Why Lowering Property Tax Rates May Not Help Your Tax Bill
This summer, it’s started to look a bit like a tax revolt in North Texas. Frisco voters just turned down a school tax increase, Dallas schools decided not to ask for a tax hike. And in Dallas County, Judge Clay Jenkins said he wants to cut property tax rates.
On Tuesday, the Fort Worth City Council will vote on a new $1.65 billion budget that includes a two-cent cut to the city’s property tax rate. But with rising home values, a lower property tax rate doesn’t always mean a lower tax bill.
Property tax values in Fort Worth have gone up almost 9 percent this year. Fort Worth Mayor Betsy Price calls this a “good bad problem.”
“It does drive your tax bill up, but it’s a good return on your investment. You don’t want to be in a city where your value is constantly falling,” Price said. “You don’t want to buy a house at, say, $200,000 and have it drop to $150,000.”
So, Price says, it’s the right thing to do to drop the property tax rate.
“It’s the right thing to do so that you just don’t spend that windfall,” Price said. “And it helps make Fort Worth more competitive.”
Even with the lower rate, though, Fort Worth would take in an extra $24 million in property taxes next year.
“All across Texas, many local officials know how to play the game and they’ll say ‘I’m cutting taxes’ when in reality they’re not,” said Daniel Gonzalez, legislative director for the Texas Association of Realtors. “They’re cutting the tax rate because appraisal values are going through the roof. So they kind of hide behind the increase in property values to justify their spending.”
Really, Gonzalez said, the conversation should focus on the effective tax rate -- the rate needed to bring in the same amount of money as last year, given newer, higher property values. If Fort Worth wanted to do that, the city council would have to cut the tax rate by twice as much. Gonzalez said he sees cities cutting tax rates but letting tax bills rise all across the state.
“We need to make sure that we maintain an environment here in Texas that continues to allow people to move here,” Gonzalez said. “But more importantly, we want to continue to have an environment that allows current Texans and those folks who have lived here for decades and generations to continue to live in Texas and live in their home that they purchased a long time ago.”
The issue has become a hot topic for state lawmakers, too.
In April, a senate committee tasked with looking into rising property taxes held a hearing in Arlington. For 11 hours, lawmakers heard from North Texans fed up with their tax bills, and local officials defending their tax policies. Colleyville Sen. Konni Burton seemed unimpressed with those explanations.
“The fact of the matter is that homeowners are paying more, and they’re frustrated. That’s I think why we’re here and we’re going around talking to everybody,” she said.
Lt. Gov. Dan Patrick said the legislature is determined to cut property taxes in the next session, which starts in January.
“If you take a position that said no, we’re not going to compromise, we’re not going to negotiate, we’re sticking with what we have, well, then, you will have missed the train that’s already left the station,” he warned local officials. “And don’t complain that you’ve passed a bill that really makes it tough on us.”
Exactly what state lawmakers might do is unclear. But Fort Worth’s Mayor Price said setting up a one-size-fits-all policy in Austin to govern all 1,200 cities and towns in Texas is a bad idea. As for what higher property tax revenues pay for: Price said state and federal budget cuts are forcing local governments to do more.
“We are not willy-nilly spending that revenue," Price said. "We understand that it’s a burden for people. But if you really begin to cap that, you’ve capped government’s ability to deliver the services you want.”
Price said, ultimately, the state should let local governments make decisions about local taxes.