Property taxes tell tale of our economic boom

Bill King says after staying flat since 2009 following the financial collapse and recession, local entities expect significant increases in tax revenues.

Property taxes are the single most significant source of revenue for our local governments. At the city of Houston, property taxes make up about half the general fund receipts. At HISD, it is about 60 percent and nearly 75 percent for Harris County.

So it was good news for these entities recently when they received the news from the Harris County Appraisal District that their property tax rolls for 2013 were going to be up significantly. Countywide, the appraisal district is projecting the tax roll to increase by nearly 9 percent next year. The city and HISD will see about an 11 percent increase if the appraisal district is correct.

Property taxes are assessed as of Jan. 1 each year. So theoretically, your property’s tax burden was established as of Jan. 1 for tax due in 2013. But HCAD must go through the process of determining the value and then the individual taxing entities must set the rate (taxes due = appraised value x the tax rate). The exact tax due is not set until sometime in the fall.

The appraisal district sets preliminary values in May and then those are refined as taxpayer protests and exemption claims are resolved. Deliberations over tax rates typically happen in the September-to-November time frame, which is why you have seen the recent flurry of news stories about various local governments setting their tax rate for the year. The tax bills then go out shortly after the tax rate is set, and the levies are due by Jan. 31. However, most taxpayers pay their taxes by Dec. 31 to be able to claim the property tax deduction on their federal income taxes.

This year’s increase represents a dramatic turnaround in the trend for the property tax roll over the last several years. Prior to 2009, local governments in our area saw robust increases in their tax rolls annually. In 2007, for example, Harris County saw its property tax receipts soar by 15 percent in a single year. These large increases resulted in a fair amount of taxpayer backlash and eventually led to the revenue caps imposed on the city.

But with the financial collapse and following recession, the tax rolls fell in 2009 and until this year have remained nearly flat. For example, Harris County’s property tax receipts only increased by $5 million (less than one-half of 1 percent) between 2009 and 2012. Between that time inflation was up by about 6 percent and there was tremendous population growth in the county, most of which was outside the Houston city limits, where the county is largely responsible for basic services. So to a large extent, the taxing entities are playing catch-up this year.

Don’t freak out that your tax bill is about to go up by 10 percent this year. Increases in the tax roll are made up of valuation increases of existing property and new value contributed by the construction of new improvements. According to Paul Bettencourt, former tax assessor-collector turned property taxpayer advocate, about one-third of the increase in the roll comes from new construction.

And commercial properties make up a very large portion of the roll. Bettencourt also told me that there were extremely large adjustments to commercial properties this year, especially those in downtown. The Harris County Appraisal District had been giving many commercial properties a pass on valuation increases since the recession. So odds are that the increase most homeowners see in their tax bills this year will be well below the 10 percent increase in the tax roll.

Also, it is important to realize the increase in property taxes does not mean that all local tax entities will actually have that much more money in their coffers. State funding formulas for many school districts, including all of those in Harris County, reduce state aid when local property tax revenues go up. Thus, most of the benefit in local property tax increases received by school districts actually flows to the state. According to David Thompson, a school law expert, the state has budgeted more than $2 billion in revenue in the current biennium that’s expected to come from this flowthrough income.

It is yet another way that the politicians in Austin can tell voters they do not increase taxes, but really do. By the way, the state budget is really not balanced either, but we will have to save that for another day.