Will Work For Property Taxes

Property Taxes Before Reform

Before 1978, the Texas Constitution required all property owners to pay property taxes. Exemptions were few. Government property, along with that belonging to churches, schools, and other properties exempted by federal law, were excused from taxation. Agricultural land could qualify for lower valuation based on agricultural use if the owner could meet stringent income tests.
At that time, Texans over the age of 65 could qualify for a limited, partial exemption from some taxes on their homes. However, most other real and personal property owners were taxed on property including automobiles, household furniture, stocks, bonds and cash in the bank. Because of the difficulty in locating, valuing and collecting taxes on these items, much legally taxable property escaped assessment.

he constitution required taxation to be equal, uniform and based on market value. However, no uniform statewide assessment level was imposed. As a result, each taxing entity set its own taxable value (a percentage of market value).
Local tax offices operated with little direction from the state beyond the instructions and limitations resulting from judicial decisions. Each jurisdiction could legally employ an assessor to appraise properties for taxation. Although the constitution mandated market value on January 1 as the basis for taxation, no statutes forced assessors to revalue properties. Local taxing authorities acted independently in creating local tax policies.

Tax offices proliferated under this system, with most cities, school districts and numerous special districts employing their own tax assessors. These assessors established their own appraisals for assessing taxes.

Property owners often faced widely varying values on the same property. For example, the school tax office might appraise a home at $100,000, the county assessor at $35,000 and the city assessor at $50,000. Protest hearings were conducted by each separate tax office.

Under this system, reappraisals occurred infrequently, if at all. A new building or expansion of an existing improvement might prompt a reworking of the appraised value, but no legal authority mandated systemwide revaluations. Most frequently, taxing units undertook reappraisals to generate additional revenue. School tax offices adopted the most aggressive stance on reappraisal and valuations in general because schools relied so heavily on property taxes for operating revenues.

Aggressive valuations eventually prompted moves to "rein in" local tax offices. Lawsuits by disgruntled property owners frequently followed attempts to revalue all of the properties in the taxing unit. Typically, suits sought to block the taxing units from using the appraisals to collect taxes, thus starving them of revenues. Assessors learned to avoid litigation by keeping appraised values low for local property owners.

School Finance Prompts Reform

tate funding of local schools relies on a system that combines state general fund revenues with local property tax levies. The system is designed to provide a minimum foundation of education to all schools in Texas. The state pays for part of that base and requires the local school district to impose property taxes to provide the remainder.
The amount the state provides varies inversely with the amount of revenue available through the local property tax base. That is, if a district has an ample amount of property wealth per student, it receives less funding from the state's general fund than a district with an impoverished tax base. Disparities in wealth among school districts resulted in legal actions aimed at equalizing access to resources. Property-poor districts petitioned the state for added funding.

Some school districts were aware that they could increase their state funding by systematically undervaluing local properties, effectively understating the taxable wealth per pupil. Consequently, as the state began to equalize access to revenues, authorities also had to review the appraisal practices of local school tax offices. The state initiated a ratio study to verify that school district assessment practices resulted in appraised values that accurately reflected the market value of the local tax base.

The Governor's Office for Education Resources conducted the first study in the late 1970s. Now, the Property Tax Division of the Office of the Comptroller conducts the study annually for each school district in Texas and adjusts the amount of funding each receives based on that study. Other than court decisions from taxpayer lawsuits or Attorney General's opinions, the ratio study is the only real state-level control of local appraisal practices.