COMPTROLLER ADDRESSES LOCAL TAXES: PART TWO—PROPERTY TAXES

In August 2012, the Texas Comptroller released a report called “Your Money and the Taxing Facts,” which examined local tax growth.   The report is available at:

http://www.texastransparency.org/yourmoney/pdf/TexasItsYourMoney-TaxingFacts.pdf

The gist of the report is that local taxes—school, city, county, and special district—are growing faster than inflation and population growth combined.  The report makes this claim for both local sales taxes and local property taxes.  Last month, we examined the report’s treatment of city sales taxes.  This edition will look at property taxes, specifically city property taxes.

The report uses a chart to show total growth in property tax levy by each type of taxing entity relative to inflation.  Here’s the chart:

growth in property tax

The chart shows that city property taxes grew 192 percent between 1992 and 2010, while combined population growth and inflation in Texas was just 122 percent during the same period.   Presumably, this is a bad thing if we accept the premise that combined state population growth and consumer inflation is the proper way of measuring (and thus limiting) acceptable property tax levy growth, and if we assume there are no other factors involved in explaining levy growth.  But is it the proper method, and are there other factors?   Let’s look at each component in turn.

Population Growth

The chart above seems to suggest that total state population growth ought to be a limiting factor in the city property tax growth.   Is that a fair suggestion?  It could be, but only if the rate of state population growth was a fair measure of city population growth.  Here’s the thing:  it isn’t a fair measure.  As the following chart shows, population grew within incorporated Texas cities at a greater rate than it did outside cities.  While non-city population in Texas grew by 35.5 percent from 1992 to 2010, city population grew by 45 percent.  

population growth

Texas’ state population growth is only useful when evaluating school district and county property taxes because all areas within the state lie within each of those.  It’s less useful looking at cities because there are vast swaths of unincorporated land that fewer people are choosing to move to. 

Inflation

The second benchmark the comptroller’s report uses to measure property tax growth is inflation. Specifically, it appears, the comptroller relies on the Consumer Price Index.  The Consumer Price Index (CPI) measures cost increases for a variety of household consumer goods, including things like groceries and clothing.   The problem with using CPI is that cities don’t buy a lot of things measured by it.  Instead, cities buy things like asphalt, gasoline, police cars, and building materials.   Fortunately, there is a better measure of the increasing costs of things that cities buy. It’s called the Municipal Cost Index.  The Municipal Cost Index (MCI) is developed by American City and County magazine and goes back more than two decades.

For the period 1992 to 2010, the MCI rose 63.5 percent as opposed to the 55-percent rise in the CPI.   That’s a 15.3-percent relative spread between the price increase that the average consumer saw versus what the average city saw during that time period.

Other Considerations

Of course, even adjusting the comptroller’s population and inflation methodology to the more meaningful metrics of city population growth and municipal cost inflation doesn’t tell the whole story of why total city levy increased as it did from 1992 to 2010.  One crucial point is that there was much new development and construction during the period, meaning there were more properties that needed services and that weren’t on the tax rolls in 1992.   This figure of total new development is hard to extrapolate, but a fair analysis of increased tax levy would look at the change in tax levy on properties that existed in both 1992 and 2010.  “Apples to apples,” in other words.  Such a perspective would show what happened to a typical home or business owner over the period.  Total levy increase, on the other hand, is misleading unless it can somehow back out new development and the service needs of that new development.

Further, events like natural disasters—the devastating Gulf hurricanes that occurred during the time period in question—don’t occur on an inflation-adjusted timeline.  When these events happen, it’s generally city taxes that are necessary to pay for rebuilding the lost infrastructure. 

Finally, as the following press release in response to recent comptroller attack on local debt points out, the state’s share of building new state infrastructure is decreasing decade by decade, particularly for our state highways:

http://www.tml.org/scrollnews/Scroll%20News%20pdf/TML-PressRelease.pdf

Of course, many of the highways are getting built, and that’s because more and more it’s cities doing the state’s job. 


TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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