• Ongoing coronavirus / COVID-19 discussion: how is the pandemic affecting your community, workplace, and wellness? 🦠

    Working from home? So are we. Come join us! Cyburbia is a friendly big tent, where we share our experiences and thoughts about urban planning practice, planning adjacent topics, and whatever else comes to mind. No ads, no spam, no social distancing.

Why Texas is going to hell

Suburb Repairman

moderator in moderation
Staff member
Moderator
Messages
7,419
Points
34
Realized that we haven't done one of these in a while. Keep in mind that the primary sources of income for cities in Texas are limited sales tax and ad valorem (property) tax revenue. There are a few other very specialized taxes. I'm sure cities will look to those "politically expendable" areas for cuts (i.e. planning). Municipal taxes are only a small portion of the tax bill in most Texas cities; school districts are the problem!

GOVERNOR UNVEILS PLAN TO CAP MUNICIPAL PROPERTY TAX REVENUE



At press conferences in Houston and San Antonio on Thursday, March 11, Governor Rick Perry unveiled his plan to: (1) place caps on property tax revenues, (2) place a 3-percent cap on annual increases in the appraised value of residential homesteads, and (3) require voter approval of property tax revenue increases that exceed certain levels.

At the same time, the governor’s office released details of the plan in a document entitled, “Educational Excellence Plan.” The document did not explain how a cap on municipal property tax revenue would advance educational excellence.

Here are the key features of the governor’s plan, along with an analysis of each.

Local Government Revenue

This part of the governor’s plan sets a cap on property tax revenue for each local government and allows for an inflation and population growth factor. “Any increase in property tax revenues beyond inflation or population growth would require local voter approval, " the governor said. Property taxes for existing debt service would be exempt from the revenue cap.

The governor’s fact sheet says that “about half the states have some form of limitation on the growth of property tax revenue local governments can levy each year without voter approval.” The governor specifically mentioned Washington, Massachusetts, Idaho, Nevada, Mississippi, Colorado, Michigan, Montana, and South Dakota. But most of those states have something Texas cities don’t have: state financial aid. The chart below shows current state aid to cities for each state, per capita state aid, and the amount that state aid would be in Texas if it were adjusted for population. (Note: “state aid” means a grant made by the state government to cities from revenue generated by the state. Aid to schools is excluded.)

State-----Total State Aid-----Per Capita State Aid to Cities-----How Much Would That Amount to in Texas?
Colorado-----$187m-$229m-----$41.09-$50.32-----$908.8m-$1,113.0m
Idaho-----$90.9m-----$66.54-----$1,471.77m
Massachusetts-----$1,143.0m-----$177.68-----$3,930.02m
Michigan-----$1,668.7m-----$165.65-----$3,661.94m
South Dakota-----$8.959m-----$11.73-----$259.45m
Washington-----$119.5m-----$19.49-----$431.09m

Texas-----$68.564-----$3.10

The governor’s fact sheet says his proposed revenue limit is similar to the limit in Colorado. The chart above, however, shows that Colorado cities annually receive roughly $50 per capita in state financial aid. Adjusted for population, that would be nearly a $1 billion state aid program in Texas. The fact is that most states that have revenue limits pump millions and millions of dollars per year into cities. It’s clear that a local tax revenue limit is much easier to handle when the state government is willing to provide financial assistance to cities.

There are many differences between Texas cities and the cities in these other states referenced by the governor. Here are just a few of those differences.

Montana – more than $10 million of the state’s gasoline tax revenue is shared with cities. Adjusting for the difference in population, that would be a $241 million program in Texas. Again, limitations on local revenue are easier to live with when the state is willing to provide financial assistance.

Nevada – Nevada has only 19 incorporated cities. To judge by its largest city (Las Vegas), intergovernmental aid--largely from the state--is the primary source of municipal revenue: almost 45 percent. Property tax accounts for only 11 percent of municipal revenue in Las Vegas.

Michigan – Detroit, the state’s largest city, gets more than 10 percent of its revenue from state aid, almost 10 percent from a municipal income tax, and only 6.8 percent from property taxes.

Colorado – the home rule cities in Colorado can establish any sales tax rate they wish. The City of Denver, for example, has established a local tax rate of 3.5 percent. A home rule city can also establish the sales tax base. Many Colorado cities, for example, tax food for home consumption.

The point is that in each state referenced by Governor Perry, there are factors that substantially neutralize any negative effects of a revenue cap.

It is extremely dangerous to transport just one feature of the state/local system from one state to another without understanding the entire system. If the governor’s proposals are enacted, Texas cities will be subject to the worst, most oppressive intergovernmental system in the nation. We would have a system that in its totality doesn’t exist anywhere else in the nation, with the possible exception of California, which is hardly a worthy model.


The governor’s inflation/population growth factor would appear to have a built-in problem. If any recurring expense goes up in cost by more than the growth factor, some other expense would have to be cut. Thus, when employee health care costs increase by 20 percent (not an unlikely scenario), other outlays would have to be cut to stay within the growth factor, or the city would have to call for a popular vote.

The governor’s document also says that since 1999, city property taxes have increased by 8.8 percent annually, while the average annual growth in inflation plus population was 4.5 percent. So far so good. But what the governor’s fact sheet doesn’t say is that city sales tax revenues actually fell relative to inflation and population growth between 1999 and 2002. That means that cities were forced to raise property taxes in order to maintain service levels.

