The simple truth about property taxes is that local officials—not appraisal boards—control how much your tax bill increases. Unless they vote to lower tax rates every September to adequately offset rising property values, Texans will pay higher taxes.
When governments keep tax rates the same year over year, they are skimming more money from existing taxpayers whose property value increased. In addition to that, they collect new tax revenue from new home construction and businesses.
If your property value increased ten to fifteen percent year over year, and your tax rate remains the same, it will result in a ten to fifteen percent higher tax bill for the very same government services.
Fortunately, the law requires that officials be told how to prevent this from happening. For every local governing entity, officials are given an “effective tax rate” prior to voting on rates every September.
The “effective rate” is the rate necessary to offset rising values and collect the same money from the same taxpayers it taxed in the previous year. The calculation is complicated, but in short, it excludes new construction added to their tax rolls and tax revenue collected for debt repayment.
Adopting the effective rate will not cut local operating budgets—as some falsely claim—but would allow operating budgets to grow from tax revenue collected from new properties added to the tax rolls.
Texans shouldn’t pay significantly higher prices each year for the same services just because their property value increases. That doesn’t make any sense. And though many cities and counties are growing quickly, they should rely upon new properties to pay for the expansion in services that they demand.
It is worth noting that revenue collected for debt repayment is also excluded from this discussion—the tax rate that officials adopt only applies to their operating budget. This means that controlling budget growth doesn’t affect bond ratings or the ability of local government to repay their debt.
The “effective rate” calculation was designed by state lawmakers as a tool to help local officials manage operating budgets and keep property taxes in check. The problem is, too few officials utilize it, and too few citizens know about it.
If Texans want to slow down tax hikes, they should ask their officials to adopt the “effective tax rate.” And if they raise any objection, send them the link to the website of the Texas Comptroller where they can educate themselves about property taxes.
Officials like to claim that keeping tax rates the same year over year is not a tax increase. Now you have the knowledge to kindly tell them they’re wrong. Officials who use such rhetoric are signaling just how little they understand about taxation.