Prop 13, TX Appraisal Caps & Things Texans Should Know

Prop 13, TX Appraisal Caps & Things Texans Should Know

By John Haettich

Last week the Texas State House gave a very clear signal for the overwhelming support of appraisal caps in Texas, a program almost identical to California’s Proposition 13.?We seem to be hearing a lot of opinion, but not a lot of education on what exactly the effects of Prop 13 have been, and what Texans can expect.

Emotion around taxation is always high.?After all, these are hard earned dollars of hard-working Texans.?It is very easy to look at your tax assessment or your tax bill and say, ‘this is getting to be just too much.’?Especially in an environment of inflation like many haven’t experience in their lifetime.?This year, I personally just saw several parcels I own increase in assessment by 400%.?Of course, I’m fighting these assessments.?It would be easy to emotionally respond with the notion that all property taxes are bad especially when you see an appraisal district that is aggressively pursuing the taxpayer, but are assessed value caps really the answer??Would it really save me money??Is this the real issue, or are we glossing over the root problem??And how would this play out??

History is our greatest teacher.?Looking to Prop 13 signed into law in 1978, there was a similar atmosphere to what we see in Texas.?There was a large state surplus in 1977, and local taxpayers felt they were getting killed on their property taxes.?If we look to the CA 1976-1977 state budget, $1.4B was applied to local counties and jurisdictions through a property tax relief program.?At the time, the population was around 22.7M people.?Per Capita that is $61.70 per citizen of property tax relief coming from the state.?Adjusted for inflation present day, this would be $293.80 per citizen. The emotion surrounding the decision to enact Prop 13 was generated of course by citizens needing tax relief.?Under Prop 13, California created a revenue sharing system where the state provides funding to local governments to make up for the loss of property tax revenue resulting from Prop 13.?The amount of funding the local governments receive is determined by a complex formula that takes into account factors such as population, property values, and the cost of providing certain services.?

Looking to the 2020-21 fiscal year, the state of California was budgeted to spend $16.4B for revenue sharing with governments to make up for lost property taxes due to Prop 13.?The population in CA in 2021 was 39.6M.?Per capita, this equates to $414.14 per citizen.?These tax dollars are of course coming from State Income Taxes, and from Sales & Use Taxes.?While Prop 13 gives the illusion of tax relief, your taxation in turn just comes in other forms to cover local budgets.?It is important to understand, that California has the highest state income tax rate in the US followed by HI and OR.?They use a system with 10 tax brackets ranging from 1% to 13.3%.?The short story, is the tax relief Californians desired was met with an illusion called Prop 13.?

Comparatively, in 2021 the State of Texas budgeted $3.8B in property tax relief measures for local governments which included $1.2B in additional funding for the Texas Property Tax Relief Program and $2.6B in increased state aid to school districts to reduce local property taxes.?The population of Texas in 2021 was 30.9M.?This per capita is $122.75 per citizen.?Texas currently does not have a state income tax.?The question we should be asking is, what happens when property tax revenue decreases due to an assessment cap??The obvious answer is that the local government will be in deficit.?And where will they look for help??The state of course.?The burden created by these deficits will more and more require state help, handing local power to the state body.?At some point, the state will not be able to meet the demand for property tax relief.?They will then have to turn to increased sales tax rates, and eventually yes even a state income tax.

The main issue with assessment cap ideas, tends to be that they fail to address the root issue which is spending.?Politicians don’t ever seem to say no to foolish or frivolous spending, even at the local level.?Which is easier, spending your money, or spending other people’s money??These measures are in the family of ‘kick the can down the road’ and historically have failed to solve the problems they are intended to solve, and rather can create bigger problems if we’re not careful.?

For some though, this would be a huge win.?For companies that have large real estate holdings in Texas that are based out of state, this is a huge benefit.?For homeowners or companies that hold real estate and have no intention to buy or move within the state of Texas, this is a no brainer. For those that like a market where there is a lot of moving, buying and selling, this does throw a wrench into things.?And for those that live and reside in Texas, this measure might make you feel better emotionally in the short term, but in the long term if spending isn’t challenged and reigned in at the local level and that includes school districts, your problems are just beginning.?It is well past time to hold feet to the fire and hold local politicians accountable for spending, while also ensuring assessments are fair market value and not frivolous. Whether Texas ever passes a cap or not, if spending isn’t addressed locally, the pocketbook of the homeowner will continue to thin one way or another.?You can either choose the antidote (rail against spending), or just pick your poison.