Texas could use California as blueprint for property tax reform

None of the property tax revisions before the Texas Legislature go nearly far enough to solve the state’s biggest fiscal problem.

Republican proposals to limit property tax growth will not actually lower property taxes, or even keep them from rising further. The proposed increase in the sales tax, an idea for which Gov. Greg Abbott offered no details, will not lower taxes immediately.

Democrats, meanwhile, are more worried about losing government revenue than relieving families and businesses of an unfair tax. The left’s plan to soak corporations with more property taxes is not much better than the right’s plan to soak the poor with a higher sales tax.

Property taxes will continue to drive Texans and their businesses out of their properties until we demand real reform. This is one case where Texas can learn something from California.

Before 1978, Californians paid a property tax of about 3 percent on a piece of real estate’s appraised value. There were no limits on annual increases in appraisals, and some landowners saw their taxes double from one year to the next.

In a fit of frustration, 62 percent of California voters approved Prop 13, which rolled back assessed values to 1976 levels. The constitutional amendment set the maximum property tax rate at 1 percent of appraised value, and the most anyone’s valuation can rise year-over-year is 2 percent.

Authorities can only raise a property’s appraised value any higher when the owner makes substantial improvements or sells. State law requires sellers to disclose sales prices. In California, people can purchase a property and feel confident about future taxes.

The Texas system subjects property owners to the real estate rollercoaster. We have no idea how high the tax bill will rise by the time we pay off our mortgages in 30 years.

In Texas’ metropolitan areas, real estate values are rising faster than the inflation rate and the economy. Property taxes are rising faster than the average family’s income, pricing people out of their homes despite homestead exemptions on a portion of the value.

If you are on a fixed income in Texas, you will likely sell your property before you planned due to taxes, even if your home is paid off.

Small businesses face the same problem on steroids. The state does not provide companies with any protection from annual spikes in appraised value. If you wonder why your favorite local shop or restaurant shut down, the odds are that property taxes rose faster than their revenues.

Thousands of families and businesses sell their homes and storefronts every year because their income cannot keep up with property tax increases. California’s Prop 13 solved that problem, while still allowing voters to approve temporary property taxes for special projects.

Conservatives loved Prop 13 for reducing the property tax burden, and liberals praised it for protecting low- and fixed-income property owners. Last year, a poll found 57 percent of Californians still support the measure.

But it created some problems.

Californians are less likely to move because they do not want to pay higher taxes. Prices are high because homeowners demand a premium for giving up their tax-advantaged home.

The state also taxes identical homes on the same street differently. California home values in major metro areas rose 170 percent between 1987 and 2012, but the appraised value for tax purposes only rose 67 percent.

The biggest problem, and why Texas liberals howl when you suggest a Texas Prop 13, was the loss of local government revenues and the subsequent cuts in public services.

A Texas Prop 13 would devastate public education and force significant budget cuts in every city, county and utility district. But that kind of pain is what it will take for Texas to add the proverbial third leg to the taxation stool: an income tax.

The fundamental problem is that Texas’ property tax has nothing to do with your ability to pay. If you bought a cheap home in a run-down neighborhood 20 years ago, a bunch of hipsters could move in, quadruple property values and the higher property tax bill can force you to sell.

Sales tax has the same problem. Poor people spend higher proportions of their income on essential goods and services than rich people, which means a higher sales tax benefits the rich, while hurting the poor.

As long as Texas’ Republican leaders are talking about raising taxes, let’s do it the right way and create a fairer system all around.

Tomlinson writes commentary about business, economics and policy. chris.tomlinson@ chron.com twitter.com/cltomlinson