Analysis: Shifting Numbers in Your Property Tax Bill

*Correction appended.

Property tax revenue has climbed 46.1 percent over the last 10 years in Texas, and the share attributable to school taxes has dropped over that period, according to the state’s top tax collector.

The fastest-rising component? Special-purpose districts for hospitals and such.

Even with that, schools account for more than half of all property taxes, and with school finance litigation pending in one of the state's highest courts, that's where the political attention is focused.

Property taxes are the source of far more complaints than everyday state and local sales taxes. They show up in a single bill, for one thing, while sales taxes are spread out among every taxpayer’s various purchases. Even property owners whose taxes are paid into mortgage escrow accounts get a look at the total every year when they pay their federal income taxes.

 

The Texas comptroller’s office cranked the growth numbers, which are aggregate amounts for collections of property taxes over the last 10 years. Owners of everything from houses to commercial real estate paid a total of $33.5 billion in property taxes in 2005, a tab that rose to $48.9 billion in 2014.

School taxes accounted for most of that, rising to $26.8 billion in 2014 from $20.2 billion in 2005. That’s an increase of 32.7 percent. That’s a lot, and it’s also the smallest increase of all of the property taxes. Texas counties collected just under $8 billion in property taxes last year, up 67.4 percent from their collections of a decade earlier. Cities increased their total property taxes by 59.8 percent over the decade, to $7.8 billion.

And special-purpose districts were the fastest-growing, increasing 74.3 percent over the decade to $6.3 billion last year.

Much of that last category’s growth has more to do with the number of districts than with increases in their tax rates. The comptroller counted 1,756 such districts in 2013 — the latest numbers available. Of those, 380 were created after 2005 — the base year for those growth rates. More than one of every five special-purpose districts that existed at the end of the decade did not exist when it began.

And there is also some hocus-pocus behind the lower growth in the local property tax rates for schools, too. Every time the state forces those districts to lower their property tax rates — or increase their property tax exemptions — it compensates them for the lost money. The idea, explained in Aman Batheja’s reporting last month, is that the tax rates go down without lowering the amount being spent on education. The voters’ main complaint is being addressed, in other words, without creating a new complaint in its place.

The latest version is on the ballot next month in the form of a constitutional amendment that would increase the size of homestead exemptions for property taxes. The average homeowner would see a reduction of $126 if that passes. But the state would spend $600 million replacing the money lost to local school districts as a result.

“The school districts don’t have to raise their rates to make up for the lost value because the state’s giving them the money,” said John Kennedy with the business-supported Texas Taxpayers and Research Association.

That $600 million would add to $8.4 billion already in the state budget for previous property tax cuts. Texans are still paying for public school education, but out of a different pocket. The money that would have been raised by property taxes is instead paid by the state, which gets most of its income from sales taxes — largely from the same taxpayers.

 

If the constitutional amendment passes in the Nov. 3 election, that supplement or compensation or whatever you want to call it will amount to $9 billion per year.

The bitter pill for state lawmakers is that they are trying to lower taxes that are mostly out of their control. The state isn’t allowed to levy a property tax. It can and does set the top amount school districts are allowed to levy, however, and as long as not too many of them charge that top rate, the state can tell the courts that it isn’t setting property tax rates.

If enough of them get to the top rate — that’s currently over 250 of the state’s 1,227 school districts — they can go to court and challenge the state’s school finance formulas. They have done so again, in a case now pending before the Texas Supreme Court. If that court decides that the state’s current limit amounts to an unconstitutional state-mandated property tax, the state could either move the limit and allow property taxes to rise or buy it down once again and add to the $9 billion.

Cities and counties and special-purpose districts don’t have a deal like that. But because they aren’t the largest numbers on anyone’s property tax bills, they don’t attract public complaints like the schools do.

The facts are similar, but the politics are not.

Correction: An earlier version of this column said that the homestead exemption in a proposed constitutional amendment applies to more than school property taxes. The amendment addresses only school property taxes. And property taxes bring in more money annually than state and local sales taxes; that was flipped in an earlier version.

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