Home sale prices in Collin County have nearly doubled in the past decade and property values are expected to increase anywhere from 8 to 11 percent this year, according to the Collin Central Appraisal District.
News of rising home values, sale prices and property taxes has reached state legislators, who are trying to determine if state intervention is needed to curb the financial burden on property owners.
To help homeowners in McKinney battle the increasing property taxes, McKinney ISD lowered its tax rate by 4.5 cents and Mayor Brian Loughmiller said council is considering lowering the city’s tax rate.
“We will have our budget meetings in July where we will evaluate the needs of the city as well as the anticipated revenues and determine the ability to reduce the tax rate for this coming year,” he said. “Assuming we have the ability to manage our capital improvement needs … it would be feasible to consider a tax rate reduction on some level. In considering these issues, it is important that we not sacrifice our ability to provide core city services to the community.”
The city holds its budget workshop July 27.
Protesting property values
Aside from property values, new home construction has increased as have homestead exemption filings in Collin County. About $33 billion in market value was protested in June 2015, according to the appraisal district. CCAD Chief Appraiser Bo Daffin said he expects approximately $36 billion—27 percent of Collin County’s total market value—to be protested this year.
“Historically speaking [and] based on human nature, when the value goes up protests go up,” Daffin said.
An appraisal cap, which helps keep values on homesteaded properties from going up no more than 10 percent per year, is probably one of the most misunderstood pieces of legislation that exists, Daffin said. The cap does not protect against market value.
“Market value does whatever the market tells it to do,” Daffin said. “What is capped is the appraised value that goes into the actual tax calculation. If a property owner had a homestead [exemption] last year, the cap is in play for this year at 10 percent for the purpose of calculating a tax, unless they … added onto the structure.”
Supply and demand
Loughmiller said cities throughout the state, especially within Collin County, are facing increasing property values and home sale prices due to the influx of people moving to the area because of corporate relocations and expansions. Market demand is up because of the city’s growth and low supply of housing, he said, which tends to push home values up.
“We also have to take into consideration that we are averaging about 2,500 new housing permits per year and have substantial increases in value due to new commercial construction that is taking place in McKinney,” Loughmiller said.
Builders are also faced with challenges, such as increasing land prices and construction costs, which hinder efforts to keep up with demand, said Steve Haid, chief operating officer for the Collin County Association of Realtors.
“There were times when you could take your time buying a house and think about it for a week or whatever. Now, you need to be prepared to write a contract if you’re going out looking at homes,” he said. “You can’t say, ‘Let me think about it and I’ll get back to you next week, because there’s a real good chance it won’t be there next week.”
In McKinney, the average house spends 27 days on the market. In May, there were 417 homes on the market, and 278 of them were under contract by the end of the month, according to the CCAR. The median home sale price in May was a little more than $300,000, compared to May 2015 when the median home price was a little more than $285,000 in McKinney.
Haid said real estate market experts and economists seem to agree that this upward trend is showing few signs of stopping. It is more difficult to be a buyer right now, more so because of availability of homes rather than pricing, he said. The real estate market is expected to balance out—meaning prices will ease up as more builders add to the area’s housing stock, Haid said.
State reform efforts
To gauge and address property tax increases throughout the state, Lt. Gov. Dan Patrick last [totalpoll id="162134"] November announced the appointment of seven Senate members, including Sen. Van Taylor, R-Plano, to the Select Committee on Property Tax Reform and Relief. The committee has held several public hearings throughout the state and is expected to report its recommendations to the Finance Committee prior to the 85th Legislative session beginning in January 2017.
Loughmiller said he understands the desire of state legislators to manage tax policy but said there needs to be a discussion concerning the differences between cities, how they manage their budgets and the services they deem necessary.
“In Texas, municipalities do not receive state assistance for the construction of necessary infrastructure, police, fire and other core governmental services,” he said. “Because of this, the state needs to give consideration to the service demands of fast-growth cities and how those demands differ from cities that are built out or that are smaller and predominantly in rural areas where service demands for water, sewer, roadway construction and other public services are less intensive.”
Mayor Pro Tem Randy Pogue said reaching for a solution through legislation will not be simple.
“Even within the dynamics of Collin County, there’s not a one-size-fits-all solution,” he said. “Plano and Allen are virtually built out, while the others like McKinney, Frisco, Prosper and Celina are still in a growth phase. Therefore, even from a state’s perspective, it would be difficult to come up with that type of one-size-fits-all solution—whether you are talking about a rollback tax rate cap or a revised method of determining appraisal values. That’s where the local level would have a better understanding of how it affects and impacts, as well as to possibly regulate property taxes, but there would have to be some formal guidelines to follow on a more regional basis so local tax assessor-collectors and appraisal districts could all have a similar sheet of music but not necessarily playing the same song.”
While the committee continues to gather comments from local residents and city officials, Loughmiller said it is not practical for city leadership to simply deny any offered solution given by the Legislature, adding that cities need to be a vital part of the conversation and continue to express the need for local control over tax and budgetary issues.
“I believe that cities in North Texas, including McKinney, Frisco, Allen and Plano, have worked well with our representatives on these issues in the past and have managed our budgets effectively,” he said. “Again, when I see the demand for additional roads in our northwest sector, additional fire stations and police, the fact that our ratio of city employees to residents in various departments is much lower than other cities our size and the fact that we are only about one-third built out, I have concerns about our ability to provide necessary services if we are not included in the discussion regarding rollback rates.”
According to the state comptroller’s office, the rollback tax rate is a calculated maximum rate allowed by law without voter approval. A taxing unit’s rollback tax rate divides its overall property tax rate into two categories—maintenance and operation, and debt service.
According to the state comptroller’s office, cities collect roughly 16 percent of property taxes levied in the state. Most of the property taxes paid by Texans—about 55 percent—go to school districts, according to the Texas Municipal League.
“The majority of property taxes paid by Texans goes to fund schools … and school districts have been forced to raise property taxes because of the state Legislature’s failure to adequately fund education,” TML Executive Director Bennett Sandlin said. “Politicians who blame cities for high taxes are just trying to divert attention from their own failures and avoid real solutions.”
According to data from the comptroller, between 2014 and 2015 property tax rates grew approximately 2½ times faster than the median household income statewide, something Taylor said is simply not sustainable.
Senate Bill 1, approved in November, raised the homestead exemption from $15,000 to $25,000 for school district property taxes. Taylor said he supported the Senate’s proposal to take this tax relief a step further by making a homeowner’s exemption 25 percent of the state’s median home value. Taylor said his district, which includes Collin County and the city of Richardson, is home to more than 60,000 businesses, the taxes from which help offset the growing demand for city services.
“Just because home values go up, that doesn’t mean it costs [city] government any more to provide the same services to those same homes,” he said. “Rapid growth of property tax rolls come not as the result of local officials campaigning on higher taxes and voters rallying behind their plea; rather it is fueled by an appraisal system that offers a backdoor means to increase taxes and government spending.”
