“Over the past three to four years we’ve seen values increase each year,” said Alvin Lankford, chief appraiser for the Williamson Central Appraisal District. “It’s not our job to look forward, but I do anticipate this trend continuing.”
A common misconception is that an increase in property values means higher taxes for property owners. Taxes are mostly determined, however, by whether cities increase the effective tax rate, Lankford said.
Williamson and Travis appraisal districts will finish mediating property value protests in the summer. The cities will use the total taxable value to establish their tax rates when they approve budgets in the fall. City leaders will decide whether to set their tax rates at the effective rate, or the rate at which the city will receive about the same amount of revenue per entity as it did the previous year. With rising property values, however, the cities could elect to keep the actual tax rate the same, or even lower it, and still collect more revenue from most homeowners, which has happened in previous years.
Both Round Rock and Hutto have set the actual tax rate above the effective rate for the past three years, despite lowering the actual tax rate or keeping it the same depending on the year. In FY 2013-14, Pflugerville set the actual tax rate slightly below the effective rate, but then in the subsequent two years set the actual rate above the effective rate.
Truth in taxation
Susan Morgan, Round Rock Chief Financial Officer, said if a home value doubles, that does not mean the city can automatically collect double the taxes from it.
“[Rising property values] doesn’t mean automatic new revenues,” Morgan said.
Cities do see new revenue from new homes or new commercial developments. However, much of the revenue goes toward paying for the new services those homes and businesses use, said Hutto Finance Director Melanie Hudson.
“When you’re growing, your demand for services is increasing,” Hudson said. “[New home builds are] not giving us tons of surplus [revenue]. Our demand for services is growing and so are the prices of services.”
Pflugerville City Manager Brandon Wade said ultimately the school districts, counties and other taxing entities make up the bulk of the average homeowner’s tax bill.
“There is a minimal amount that we can directly impact [residents’ taxes]—either sending your taxes up or down—because we’re only a fraction of your overall tax rate,” Wade said.
“Over the past three to four years we’ve seen values increase each year. It’s not our job to look forward, but I do anticipate this trend continuing."
– Alvin Lankford, chief appraiser for the Williamson Central Appraisal District
Wade said it is a well-known fact that most residential properties do not pay in taxes what they use in services. He said that is why commercial property tax revenue and sales tax revenue are important to a city’s growth.
“We have been very fortunate that our sales tax revenue has been increasing at the level it has,” he said. “The increases have been shocking—double-digit increases every year.”
Round Rock Mayor Alan McGraw said Round Rock has historically had very low city property tax rates because of the sales tax revenue generated by Dell Inc. He said as Dell produces less in sales tax revenue, retail has been producing more revenue, effectively keeping the amount of sales tax generated in the city flat since 2007.
“You’ll be seeing a bit more of the normalization of the property tax rate in Round Rock,” he said.
Hudson said Hutto remains mostly reliant on property taxes because the city has relatively fewer commercial developments.
“It is hard to be so residential-reliant because if we don’t lower our tax rate when [homeowners’] values go up, their taxes go up,” Hudson said. “It’s definitely something we remain cognizant of.”
City officials said higher-end, executive-level housing does help pay for services more so than the average household, but none of the cities were able to provide an estimate for what the tax rate threshold of a house paying its weight in services is.