Local Elected Official Meet to Discuss Property Taxes and Budgeting
Last Friday, June 10th, Direct Action Texas, along with Empower Texans, sponsored their second Lean Local event at the Plano Marriott at Legacy. The attendees represented over 30 municipalities and 6 counties.
Carrollton’s Mayor Pro Tem Anthony Wilder kicked off the half day event with Budgeting Best Practices. Wilders background as an actuarial analyst brings particular insight into how to analyze and breakdown the real numbers, the liabilities to the city and think of alternative ways to approach some of them. Collin County Judge Keith Self described why and how the appraisal value is not to blame for your increased property taxes, rather the tax rates set by your local governments. The effective tax rate was a hot topic of the day. Here is a simple overview of the effective tax rate issue:
Local officials are given two operating tax rates to consider—their “effective rate” and their “rollback rate.” Below is a simplified introduction to understanding these terms. More information can be found at the Texas State Comptroller’s website.
The “effective tax rate” is the rate that would offset appraisal increases or decreases across the existing tax base for a government’s operating budget.
The following items are excluded from the effective rate calculation:
- New taxable properties added to the tax rolls (e. growth)
- Property tax revenue collected for debt payments
- Other carve outs in the tax base such as TIRZs
This means that local governments who levy the “effective rate” will collect:
- New revenue from new taxpayers to pay for budget growth and increases in citizen demand for services
- The same revenue from the previous year’s taxpayers for operating expenses
- New revenue from both existing taxpayers and new taxpayers for debt service payments
Summary of Terms:
Effective Rate: adjusts for changes in appraisal value, keeping tax burdens the same year over year for existing tax base, while relying upon new taxpayers to pay for themselves. A government that adopts this rate will still increase their annual operating budget.
Rollback Rate: the state limit, which is an 8% tax increase on existing taxpayers for budget operations—excluding debt payments—in addition to new operating revenue from new taxpayers.
Dispelling Political Myths & Misconceptions:
A tax rate reduction is NOT a “tax cut,” when that rate is still higher than the effective rate. That’s because any rate above the effective rate does not fully offset rising property values, and does not factor in taxes levied for debt repayment.
Adopting the “effective rate” is also NOT a “tax cut,” because the same amount of revenue is collected from the existing base as the year before, in addition to taxes levied for debt repayment.
State or local policies limiting localities to a rate equal to or greater than the “effective rate” will NOT experience a reduction in operating revenue. They will still grow their annual budgets from new properties added to the tax rolls.
And remember to hold you city council, school board trustees, and county commissioners accountable for your property tax increases!