Rising property tax values across the state—including Harris and Montgomery counties—over the past few years are putting a strain on home and business owners. The issue has prompted leaders in Texas government to explore ways to alleviate the growing burden.
Between 2005 and 2014, Harris and Montgomery county property tax levies have increased by 79 percent and 119 percent, respectively, according to the Texas Comptroller of Public Accounts. During that same time frame, median household incomes only increased 29 percent and 15.5 percent, respectively, according to the U.S. Census Bureau.
“The real estate market in Montgomery County has been very good. Most of it is a direct relation of supply and demand,” said Tony Belinoski, deputy chief appraiser for Montgomery Central Appraisal District. “We have a lot of people moving in every year, as evident by all the new construction that is occurring. So as supply and demand are in unison, property values typically continue to rise, and it’s been like that for a number of years.”
Assessed property values rose significantly in Harris and Montgomery counties between 2014 and 2016, and the Tomball and Magnolia areas were no exception. Appraisal districts assess property according to school district boundaries.[/caption]The average assessed value of property in Tomball and Magnolia ISDs increased by 25.7 percent and 20.9 percent between 2014 and 2016, respectively, according to data from the Harris County and Montgomery Central appraisal districts.
Local lawmakers say the rate of increase is unsustainable.
“This is not an anti-government crusade; it’s a crusade for reality,” said state Sen. Paul Bettencourt, R-Houston. “My taxpayers’ realistic ability to pay has to come into the equation.”
Bettencourt chairs the Property Tax Committee established by Lt. Gov. Dan Patrick that has been tasked with finding ways to alleviate the property tax burden in the 2017 legislative session.
At a town hall meeting hosted by Bettencourt’s committee at the University of Houston in May, Harris County Tax Assessor-Collector Mike Sullivan acknowledged the challenges county taxpayers face.
“Whatever the economic drivers are that drive those values up, the fact is that a lot of people are faced with appraisals they just can’t afford,” he said.
The appraisal process
Appraisers with the Harris County and Montgomery Central appraisal districts determine the assessed value of a property using a formula that takes multiple factors into account. They include home sale prices, median prices and sales volume, appraisal officials said.
“We’re required by the tax code to appraise all property at 100 percent market value, basically what the property would sell for on Jan. 1 of each tax year,” Belinoski said.
[totalpoll id="189904"]The existing system often yields an assessed value that does not correlate with what is actually happening in the market, said Mike Olivares, chief operating officer of O’Connor and Associates, a Houston-based property tax consulting firm.
“When the county goes in and assesses the entire market, you have to ascribe values to property that hasn’t sold,” he said. “These past few years were the perfect example of the increases in value seeming to surpass what the market was actually doing.”
Assessed values in an area increase in correlation with economic growth, HCAD Chief Communications Officer Jack Barnett said. The recent downturn in the Greater Houston area’s economy can be seen somewhat in the increase in assessed value between 2015 and 2016, which came in at roughly 7 percent, a smaller increase than in previous years.
In 2014, HCAD began hosting workshops in conjunction with the tax assessor-collector’s office with the goal of educating the public on the entire property tax system, Barnett said.
“Part of the problem is that people tend to only deal with property taxes twice per year: when they get their property value notice in the spring and when they get their tax bill in the fall,” he said.
The number of protests filed in both counties have increased since 2012. Of the 1.8 million parcels of land taxed every year in Harris County, about 368,000 were protested in 2015, according to HCAD data. Around 177,000 protests were resolved informally and another 8,300 went to court. About 39,000 total protests occurred in Montgomery County in 2015, including about 24,000 that were resolved informally and 114 taken to court, according to MCAD data.
Addressing the problem involves educating people on protesting their appraisal values, Olivares said.
“In the state of Texas, we actually have some of the more favorable laws in place enabling property owners to protest,” he said. “Either they’re not aware or they’re intimidated by the process.”
Diagnosing the problem
Montgomery County’s tax rate has decreased slightly over the past decade, as has the tax rate in the city of Magnolia. However, the market value of property in Montgomery County and the city of Magnolia has greatly increased, according to MCAD data and city records, resulting in more property tax revenue being generated for the county and the city. Although the Harris County tax rate has increased slightly over the past decade, the assessed value of property has also gone up substantially.
The city of Tomball is no different. Although the city collects additional property tax revenue each year from higher values and new construction, City Manager George Shackelford said property values in the city have not increased across the board.
Property Tax Cycle[/caption]Shackelford said development and increased sales tax revenue allow the city to keep a low tax rate.
“You obviously want to keep [the tax rate] as low as possible because that’s an incentive for folks to purchase homes,” he said.
Ben Mott, a Magnolia resident of 17 years in the High Meadow Ranch community, said the appraised value of his property increases about 10 percent each year.
“As someone on a fixed income, it hit me hard. It hurts a lot of families and some lose their house because of this,” Mott said. “Sometimes our elected politicians they think they’re doing us a big favor by lowering the property tax rate, but they’re still collecting [millions] in revenue because the appraisals are going up.”
To Bettencourt and other reform advocates, the problem can be summarized by how much faster assessed values have risen compared to median household income.
“What we’re seeing is a constant pattern of property taxes increasing 2.5 to three times faster than Texans’ paychecks,” Bettencourt said. “For homes below the statewide median average, those budgets are very stretched to begin with. That’s health care money, education money.”
Olivares said two demographics tend to feel the squeeze of increased property taxes more than others: individuals in lower-income brackets and seniors living on fixed incomes.
Regardless, Belinoski said every taxpayer—property owner or renter—shares the burden of higher property taxes.
“Everybody gets that tax bill in one form or fashion every year. Increasing market values typically mean increasing property taxes,” he said.
Legislative priorities
The Texas Legislature passed several bills aimed at property tax reform in the 2015 legislative session. Senate Joint Resolution 1, passed by voters in November 2015, increased the homestead exemption for school districts from $15,000 to $25,000, saving residents an average of $115 on their tax bills every year.
Additionally, the franchise tax was reduced by 25 percent statewide. The franchise tax is a margins tax levied on entities, such as corporations, LLCs, banks and business associations.
Bettencourt also attempted to pass a bill that would have cut the rollback rate from 8 percent to 4 percent, meaning any tax rate increase that results in at least 4 percent total revenue growth would have to be approved by taxpayers in an election.
The property tax discussion is expected to resurface in the 2017 legislative session as well. One method of reform that will be up for discussion revolves around implementing a measure that causes tax rates to go down automatically as assessed values rise, Bettencourt said.
Barnett said HCAD cannot change the way it assesses values and that changes would have to occur at the state level.
Improving transparency within appraisal districts and appraisal review boards has also been proposed, according to the Senate Committee on Property Tax Reform. Bettencourt said slowing the rate of growth of government is another important part of the battle.
“Unless the public votes for something, you have to slow down the growth of government because the public just can’t afford it,” he said.
Property tax levies have risen faster than median household income in harris and montgomery counties since 2005.[/caption]
