Own to Rent

It’s that time of year.  Again.  The Travis County Appraisal District (TCAD) 2006 Notice of Appraised Value hit our mailbox.  According to TCAD, the value of my house is 57 percent higher than it was last year. I reaped an astounding return on my ‘investment’. Time to pop the cork!

Except there is a major flaw with this projection: I have to sell in order to realize it.  In the meantime, however, TCAD will tax me on the presumption that if I had sold my house this year, I would have owed them the difference in taxes between what I bought it for and what buyers are willing to pay this year.  If only I were selling my house – I could use the money to pay the taxes!  But I’m not buying and selling my house each year.

Instead, I filed our property tax dispute form so that I can have the pleasure of facing a three-member panel of ‘judges’ with whom I can argue that my house is in such a state of disrepair that I couldn’t sell it at any price close to what TCAD has calculated.  It is only through this process, undertaken in order for me to stay at home with our children before they were school-aged, that we’ve managed to avoid paying insane property taxes.  Now that we’re a dual-income household, I have to question the value of continuing to protest our tax bill.  Am I principled or outraged? What’s fueling the steep rise in property values in Austin?

Caesar spoke the truth to power: divide and conquer.

If I had to hazard a guess – I readily confess I’m no expert – I’d have to say it was a combination of factors: high tax rates, multiple taxing authorities, high development costs, lax property sale laws, and taxing methodology. It’s all too much for the ordinary citizen to comprehend, much less overcome.  It seems to me that the interrelatedness of these issues creates a level of complexity that prevents any single solution from being advanced.  

High tax rates are a response to high development costs driving sales prices.  But buyers don’t have to record the actual sales price of their homes in Texas, and buyers who are savvy consumers know this.  (I have several living on my street.)  Realtors, real estate development companies, and property investors benefit from escalating valuations since their investment is characteristically short-term and speculative.  Taxing authorities benefit from higher valuations (which are not set by them so their hands remain remarkably clean!  Tax collection organizations, like TCAD, indirectly work to erode self-regulating mechanisms in the marketplace and deflect attention from taxing authorities by tying up homeowners in the property tax ‘protest’ process.

Taxing authorities (typically limited to community colleges, cities, counties, school districts, and now hospital districts) must adopt tax rates in public meetings but generally do not encounter serious public opposition because they tend to be successful in leading the public to believe that the ‘lower’ rates lead to ‘cuts’ in services.  The truth is a little closer to this: ‘lower’ or ‘zero’ tax rate hikes force the taxing authority to live within its means.

The ‘best of the best’ arguments come from the school districts in Texas whining over the redistribution of wealth between ‘property rich’ and ‘property poor’ districts.  Infamously referred to as ‘Robin Hood’, the basic premise is this: tax-rich districts have to seek increasingly higher tax rates from property owners in order to subsidize the transfer of funds to tax-poor districts.  So, what happens when the Texas Legislature rolls back property tax rates in favor of additional statewide taxes?  If I were a gambler, I’d lay odds on tax rates inching back up to pre-rollback levels.  Why?  Because spending other people’s money is irresistible, especially when you don’t have to pay it forward.

Housewives know what ‘not in my budget’ means

If I ran my family’s budget the way these taxing authorities ran their finances, I’d have had to file for Chapter 13 every year.  Here’s how I would justify it to the judge: “No, judge, neither my husband nor I got a raise this year but we were forced to live like we did.  Really. We spent 10 percent more this year than we earned by borrowing against our future income through credit.  Now our payments are so high we can’t afford to feed, clothe, or educate our children.  Save the children for they are the future (debtors).”

Last year (ah, it sounds like so long ago), when I protested my proposed taxes, I learned that the $45,000 increase in value was not backed by an appraisal of my property.  In fact, someone from TCAD had been out to survey my property (I added a guest house and carport in 2004) but the survey was inaccurate.  The ‘real’ (land) property increase stood firm, but TCAD acknowledged that it lacked a basis for the increased value of the ‘improvements’.   This year, I have a sneaky feeling they are going to teach me a little lesson about catching them with their pants down.

Getting real

Real property tax reform begins with holding taxing authorities responsible for the methodology through which property evaluations continue to rise.  Organizations like TCAD distance taxing authorities from property owners.  TCAD currently uses the comparative market value methodology to establish property valuations.  So, for instance, in 2006, my house will be valued based on the sale of comparable properties in 2005.  Well, that’s great for property owners who sold in 2005 because they are assured of getting the fair market value from the buyer.  There’s just one problem with this approach: it is premised on the idea that the taxing authority should collect and spend future income now.   

There are some who favor a return to distinguishing between ‘property’ and ‘real estate’ when it comes to calculating property taxes.  To do so, one accepts the distinction between ‘property’ (land) and ‘real estate’ (house and/or other structures that sit on the land).  It seems that we have at least one believer.  TCAD has quietly been moving towards increasing the ‘property’ values and readjusting the ‘real estate’ values.  Between 2004 and 2005, it shifted over $6000 from ‘Structure and Improvement Market Value’ to ‘Market Value of Non Ag/Timble Land’ on my notice of appraised value.  Between 2005 and 2006, the property value was flat but the ‘improvement’ value rose $63,000.  

I am effectively being charged against income that I will only realize when I sell my home because TCAD and the taxing authorities know that I don’t have to record the sales price.  (Yeah, well, I’d like to meet the realtor who can convince a buyer to move into our house or convince us to leap into this crazy housing market.)

Keep Austin Weird

I have some other ideas for slogans:
•    Keep Austin expensive with zoning and development costs that are unreal (even Dallas can’t keep up with us)!  
•    Keep Austin from building more roads over the Edwards Aquifer (I already own my house in Oak Hill, too bad for you)!
•    Keep Austin building waste plants and roads in East Austin (or at least the parts of it we aren’t going to gentrify)!
•    Keep Austin from reforming property taxes (heck, the Texas Legislature does a fine job)!
•    Keep Austin alive by taxing people before they die (we can’t trust them to pay property taxes if they’re dead)!