Opinion

The need for property tax reform

Mark Keough Mark Keough Photo: Submitted Photo: Submitted Image 1 of / 1 Caption Close The need for property tax reform 1 / 1 Back to Gallery

I recently had a conversation with a neighbor who had listed his home for sale. Because he was a longtime homeowner in my neighborhood, it seemed odd to me that he would suddenly be moving. He had retired three years previous but before doing so, he had been a manager in a Fortune 500 company, and had financially done very well. He had paid off all his indebtedness, including his home, and seemed to be enjoying his lifestyle.

When I asked him why he was moving, he replied, "the property taxes are killing me;" and at the rate of increase from year to year, it would soon be impossible for him to maintain his current lifestyle. He continued, "The taxes are now almost the amount of the payment I used to make on my home."

The result was that he moved out of Texas.

Over the last decade, Texas property owners and more specifically residents of Montgomery County have faced unprecedented increases in their property taxes. Constituents complain that when they inquire to the taxing entity as to why there is such an increase, they are assured by that entity that it's not as bad as the constituents think. After all, their tax rate is lower than in previous years. However, they fail to address the question everyone seems to be asking, which is, "If my tax rate is lower, why am I writing a larger check each year for these taxes?" The answer is simply this, although the tax rate has gone down, the appraised value of the home has gone up disproportionately to the reduction of the rate. Even with legislation recently passed by the 84th Legislature, which increased the homestead exemption, the net property tax payment for the average homeowner is still higher than previous years.

From 2006-16, homeowners have experienced unprecedented appraisal growth in their dwellings. Before the economic downturn of 2009, values went up 17 percent in 2006 and 12.8 percent in 2007. From 2008-13 because of the sluggish economic recovery, growth was stymied; but with the highest increases of the decade being experienced in 2014 and 2015, the net annual growth was a staggering 9.1 percent annually. Imagine how high taxes would be were it not for the recession.

Some argue that the increase in equity in their homes has been positive, to which I respond, "short of borrowing the money against your equity, can you pay for college with your equity? Or can you put food on the table with your equity or can you maintain your automobile with the equity?" No, you can't. These necessities are paid for with cash, the availability of which is yearly being eroded by increased property taxes.

We all know that Montgomery County has seen incredible population growth. However, the increase in property values has escalated far beyond the growth of the population. And with personal and household income remaining basically flat during this time, increased taxes are becoming alarmingly burdensome.

To be sure, to the credit of the Texas Legislature in 1978 and in 1987, in the event of potential runaway appraisals, an emergency cap of 10 percent was enacted. At the time of its enactment, who would have believed that the 10 percent would become almost a guaranteed increase for the taxing entities regardless of the economy? From 1978-87, appraisals basically increased proportionately with population growth, which was far below the emergency cap of 10 percent. The law was designed to protect Texans and not to become a guaranteed increase for taxing entities.

Additionally, many properties cannot take advantage of homestead exemptions or a cap on their appraised values because they are not protected under the same rules as homeowners. Commercial property owners suffer huge annual increases only causing their owners to increase prices to end users of their properties exacerbating an already difficult economic situation for the users of those properties.

Because this is a huge concern for the residents of Montgomery County and Texans at large, just as in 1978 and in 1987 it is for me and many of my colleagues in the Texas Legislature a concern that must be addressed. In the 84th Legislature, state Rep. Cecil Bell, of District 3, introduced the initial bill. But as the session moved toward conclusion, the bill was unable to be addressed and debated on the floor due to timing constraints. Having joint authored the bill along with Rep. Will Metcalf, of District 16, Bell allowed me to pick up the bill in an amendment that was later determined by the House authorities as not germane to the final budget requirements of the Legislature.

For this reason, I am proposing a bill, known as House Bill 44, in the upcoming 85th session, that also will be joint authored by Bell and Metcalf benefiting both homeowners and commercial property owners. HB 44 will establish a maximum cap of 5 percent or less of the previous year's fair market value on all real properties.

This does not mean that the value of your home will automatically go up 5 percent in value each year. It guarantees that your property value must be appraised at fair market value for the appraisal district to raise the value. If the fair market value rises above 5 percent, you will be taxed on the 5 percent cap for that year. The following year, your taxes will not be based on an inflated appraisal but rather by the fair market value. This makes it possible for your property value to be lower than the previous year but never above 5 percent. Residential and commercial values always will be based on fair market, and the possibility of exorbitant values resulting in high property taxes will be eliminated.

For those who believe that lowering the constitutional cap from 10 percent to 5 percent will leave a major funding gap in school districts, cities, counties and other taxing authorities, think again. The people, not the governmental entity, will be able to determine whether there is a gap in funding that needs to be addressed. HB 44 will require that taxing entities, not unlike you and me, live within their means. If the governing authorities say they require a higher tax rate to meet the needs of the community, they'll have to do so knowing that increasing tax rates to compensate for a lower cap ultimately will be judged as appropriate or not by the voters during the next election cycle.

As the 85th legislative session is approximately one month away, there will be much discussion about reforming our current appraisal system. HB 44 lowers the cap, eliminates the possibility of inflated appraisal values and allows business properties to be evaluated at the same cap as residential. HB 44 will encourage our governing authorities to spend within their means and will allow you the people to take charge of rising property values that are eroding your available cash and potentially ruining your financial future.

Accomplishing this reform will not be easy. But as your state representative, just like all elected officials, I have been entrusted to protect you and the community at large. I will work hard on your behalf to ensure that meaningful property tax relief is realized this legislative session.

Mark J. Keough, R-The Woodlands, represents District 15 in the Texas House of Representatives. Contact him via email at Mark.Keough@house.texas.gov.