Finally, the governor’s document omits another important fact: Texas cities undoubtedly raise more money for the state government than vice versa. For example, it is well known among city officials that municipal courts are used as cash cows by the state government and generate funds for numerous state programs.

Taxpayer Appraisal Relief

This part of the governor’s proposal would limit residential property appraisals to an increase of no more than three percent per year. (The current limit is 10 percent per year.) “This cap shields individual homeowners from skyrocketing and arbitrary increases in the appraisal value of their property…the appraisal cap would be lifted when property is sold, and the value of the property would return to full market value for the new owner.”

This part of the governor’s proposal would undoubtedly shift the property tax burden to business and commercial property and to owners of residences that aren’t going up in value.

Sales Price Disclosure

The governor’s plan provides that “…actual sales price data would be disclosed…at the time of closing and sent to the appraisal district and the state comptroller. The data could only be used in a protest hearing and for the comptroller’s annual property value study.”

Appraisal Board Accountability

The governor called for an appraisal board made up of:

1. the county judge,
2. the mayor of the largest city in the county,
3. the mayor of another city selected by all other cities,
4. the president of the largest school board, and
5. the county tax assessor-collector.

The board would be required to approve the appraisal roll so that “those responsible for spending property taxes also are accountable for how the money is raised.”

As the Fort Worth Star Telegram pointed out, bringing these elected officials into the picture “would bring the danger of political pressure on appraisals…”

Unfunded Mandates

The governor would assure that “cities and counties do not receive new unfunded mandates from state government.” Thus far, the governor’s office has provided no details on this initiative. (The most costly and unpredictable mandates, of course, are federal mandates. It is doubtful that the state government can do anything about them.)
 

giff57

Corn Burning Fool
Staff member
Moderator
Messages
5,445
Points
34
There is a similar bill in the Iowa Legislature at this time. Do you have a link to the article? I want to forward it to my legislators.
 

Suburb Repairman

moderator in moderation
Staff member
Moderator
Messages
7,419
Points
34
giff57 said:
There is a similar bill in the Iowa Legislature at this time. Do you have a link to the article? I want to forward it to my legislators.

The article was included in the Texas Municipal League Legislative Update available here. The site is a little screwy, so I can't do a link directly to the article.

Here are the instructions to get to the article:
"Legislative Update" is listed under "News & Events" on the main page. You want to click on "Current Issue" listed under "Legislative Update". I hope that gets you there OK!
 

BKM

Cyburbian
Messages
6,463
Points
29
Welcome to our world (California). Heck, 3% and majority vote are generous. :/

Cities out here have set up an entire arcane structure of weird financing mechanisms to raise more funds. Lighting and landscape districts, Mello-Roos Districts, public benefit districts, etc. Certainly doesn't lead to much fairness or transparency in the tax system.
 

SGB

Cyburbian
Messages
3,388
Points
26
BKM said:
Cities out here have set up an entire arcane structure of weird financing mechanisms to raise more funds. Lighting and landscape districts, Mello-Roos Districts, public benefit districts, etc. Certainly doesn't lead to much fairness or transparency in the tax system.

What is this Mello-Roos district that you speak of? (Wrote he, trying to wipe the image from his head of Roo from Winnie The Pooh hopping about with a bottle of Mellow-Yellow.)
 

michaelskis

Cyburbian
Messages
20,232
Points
52
Suburb Repairman said:
State-----Total State Aid-----Per Capita State Aid to Cities-----How Much Would That Amount to in Texas?

Michigan-----$1,668.7m-----$165.65-----$3,661.94m


Michigan – Detroit, the state’s largest city, gets more than 10 percent of its revenue from state aid, almost 10 percent from a municipal income tax, and only 6.8 percent from property taxes.

Any reference to school funding in Michigan is crazy. They are talking about going to a 4 day school week to save money because many schools can not afford to be open for 5 days. Granholm cuts school funding on a weekly basis almost. I am guessing with in the next 10 years, schools will have to pay the state government.

In the upper peninsula, it has gotten so bad, that a school was forced to close a month or two early… and the following year, students had to be bused to other school districts.
 

BKM

Cyburbian
Messages
6,463
Points
29
SGB said:
What is this Mello-Roos district that you speak of? (Wrote he, trying to wipe the image from his head of Roo from Winnie The Pooh hopping about with a bottle of Mellow-Yellow.)

Named after the legislators that crafted the enabling legislation. If I wasn't lazy, I could provide you a biography :)
 

Maister

Chairman of the bored
Staff member
Moderator
Messages
28,805
Points
71
michaelskis said:
Granholm cuts school funding on a weekly basis almost.
it was a shame when Michigan house republicans shoved Proposal A down the state's throats too......schools used to be funded through state property taxes - now it's through lottery sales. It saddens me when I see republicans continually trying (and largely succeeding) to shift tax burdens onto folks with less $. Yeah, if Engler hadn't eviscerated the States' sources of revenue the State wouldn't be facing the budget crisis it is now and Granholm wouldn't have to cut all these essential services. Oh, but it's Granholm's fault B-) .....
 
Top