Appraisal Caps

How a appraisal cap works
In 1997 the voters approved a constitutional amendment, Proposition 2, to allow the legislature to limit the maximum annual increase in the taxable value (appraisal) of a residential homestead to 10 percent or more. A constitutional amendment was required because the cap is an exception to the basic requirement that taxation be equal and uniform (Art. 8, sec. 1-a, of the Texas Constitution) and that all taxable property be taxed in proportion to its value (sec. 1-b). Appraisals in each county are made by central appraisal districts, which set the appraised property value used by all local taxing units – school districts, cities, counties, community colleges, and special districts – in taxing property within their jurisdictions. Appraisals must be done at least every three years.

Limiting appraisals favors higher-income families
More than half of the benefit of the current 10 percent cap goes to families with incomes over $97,000 a year, according to the comptroller’s tax incidence study. Higher-income families live in higher-priced homes, and higher-priced homes tend to gain in value more quickly than lower-priced homes. This tendency is so strong that the one-tenth of Texas families with incomes over $136,000 reap more than 1/3 of the benefit of the current cap.

The current cap is unfair to business and renters
One problem with the current cap is that, by limiting only the value of homesteads, businesses end up paying a greater share of local property taxes. The 36% of Texas families who rent their home also have to pick up an additional share of property taxes, since they pay the tax bill of their landlord, who passes it on to them in the form of higher rents. This problem is even worse in Houston, Dallas, and Austin, where more than half of households rent their houses or apartments.

Expanding the cap to business property creates new problems
But expanding the cap to cover business property just creates other problems. The value of business property is very sensitive to changes in the economy, so tends to rise and fall much more than the value of homes. If business property that was covered by an appraisal cap suffered a sharp fall in market value, even if the value of the property quickly recovered, the cap could hold the taxable value significantly below market value for many years. Chief Appraiser Mitchell used three actual commercial properties in Dallas to demonstrate this effect. Each suffered a dramatic loss of market value, starting in the late 1980s. According to his calculations, even by 2003 these properties still had an appraised value as low as one-third of their actual market value – shifting the tax burden onto newer properties or those with less volatile values.

A cap would create dangerous imbalances in the property tax system
A lower cap on appraisal increases would create severe imbalances within the property tax system by weakening even more the link between the market value of a residential homestead and its taxable value. An artificial cap creates the “Welcome, Stranger” phenomenon. The taxable value of a homestead would be raised to its true market value when it was sold. Two neighbors living in identical houses would pay the same amount in property taxes, as long as neither moved. But if one sold his home, the newcomer (“the stranger”) would be charged taxes on the full market value of his home, while the person who did not move would pay on only a fraction of the true value. Needless to say, this would provide a real disincentive to moving into a nicer home and might discourage people from moving to Texas.
CPPP – Lower Cap on Appraisal Growth Would Benefit Mainly Wealthy Homeowners, Create Dangerous Imbalances

Texas Constitution
Code – Tax Code
Chapter – 22 Assessment
Section – 26.04 Submission of roll to governing body; Effective and rollback tax rates

Code – The Texas Constitution
Article – 8 Taxation and Revenue
Section – 1 Equality and Uniformity; Tax in Proportion to Value; Income Tax; Exemption of Certain Tangible Personal Property from Ad Valorem Taxation

Texas Association of Counties – Why Appraisal Caps Cause Inequities

Business Journal – Property-tax appraisal caps can stifle growth

Dallas County Commissioners Court – Appraisal and Revenue Cap Studies

The myths of revenue caps and appraisal caps

Appraisal Limits: A Wrong Turn on the Road to Property Tax Relief?

Texas Municipal League – Appraisal Caps Still Bad Policy

Perry puts [appraisal] tax caps on back burner

TAPTP – When Good Policies Go Bad: Unintended Economic Consequences of Assessment Caps

TAPTP – Inequities Between Similar Properties

TAPTP – Negative Effects [of appraisal caps] on Real Estate Markets

Standard & Poor – Are Property Tax Caps In Texas An Unnecessary Fix?

Texas Ways and Meanse Report on Appraisal Caps

CATO – Proposition 13 Then, Now and Forever

NBER – The Lock-in Effect of California’s Proposition 13

The Perryman Group – The Impact of Potential Restraints on Local Government Activity (Appraisal Caps, Expenditure Limits, and Revenue Limits) on the economy of Texas

Analysis: Communities wrestle with NY state property tax cap

The Slate – Study finds Indiana tax caps hit older cities hardest

Slate – These Graphs Explain Why California’s Property-Tax Regime Is the Worst

New York Shouldn’t Look to Massachusetts as a Model for Property Tax Reform, Report Shows

California State Board of Equalization – Change in Ownership: Frequently Asked Questions

Texas Ways And Means 2004 Report: Appraisal Caps

Seven Essential Questions About Indiana’s Property Tax Caps, Answered

Baltimore Sun – Maryland legislators ponder override on property-tax caps

UCLA – Who pays property tax limitation, and who benefits

Institute on Taxation and Economic Policy: Capping Property Taxes – A Primer

Michigan’s troubled schools: A brief history of Proposal A, or how we got here

FAQs about PROPERTY TAX, HEADLEE AMENDMENT, and PROPOSAL A

Citizen Research Council of Michigan – Explaining the Role for Headlee Override Tax Votes

P.E. Pennington & Co – Texas Appraisal Caps Bad Public Policy

California Legislators take aim at Proposition 13 loophole

CPPP – A Smart Approach to Closing a Costly Loophole

CPPP – How to Reduce Property Taxes

CPPP – The Facts About Appraisal Caps

CBPP – Florida’s “Amendment 4” Would Cause Tax Rate Increases and Deep Local Service Cuts, Likely Harming the State’s Economy

CBPP – Property Tax Cap Wouldn’t Improve New Jersey Policies

Houston Chronicle – 7 things to know about a costly tax ‘loophole’

MML – Local Leaders across Michigan Urge Legislature to Close “Dark Stores” Tax Loophole

Newsweek – This California Property Tax Loophole Must Be Fixed

Texas Municipal League opposes appraisal cap decrease

Michigan Radio – Unfunded state mandates, local governments & the Headlee Amendment

Crain’s Detroit Business – Study: State hands down $2B in unfunded mandates

The Nation – Have California Voters Finally Had Enough of Prop 13?

Truth Out – Will Californians Finally Reform Property Tax Loopholes for Corporations?

Voters in favor of property tax caps, but they may not lower your taxes