July 27, 2017

Fun and Games with Taxes

Dr. Malcolm Cross

I’ve frequently written of the need for those who are interested in city finance to attend not only the regular council meetings but the budget workshops as well.  Here one can watch, listen, and learn more about the budgetary process, as well as contribute one’s own facts, ideas, and opinions. 

This upcoming week is noteworthy because it offers two great opportunities for would-be participants:  A budget workshop on Monday, 7/10, at 5:30 at City Hall in the training room, and the regular council meeting on Tuesday, 7/11, also at 5:30 at City Hall in the council chamber.  By all means, go.

Normally, the biggest issue each summer is the tax rate for the upcoming fiscal year.  That will be especially true this year for two reasons—the increase in property values, and the prospect of annexation into the Ranger College District, which could add a whole new layer of property tax to what we already have to pay.

It’s almost certain the city council will not try to raise the property tax rate; given the thumping we tax raisers got in 2014, it’s obvious the voters will tolerate no more increases and trying to raise the rate would therefore be political suicide. 

But the city council could raise taxes without raising the tax rate.  If the Erath County Appraisal District raises property values by, say, 10%, the city council can raise taxes by 10% without changing the tax rate at all. For example, the current Stephenville tax rate is 49 cents per $100.00 assessed valuation, meaning that the tax to be paid on a house worth $100,000 is $490.  But if the value of the house is increased by 10% to $110,000, then the tax bill goes up to $539—a tax increase without a tax rate increase.

Now, the city council, or one of the other taxing authorities, could actually cut the tax rate.  Whether this would produce an actual tax cut would depend on the size of the tax rate cut.  For example, the city council, confronted with a 10% increase in property values, could reduce the property tax rate to, say, 47 cents.  The owner of the $110,000 home would get a tax bill for $517, or $27 more than he had to pay when his home was worth $100,000 and his tax rate was 49 cents.  So his tax payment goes up even as his tax rate goes down.  The city council would need to cut the rate to 44.55 cents to avoid an actual tax increase. 

  Of course, the other taxing authorities in Erath County—the ISDs, the County Commissioners Court, etc.—can raise more taxes these ways as well.  Whether this will actually happen remains to be seen—it all depends on which governments feel the need to raise spending.  If spending must be increased, so, too, must taxes.  And by the way, as tempted as our elected officials may be to blame the higher taxes on the Appraisal District’s decisions, remember, it is the elected governing bodies of the taxing authorities—cities, ISDs, the county, etc.—that always have the last say in setting tax rates.  The ECAD has no such power to set rates.

And what of the possible new taxing authority on the horizon—the Ranger College District.  News stories report that if it were to annex Erath County, then Erath County residents would have to pay an additional 11 cents in property taxes to finance Ranger College, in addition to what we pay to support Erath County, its cities, its ISDs, and its other local governments. 

Of course, annexation is not a foregone conclusion.  The petition drive to put the issue on the ballot may fail, or should the issue go on the ballot, the voters may reject annexation anyway (of course, it’s possible that enough voters may think annexation’s benefits will outweigh the costs, and vote for annexation and the new tax after all).

Given that the annexation election is months away,  with the outcome unknown, it may not seem necessary for the current taxing authorities to worry too much about a new property tax that may never be adopted.  But perhaps they should.  A new taxing authority, whatever benefits it confers, will still increase the overall tax burden, and may increase the overall reluctance of voters to sanction future tax increases by other taxing authorities.  The prospective greater reluctance of voters in the future to tolerate tax increases is something today’s decision makers should consider as they set our tax rates and spending priorities.

Malcolm L. Cross has lived in Stephenville and taught politics and government at Tarleton since 1987. His political and civic activities include service on the Stephenville City Council (2000-2014) and on the Erath County Republican Executive Committee (1990 to the present).  He was Mayor Pro Tem of Stephenville from 2008 to 2014.  He is a member of St. Luke’s Episcopal Church and the Stephenville Rotary Club, and does volunteer work for the Boy Scouts of America. Views expressed in this column are his and do not reflect those of The Flash as a whole.

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