Lawmakers should dramatically lower the “rollback” rate. It’s the percentage local governments can increase property taxes on the existing tax base before voters have the option to challenge it.
Cities and counties routinely exceed the rollback limit, resulting in dramatic property tax hikes over time.
The current 8 percent limit allows cities and counties to levy a tax rate that will collect 8 percent more revenue from the same taxpayers taxed the previous year. If the limit is exceeded, citizens can petition for a public vote on the increase.
A relic of a bygone era of double-digit interest rates, the 8 percent limit gives too much leeway to local officials who habitually abuse taxpayers.
With interest rates now at or below 1 percent, an 8 percent limit is anything but effective in preventing massive local government growth.
According to the Legislative Budget Board, total property tax collections by localities are up 50 percent since 1992, after adjusting for population growth and inflation. In other words – after accounting for inflation – local governments overall have 50 percent more funding per resident today than they did just two decades ago.
Property tax burdens are also growing much faster than median household income. This means that local governments are growing faster than taxpayers’ ability to pay.
Consequently, property taxes in Texas have skyrocketed when compared to other states. Texans now pay the 5th highest property tax rates in the nation. But this picture appears even gloomier when home values are taken into account.
Texas homeowners pay the 4th highest property tax bills nationwide, and the 2nd highest among the eight other states without a personal income tax. In fact, the only “no-income tax” state where homeowners pay slightly higher tax bills is New Hampshire. But New Hampshire does not levy either a state or local sales tax—zero.
As land values rise year over year, local officials must lower their property tax rates to prevent higher tax bills. History has proven they rarely agree to do so voluntarily, necessitating the need for a lower rollback limit.
If history is any guide, local governments and their tax-funded associations such as the Texas Municipal League will vehemently oppose any reform designed to limit government and empower taxpayers.
But placing reasonable limits on the growth of local governments isn’t conservative or controversial—it’s just common sense.