Guess which Hays County group benefitted most from the 10% Property Appraisal Cap in 2008

It is clear that any form of property tax relief that relies on a percentage applied to appraised value will provide proportionately more benefit to those residence homesteads with the highest appraised values

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By Merle Moden

I suppose that many of the voters who supported the 2007 constitutional amendment to amend Article VIII, Sec. (i) of the Texas Constitution to limit the annual increase in estimated market value for a residence homestead to10% believed that this proposition would lead to some property tax relief. This 10% appraisal cap now makes it constitutional to levy property taxes on residence homesteads on an unfair and inequitable basis.

An analysis of the 2008 impact of the 10% appraisal cap from data provided by the Hays Central Appraisal District (HCAD) produces some interesting results. The lion’s share of the property tax relief went to the folks with the most expensive homes.

Out of 28,849 residence homesteads in Hays County in 2008, 1,654 – 5.7% – were subject to the 10% appraisal cap. In this analysis, appraised value is the HCAD’s estimate of market value, and assessed value is the value resulting from the application of the 10% appraisal cap. To perform the analysis the data were arranged in two steps:

(1) rank-ordering the capped residence homesteads according to appraised value from the highest to the lowest amount, and

(2) separating the rank-ordered data into five separate groups each containing one-fifth (20%) of the total residence homesteads with such groups referred to as quintiles.

The 1st through 4th quintiles had 329 residence homesteads and the 5th quintile had 330 residence homesteads. This analysis included 1,646 residence homesteads, as eight records were removed from the analysis, since they had duplicate parcel identification numbers.

The tabular data below provide the means to compare the benefits of the application of the 10% appraisal caps for 2008. Some amounts may not sum exactly due to rounding.

As one would expect, applying a percentage to a large number produces a larger number than when applied to a smaller number. Consequently, any approach to property tax relief that applies a percentage to appraised values will favor those with the highest appraised values. While the residence homesteads in the 1st quintile comprise 20% of all capped residence homesteads, they account for 37.5% ($10,577,856 out of $28,190,665) of the total amount of capped appraised values.

From Peter to Paul, and no real tax relief at all

Total assessed value for the 28,849 residence homesteads in 2008 is $5,490,023,140. The $28,190,665 loss in assessed value due to the appraisal caps on residence homesteads amounts to about ½ of one percent (0.5%) loss in assessed value. Consequently, the impact upon the budgets of all the political subdivisions relying on the property tax in Hays County are minimally affected.

However, the better question is, who benefits? It is clear that any form of property tax relief that relies on a percentage applied to appraised value will provide proportionately more benefit to those residence homesteads with the highest appraised values. Consider, also, that any losses in taxes due to losses in assessed value attributable to the appraisal caps must be made up with higher tax rates for those not being capped.

Aside from the fact that the 10% appraisal caps result in unfair and inequitable taxation, at least for 2008 they provide no meaningful property tax relief. When only 5.7% of residence homesteads are impacted by the 10% appraisal caps as a property tax relief strategy, one must conclude that it fails miserably.

Real property tax relief can be achieved with higher homestead exemptions and lower tax rates; however, property tax revenue losses to local subdivisions would need to be overcome from other revenue sources. Other such revenue sources would include increased State funding for the schools, and shifting the burden of road construction from county property taxes to gasoline and diesel fuel taxes.

Merle L. Moden is a retired economist. He and his wife, Joy, moved to the Wimberley area from Austin in 1997. He served on the Austin Electric Utility Commission for several years, chaired a citizen’s committee on City of Austin Water and Wastewater cost of service, served on the Travis Central Appraisal District Board of Review, and was president of two neighborhood associations in Austin.