Revision as of 20:16, 10 August 2017

This page is a work in progress analysis for reform of the Texas taxation situation. The goal is to identify where the spending is going, which areas better manage their resources and why, and where or why people are rightfully complaining.

I am concerned that a modification to the taxing policy in favor of sales over property tax will result in damaging trade, and simultaneously result in the eventual passing of an income tax in Texas, just as it did for California, and result in killing our housing affordability. Our housing affordability is already suffering, but as will be explained, I think there are some reasons for that which don't necessarily connect with the property taxes.

For my background, I am a concerned citizen just like you. While I don't have an economics degree, my background is in finding holes in IT management processes and procedures. I've spent about 20 years of my career finding and fixing broken governance processes ranging from small businesses to multinational energy companies with hundreds of thousands of users and computers. Before you dismiss me for my lack of an economics degree, I think you may want to consider a couple of points. Rich economists are hard to come by, and economists tend to hide behind math at times, but if you explore competing theories, you begin to realize that they are often just as clueless as the rest of us.

Complaints

Below are some of the top complaints I've heard so far. I'll try to treat each of these with an analysis and set of recommendations.

Annexation without services to match the tax rate or where annexation is clearly meant to fleece people who can't fight back
Underrepresentation
Excessive Taxes

There are multiple competing theories on why people are upset about property taxes. I'm going to try to get to the bottom of the emotion through some analysis and looking at some of the competing theories. I don't know that we'll be able to get to a hard and fast answer, but I think we can at least give folks enough to think about.

Theories

Spending

Texas has in its constitution and amendment preventing ad-valorem taxes at the State level; however, this did not stop local taxing entities from implementing ad-valorem taxes.

Business Interests Shifting Tax burden to Residential?

There was some legislation passed in Texas several years ago for business interests that established a way to:

1.) Mask property value on commercial property which would lower their rates - commercial property values don't have to be disclosed as part of the sale;
2.) Force assessors to bear the costs of overestimation of assessed value by paying legal and court costs if they lose. If coupled with #1, this basically stops commercial property taxes from rising and would cause assessors to be very careful not to assess commercial property too high.

Rural School District funding Robs from Rich Districts?

It is said that some rural districts provide agricultural exemptions excessively. So long as there is a cow or two on the property, it can be justified as ag-exempt. Rural districts would be funding their schools somehow or another. But, how? Well, Texas has this robin-hood plan, whereby poor school districts are funded by richer school districts. I don't know the exact formula, but I think it was like 1/3 or so of a rich district's extra money would go to a poor school district. Ever drive around in the country and see these really fancy schools in the middle of nowhere? Maybe that explains it. From what I can tell, in a way, the poor districts are incentivized to include as much ag-exemption as possible because the rich districts will cover them. With the loss of this tax revenue, it is expected that the taxing authorities in richer districts would need to make up for the lost budget somehow. According to the story so far, the rich districts are now bearing the burden for the agricultural exemptions as well as commercial interests. I wonder who might get to pay for all those fancy schools being built in the richer districts? Do you think the taxing authorities - when given the option of budget failures and increasing debt, or not lowering the taxing rates as property values increase would choose the latter?

Well, that's one part of the story. Though it is compelling, I don't yet know if it is true. I don't even know if there is enough data to determine if it is true!

Population Growth Driven by Business Growth?

Perhaps another part of the story is that the various sweet deals the governor has been making to entice companies into Texas has resulted in an attractive job climate, which, of course, brings more people, and causes a housing shortage in some areas? This may be reflected in the overall numbers of housing permit trending upwards and the skyrocketing values of existing homes.

Expansion of Loans for Underqualified People Resulting in Crash, Subsequent Glut, Housing Market Value Decline, and Taxing Bodies scrambling to keep up, but delayed reaction masking the actual source of the problem

Lastly, we have to think back to the economic implosion of 2008 or so. As best I understand it, the federal government made it very profitable for some companies to grant housing loans to people who couldn't ordinarily qualify. This drove housing values up in many places and the taxing bodies may have begun to build some cool stuff as a result. New football fields, anyone? But then, POP, the bottom dropped out of the market, and I wonder what that did to house values? Suddenly many people were without a home, and I suppose that caused an increase in available housing, dropping the values, and consequently tax revenues? If this part of the story is true, I'd expect that there would be a delayed reaction in assessments from 2008 - maybe 2-5 years, before the taxing bodies could catch up and make adjustments. Having lost all that beautiful revenue, they would need to make up for lost time.

Anyway, I am under some pressure to get this analysis completed given the pending legislation in the Texas session this year, but hopefully this at least gives people some things to think about. Let's start with Jasper county to see what happened.

