A&M Economist: Property tax increase overstated for many Texans

A state economist says Texas property taxes are rife with public misconceptions.
A state economist says Texas property taxes are rife with public misconceptions.

Wichitans are among thousands of Texas homeowners fuming over high property values issued this month.

But an economist with the Texas Real Estate Research Center (TRERC) at Texas A&M University said it's a misconception that this will lead to exorbitantly higher tax bills.

“Many factors complicate how property taxes are calculated, but by and large the increases in property appraisals being reported vastly overstate the average increases in property tax bills," economist Adam Perdue said.

Districts appraise at fair market value

Texas’ appraisal districts are required to appraise all real property at fair market value each year. TRERC’s Texas Home Price Index showed a 3 percent average annual increase in statewide market value from 2007 to 2019. In 2020 the average increase was over 9 percent and in 2021 it hit a record high of almost 20 percent.

Perdue said the appraisal process is only the first step in calculating the tax bill.

Taxing entities decide tax rate

“The second step is deciding on the tax rates and these are largely determined by the cost of providing voter-approved government services," he said.

After giving property owners the opportunity to protest the initial property valuations, the appraisal district submits the valuations of all properties to the local taxing jurisdictions -- counties, cities and school districts. Those jurisdictions then calculate a tax rate that yields the revenue necessary to continue running the government services.

“In an ideal scenario, where voters were happy with the previous tax bills and level of government services, even a 20 percent increase in average taxable valuations could be exactly offset with a 17 percent cut in the tax rate and yield the same tax bill for the same level of service, holding everything else constant,” Perdue said.

Tax exemptions figure into process

He said many other complicating factors figure into the process. For example, the homestead exemption limits growth in taxable value to 10 percent per year, slowing the growth rate of homesteaded properties’ tax bills. An over-65 homestead exemption places a ceiling on the amount qualifying homeowners have to pay in school taxes, which is the primary component of property taxes.

“Relative differences in value increases will still impact your tax bill,” Perdue said. “If your value increased more or less than average, then your bill may increase more or less than average.”

He said property owners also need to remember that any tax rate that would increase total revenues from existing properties by more than 3.5 percent must be approved by voters under state law.

Funded primarily by Texas real estate licensee fees, the Texas Real Estate Research Center was created by the Texas Legislature for the public and real estate industry.

This article originally appeared on Wichita Falls Times Record News: A&M Economist: Property tax increase overstated for many Texans