that the training conducted in Harris County is very good
  • Sen. Bettencourt – the specific comments were related to specific customer service
    • There can always be more training on customer service
  • Sen. Bettencourt – discussed specific instance in Harris County that affected the public perception across the state related to property tax
  • Sen. Bettencourt – there seems to be a structural weakness in the system related to filing complaints with ARB members, what do we need to do to strengthen that?
    • We address that by getting something in writing, consider the circumstances and take appropriate action including removal, which has happened
  • Sen. Bettencourt – trying to understand the complaint process better, especially if it takes two years to not renew that person
    • The administrative judge can address that kind of issue, but the only power the ARB chair has is to take that person off of the schedule
  • Sen. Bettencourt – we need to be able to take better action regarding people who are not performing in accordance with code

 

Tom Demont, Fort Bend County Appraisal District

  • Described the growth of Fort Bend – 17 boards, 24,000 cases, and up to 60 members
  • Speaking to hiring, conducts interviews with all of the applications
  • Many hearings get out of control and that is the area that needs additional training
  • ARB member problems are addressed by a committee that follows all of the bylaws and procedures set by the comptroller and an ethics standard
    • Many issues are addressed at the time of the issue so it doesn’t get out of hand
  • Problems with homeowners are able to be taken care of in a follow-up/rehearing if the board does not act in accordance with protocol
  • ARB members are not allowed to talk with anybody from the county

 

George Foster, Montgomery County Appraisal Review Board

  • Utilize a combined facility
  • Try to maintain as much distance as possible including separate breakrooms, etc.
  • Training with the ARB members is critical to maintain that separation
  • Noted that the ARB are not appraisers, only a jury related to the appraisals
  • We do not solicit members for appraisal
  • Sen. Bettencourt- do you believe you need a physically separate facility?
    • It would require a complete change, love to have it but not necessary
  • Sen. Bettencourt – do you use top line?
    • Thomas – Do not see that it would directly impact us
  • Sen. Bettencourt – 3 of the 4 major districts are using that and reporting lower protest numbers
  • Sen. Bettencourt – do you believe additional training is need on how to handle difficult hearings?
    • Would believe that having an ombudsman there from the tax office there
  • Sen. Bettencourt – should the ARB discipline itself?
    • Yes, absolutely

 

Study the feasibility of replacing the property tax with sales tax or other consumption tax revenue, with emphasis on school maintenance and operations tax. Evaluate whether some local property taxes lend themselves to a swap more than others. Quantify the short-term and long-term economic effects of a tax swap. Identify a target property tax rate and evaluate how to reach that target with a consumption tax swap.

 

Dale Craymer, Texas Taxpayers and Researchers Association

  • There is a lot to like conceptually with a swap proposal, but the specific legislation and administration of the tax is often lost in the discussion
  • The net result for taxpayers is not significant because you would just be changing who you write the check to
  • Its not a bad thing to have a tax that is painful because it keeps everybody engaged, the pain and visibility from property tax helps keep it in the spotlight and keep a lid on that
  • One tax may be better than another, but getting taxpayers better information is the most powerful tool taxpayers can get
  • Sen. Bettencourt reviewed presentation showing education funding from federal, state and local sources
  • Compared the current tax system to that of the average state, noting Texas’ heavy reliance on sales and property tax, without an income tax
    • Also simulated raising M&O taxes through sales tax alone
  • Discussed the number of additional items included/broad based property tax
  • Spoke to how the sales tax in Texas compares to other states
    • Also includes more items than other state including types of services (83 in Texas/53 in other states)
  • Comptroller has identified $35 billion in tax exemptions 90% of which (oil & gas, manufacturing, groceries, etc.) are taxed through other taxes as opposed to being taxed through sales tax
  • Noted many challenges with expanding the sales tax base
    • Many services and interstate services would be difficult to identify among other challenges that would lead to potential for hiring more out of state services as opposed to using Texas services
  • New limits must be placed on existing property taxes so that advantage is not taken
  • Sen. Lucio – At risk kids need to be taken care of. This is a good discussion, but at the same time we need to plan for other things. We need to restore our values. We have to spread it out, we can’t have one single tax.

 

Mark Ramsey, Republican Party of Texas

  • RPT is the most grassroots political party in the United States
  • Should replace the M&O portion of property taxes with another source of revenue that is more sustainable on a long-term basis, per student basis
    • By expanding this to a larger base the M&O could be raised without raising taxes
  • Having a state allocated sales tax would allow for more transparency on what is being spend as well as a more applicable comparison from district to district
  • Noted this would not be done easily, but there are options for a transition period
  • Sen. Lucio – noted this is not a partisan issue
  • Sen. Bettencourt – agreed that property tax relief is wanted by everybody. The 4% cap is the voter approval spoken to earlier and broke 90% on ballot propositions

 

