California is a Good Example for Property Tax Reform in Texas

May 9, 2019   Robert Gmeiner

  • Property, Markets & Trade
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Despite the reputation Texas has for being a low-tax, affordable place, property taxes in its major cities are quite high. These high bills are the result of high rates and increasing property values, although property is still cheaper in Texas than many other places. Property taxes are a limitation of property rights because the property will eventually be forfeited if they are not paid.

Property taxes in Texas have increased remarkably in recent years. Property owners who have not seen their incomes increase as fast as their property values now face an added financial burden if they want to keep the property that they thought was theirs. It has become enough of an issue that it has consumed the current session of the Texas Legislature. Several proposals have been floated, but most of the debate about them has been about revenue implications, not property rights. All of these proposals have many specifics too long to enumerate here.

The various incarnations of these proposals have a common element of requiring taxing authorities – cities, counties, and school districts – to win voter approval for substantial increases in tax revenues(or cap them altogether) or tax rates. If revenue is capped, increases in home values and construction of new homes would cause rates to be reduced. This benefits homeowners and gives a windfall to those who live in growing areas. Rural, stagnant areas will suffer more, and these are the areas where people are poorer and not in a position to advocate for their property rights. If rate increases are limited, voters must approve them, but bills can still increase if values rise. Direct voter approval of taxes seems fair, but it gives those who do not own homes just as much of a say as those who do in deciding what homeowners need to pay.

Property taxes differ categorically from income taxes in that the amount owed can rise with no action from the owner. They do not depend on the owner’s income and, unless the owner makes improvements, they do not depend on the owner’s actions. As values increase, bills go up, even if the rate stays the same. Limiting revenue growth helps property owners, but its effects on property rights are not much better than other alternatives and it has the problem of constricting funding for government services in growing areas. Voter approval lets non-taxpayers set the rates. California took an even better approach with voter-approved Proposition 13, which fixed the property values and limited the amount of increases and capped tax rates. Property can only be reassessed when it is sold. This approach gives homeowners predictability in what they owe, prevents major rate increases, but still permits revenue to grow as property is sold or new homes are built. To protect property rights, Texas should look to California’s example when it comes to property tax rates.