Thank you for inviting me to testify on behalf of Americans for Prosperity Foundation on SB 656. It is relevant that this bill be heard this week as this is “Sunshine Week”, an annual celebration of transparency in government.
We at Americans for Prosperity Foundation support more transparency in government spending and taxes. SB 656 accomplishes some important objectives for taxpayers in providing more transparency in taxation.
Most taxpayers want to know how much their government is spending and whether or not their taxes will increase. As you know, there are several ways taxes can be increased without voter approval. One mechanism is through property taxes.
When the legislature gave property tax relief to school districts in 2005 and offset that cut with state funding, some local taxing entities claimed that their tax increases would not cost taxpayers any more in property taxes, failing to say that their taxes would have gone down more without it.
Most taxpayers did not get to realize or “take home” that property tax cut for more than a year because local taxing entities used that opportunity to increase taxes.
SB 656 provides more information for citizens by requiring cities and counties to post their budget summary online. The required summary cover sheet for a proposed taxing entity budget to include:
- If property taxes are increased and whether or not the budget will raise more total property taxes than in the previous fiscal year;
- The record vote on the budget adoption of each member of the taxing entity governing body;
- Tax rates for the preceding and current fiscal years; and
- The total bond indebtedness and obligations owed by the municipality or county.
Why is this important? Many taxpayers do not understand the difference between the effective tax rate and the rollback tax rate. They simply want to know if their own property taxes are going up.
Effective Tax Rate According to the Texas Comptroller, calculating the effective tax rate uses the prior year’s taxes and the taxable value in the current year for property taxed in the prior year.
Dividing the taxes by the value (and multiplying by 100 to convert to a rate per $100 of value) gives the effective tax rate. The effective tax rate enables the public to evaluate the relationship between taxes for the preceding year and current taxes that a proposed tax rate would produce if applied to the same properties taxed in both years.
Rollback Tax Rate The rollback tax rate calculation is more complicated than the effective tax rate calculation. Current truth-in-taxation laws allow an 8-percent increase in the M&O rate without triggering a rollback. Multiplying the effective M&O rate by 1.08 gives the M&O portion of the rollback rate.
Calculating an effective tax rate does not require the taxing unit to distinguish between M&O and debt expenses. The rollback tax rate, however, is the sum of the debt and the M&O. The M&O portion of the rollback tax rate is the tax rate that would be needed to raise 8 percent more operating funds than the unit (other than a school district) levied in the preceding year. This calculation is similar to the effective rate calculation.
Appraisals are the silent tax increase Appraisals represent the property value and allow local taxing entities to raise revenue without raising the property tax rates. Some local officials have said “we didn’t raise your taxes” when the taxing entity did receive more in tax revenue from a property owner, but it was due to an appraisal increase, and not a property tax rate increase.
This bill is about local accountability. The legislation simply makes elected officials more accountable to citizens. Often, taxpayers don’t know why their taxes are increasing because local elected officials are blaming each other or hiding behind appraisal increases. Taxpayers are busy earning a living, taking care of their families, and paying their taxes…they simply can’t keep track of all their taxing entities. And when asked, many local officials blame the legislature for higher taxes.
This bill is a local control bill. SB 656 puts control in the hands of the taxpayers. You will hear from local officials that they are the “local control” but several of them testified before the Governor’s Appraisal Reform Task Force that they regularly claim they didn’t raise taxes when they didn’t have to raise the tax rate to collect more from the individual taxpayers. Appraisal increases did the job for them. Some even admitted it was disingenuous.
It is a game – a game that needs to end. Officials should “own up” to increasing taxes when taxpayers pay more, and officials should welcome taxpayers having the ability to be presented with the facts, and make the decision if they want to spend more for government services.
Citizens deserve to have the information to make informed decisions about how much government they want and are willing to pay for.
The chart below is taken from the Tax Foundation information and shows how Texas compairs to select other states in regard to our property tax (note: Texas has the 31s worst property tax climate in the country.)
To contact AFP Foundation – Texas state director Peggy Venable, please email PVenable@afphq.org or call 512-423-2947.