Analysis

I started by picking a county for which one individual was frustrated by the property taxation. I downloaded the data for the taxing districts which that individual may be subject to and began analysis of the rates and the values. Time permitting, I'll do some analysis of other county situations as well. First though, let's note that the Texas economy is doing well for now. Single family dwelling building permits are trending upward and multi-family dwellings are trending downward. I suppose that means demand for house construction is greater than for apartments. For Texas overall, unEmployment is trending downward, but I'll want to make sure they aren't using tricks like tossing out people that aren't working, but just gave up looking.

Jasper County Analysis

Jasper County has a rate of 0.65 [1] The rates were as low as 0.43 back in 1998, trended up to 0.70 in 2006 and have been trending down since then.
City of Jasper has a rate of 0.3182
Jasper County Water Control & Improvement District #1 has a rate of 0.293
Jasper County Emergency Services District #1 through #4 has a rate of 0.03, respectively.

LVT Sample Analysis

To start the LVT analysis, I selected a house listed for sale and checked on its land and improvement taxes. This house in Montgomery for sale had its tax go up by 9% from 2014 to 2015. What changed in Montgomery county or did something change with the home itself? It appears that significant renovations were done on the home - driving its value up significantly in 2016, and significantly driving up the tax bill.

Under an LVT scheme, what would have happened? There would have been no increase in the taxes due to the improvements.

@@ Line 1: / Line 1: @@
-This page is a work in progress analysis for reform of the Texas taxation situation. The goal is to identify where the spending is going, which areas better manage their resources and why, and where people are rightfully complaining.
+This page is a work in progress analysis for reform of the Texas taxation situation. The goal is to identify where the spending is going, which areas better manage their resources and why, and where or why people are rightfully complaining.
-There are multiple competing theories on why people are upset about property taxes. I'm going to try to get to the bottom of the emotion through some analysis and looking at some of the competing theories.
+I am concerned that a modification to the taxing policy in favor of sales over property tax will result in damaging trade, and simultaneously result in the eventual passing of an income tax in Texas, just as it did for California, and result in killing our housing affordability. Our housing affordability is already suffering, but as will be explained, I think there are some reasons for that which don't necessarily connect with the property taxes.
+For my background, I am a concerned citizen just like you. While I don't have an economics degree, my background is in finding holes in IT management processes and procedures. I've spent about 20 years of my career finding and fixing broken governance processes ranging from small businesses to multinational energy companies with hundreds of thousands of users and computers.  Before you dismiss me for my lack of an economics degree, I think you may want to consider a couple of points. Rich economists are hard to come by, and economists tend to hide behind math at times, but if you explore competing theories, you begin to realize that they are often just as clueless as the rest of us.
+=Complaints=
+Below are some of the top complaints I've heard so far. I'll try to treat each of these with an analysis and set of recommendations.
+*Annexation without services to match the tax rate or where annexation is clearly meant to fleece people who can't fight back
+*Underrepresentation
+*Excessive Taxes
+There are multiple competing theories on why people are upset about property taxes. I'm going to try to get to the bottom of the emotion through some analysis and looking at some of the competing theories. I don't know that we'll be able to get to a hard and fast answer, but I think we can at least give folks enough to think about.
 =Theories=
+==Spending==
+Texas has in its constitution and amendment preventing ad-valorem taxes at the State level; however, this did not stop local taxing entities from implementing ad-valorem taxes.
 ==Business Interests Shifting Tax burden to Residential?==
@@ Line 36: / Line 51: @@
 ==LVT Sample Analysis==
-I should warn of my bias. I am a proponent of what is called the Land Value Tax (see [[Harmonious Tax Reform]] for various ethical reasons. I believe it COULD better serve Texas, but won't know until I do some more thorough analysis.
-To start, I selected a house listed for sale and checked on its land and improvement taxes. This [http://www.har.com/1801-little-john-st/sale_58247774?cid=Cop9980 house in Montgomery for sale] had its tax go up by 9% from 2014 to 2015. What changed in Montgomery county or did something change with the home itself? It appears that significant renovations were done on the home - driving its value up significantly in 2016, and significantly driving up the tax bill.
+To start the LVT analysis, I selected a house listed for sale and checked on its land and improvement taxes. This [http://www.har.com/1801-little-john-st/sale_58247774?cid=Cop9980 house in Montgomery for sale] had its tax go up by 9% from 2014 to 2015. What changed in Montgomery county or did something change with the home itself? It appears that significant renovations were done on the home - driving its value up significantly in 2016, and significantly driving up the tax bill.
 Under an LVT scheme, what would have happened? There would have been no increase in the taxes due to the improvements.

KSpect

Difference between revisions of "Texas Tax Analysis"