Texas homeowners are receiving property tax appraisals that have brought a heavy dose of sticker shock. With home prices up around the state, especially in hot spots like Austin, many taxpayers may be considering filing a protest with their local appraisal district.
Adam Perdue, a research economist with the Texas Real Estate Research Center at the Mays Business School at Texas A&M University, told Texas Standard that issuing appraisals is only the first step in the annual property tax setting process. Listen to the full interview in the audio player above.
This interview has been edited lightly for clarity.
Texas Standard: Are we seeing this trend statewide – property tax appraisals coming in considerably higher than what they were last year?
Adam Perdue: Yes. And it’s quite expected. We’ve seen rapid price appreciation in all of our metros, Austin, of course, being the leading area. But even across every major metro in Texas where we can track valuations, we’re seeing them increase quite rapidly.
What does this mean for everyday folks who suddenly get this assessment in the mail? We’re already seeing the reaction online and elsewhere – very, very strong. And some degree of panic.
I’ve been reading it everywhere, and I’m glad to be able to come out and talk about this. But the tax process is a two-step process, and this is only the first step on the dance floor. What happens is the appraisal districts try to estimate the value of your house. And so that’s what everybody’s getting now, is this valuation estimate. And then you have a chance to protest. And so the final valuation isn’t really decided until later in the summer or early fall. And once those valuations are set, the local property taxing authorities then set the tax rate for the revenue that yields the revenues that they need. And so what we can really expect to happen is that with the rapid increase in valuations, our rates will fall significantly and the total tax bill is limited – existing tax bill growth is limited to 3.5%, which actually cause a separate problem.
What do you mean – that will cause a separate problem?
We saw inflation has gone up 8.5%, and our government workers are facing the same kind of inflation. Government supplies and materials that we need for government services have also been going up in price. And so the 3.5% isn’t a solid limit. But if they try to increase the total tax bill, they will have to take it to the voters for an increase greater than the 3.5%.
If you have this new appraisal, that sets a new baseline for what the taxing authority considers your property to be worth at that juncture, right? And so it could take several years for you to actually reach that level in terms of how much tax you’re actually paying.
That’s a separate issue. If you have your homestead exemption on your property, then the valuation that you actually pay your taxes on can only go up 10% a year. And so that’s a separate issue from the tax rate in general.
I’m reading a lot of experts saying you really have to file a protest. Is that the standard received wisdom now? Is there a downside to filing a tax protest?
No. There are no downsides, except for the time that you have to take in putting into the research to file and to be able to argue your protest. There is some cost on it. There are lots of services that will just take a portion of whatever they save you if they manage to save you anything on your taxes.
The difficulty is that the price increases we’ve been seeing in the market are being reflected by the valuation. And so it’s hard to protest it because these are the real price increases. So the protests can either be actual value, or it can be a fairness protest where, you say, you overvalued my property relative to the valuation that you put on everybody else’s property.
Do you sense this growing into something larger on a political scale? Is it possible that we could see in the next legislative session this becoming an issue?
If inflation persists. That is exactly what happened in the 70s and 80s when we had a long period of strong inflation. Everybody reacted strongly against it and we had what were called the tax revolts where we started getting new rules, where total taxes are only able to go up 3.5%. California’s Prop [13], which limits their taxes incredibly low, such that people are paying $500 in taxes on things on which they should be paying $50,000 in taxes.
Note: This post has been corrected to refer to California’s Proposition 13, which dramatically changed the state’s property tax structure. The audio version of this story incorrectly refers to Prop 313.