John Diamond, Rice University’s Baker Institute for Public Policy

  • Presenting on the economic effect of swapping property tax with sales tax & the Diamond-Zodrow model
  • Model uses 3 sectors (housing, non-housing, and rental), also looks at generational life of 55 years
  • Model has been used by US Dept. of Treasury, New Zealand Treasury, Business Roundtable, National Assoc. of Manufacturers, etc. to build tax reform plans
  • Replaces school M&O with a state sales tax phase-in, increases sales tax rate to compensate for lost revenue
  • State rate would move from 8.25% to 10.16%
  • Sen. Bettencourt – Only raising 4%, must mean a very broad sales tax base, where was this derived from?
    • This is only the M&O portion, reached ultimately 14.5%
    • $2 billion of revenue comes from increased economic activity
  • Upon swap, GDP increases by 0.8% short-term and 1.1% long-term, consumption increases 0.3% initially and .1% long-term, investment increase 2.1% initially and 2.8% long-term, capital inflows would increase by 1.8% initially and >4% long-term
  • Wages would increase, employment would decline slightly; odd results resulting from assumption in the model
  • Model assumes a fixed labor force, modeling an influx of workers would mean an increase in jobs @~200k
  • Would be concerned about a 12% total sales tax rate & would be more concerned if rate was higher as large amount of base is businesses
  • Lucio – did you come up with a $ figure for the amount of property taxes that the state as a whole is spending on public education?
    • Just used the available data
  • Lucio – we would want to have an idea of what would need to be raised
    • We modeled based on not changing state spending at all the only change would be going to a sales tax
  • Lucio – would like to know how much money would be relieved from property tax and how much would be going to education
  • Bettencourt – would want to sit down with you to go over the numbers, believe there is a 2% differential between the two plans
  • Lucio – would be curious how much the sales tax would actually go up if we are talking about applying sales tax to areas that are not being taxed currently
    • Cramer – would need to talk with the comptroller to get those figures
  • Bettencourt – have you run this model retroactively on other states to see what would happen?
    • Have not on a state, have run it on New Zealand which would be similar

 

Public Testimony

 

Dennis Tibbs, Self

  • Wants not just tax relief and lower taxes but wants a fairer tax system
  • Current system is inconsistent with all other types of taxes which taken from the users
  • Other factors should be used to determine amount to pay for police, etc. such as demographics and vehicle ownership and use
  • Need to eliminate some of the loopholes in the current system

 

Thomas Glass, Self

  • Glad to see the focus on this issue
  • Discussed republican party platform on appraisal reform
  • The appraisal process is wasteful and arbitrary, and the driver of the increases we are seeing
  • It is also the mechanism that drives urban poor out of their neighborhoods
  • It is difficult to underestimate how this issue affects all people in Texas

 

Terry Holcomb, Self

  • Texans should not be taxed out of their homes
  • We are not talking about solving the problem until we fix M&O
  • A cap will only lock us in to an oppressive situation, not solve the problem

 

John Wertz, Self

  • Requests not to lose sight of the spending problem at all levels of government
  • Need to curb spending

 

Colleen Berra, Self

  • Supports replacing M&O with consumption tax
  • Concerned that property taxes would not actually go down
  • Concerned that it could lead to additional waste
  • Discussion with waste at the Harris County ESD #9 due to excess tax revenue

 

Greg Pool, Self

  • Noted robin hood has taken from local entities many millions without giving back anything
    • Disincentivizes lowering the M&O rate
  • There is room for the taxes to go down or to allow further wiggle room from the comptroller from the 5% on either side
  • Sen. Bettencourt – requested the witness to ask the appraiser to provide the ratio study to the committee
    • Will provide that to the committee
  • District leads in 313 agreements – leads to economic benefit
  • Sen. Creighton – thanked the witness for testifying, asked for additional information on 313s
    • Industry has a change to build huge infrastructure and exports, in 10 years it will be considerably more valuable
    • They have appreciated in value over the last 8 years, and after 10 years they go on the books and get distributed across the state
  • Sen. Creighton – your opinion is that 313 would be more important to keep than changing the current school finance method

 

Jacqueline Joy, Self

  • Appraisal process is ineffective and inconsistent between districts
  • M&O taxes are imposing on those who do not have kids in school
  • Sen. Bettencourt – you have similar properties that are appraised very differently?
    • That is correct
    • Some are taxed extraordinarily high and others see fairly low taxes

 

Russell Bennett, Eliminate Property Tax

  • Spoke to implementation of homestead exemptions
  • There have been 3 major attempts to increase homestead exemptions
  • Need to eliminate property taxes
  • Legislators should review HB 3742

 

Amy Headkey, Self

  • Believes that taxes need its own elections
  • Believes there needs to be significantly more education related to taxes
  • Creighton – noted November elections would draw more people to vote on bonds one way or another
  • Discussion of election dates

 

Reagan Reed, Empower Texans

  • Property taxes should be eliminated eventually but in the meantime we need to reduce them through a comprehensive plan
  • A roll back should be part of that plan
  • Reappraisals need to be reformed
  • M&O should be replaced with a consumption tax
  • Should consider not having elected officials sit on the ARB
  • Sen. Creighton – elected officials elected to serve in another capacity they should not be able to sit on the ARB?
    • That is correct

 

Walter Boyd, Self

  • Need to start looking at churches with large properties

 

Aubrey Vaughn, Self

  • Supports abolishing property taxes
  • You don’t want to cut teachers’ salaries or other funding for the schools
  • Get rid of mandatory education
  • Go to only private education
  • Need to consider radical solutions

 

David Joy, Self

  • Property taxes are unfair
  • At least part of the property tax should be moved to a sales tax

 

Gail Shore, Self

  • Property taxes are unfair
  • Many elected officials do not try to pass difficult property tax issues or oversight of how schools spend money because they want to get re-elected

 

Terry Palmer, Self

  • The current system is neither functional or moral
  • Supports total elimination of property taxes
  • Need to find a more equitable way to fund education
  • Reviewed a bill filed last session by Representative Swanson that he believes should be refiled

 

Jim Doyle, Self

  • We need to say no to anything that increases the size of the government
  • County commissioners are part of the problem because they cannot say no to spending money