• Governor Rick Perry has just called a special Legislative session to address the very real problem of school finance reform.
• Bexar Appraisal Districts’s Board of Directors has appointed a new Chief Appraiser.

The Current System

The current Texas Property Tax Code was adopted in 1979 and designed to rid the Ad Valorem tax system of politics, redundancies, and inefficiencies. It replaced the old maze like system of various Boards of Equalizations with centralized appraisal and one protest authority. The system as written went far to attain its stated goals and worked well enough for the first decade or so.

After thirty years the Code has been tweaked, refined, and improved to the point where Appraisal Districts have long since abandoned the goal of appraising property at market value and instead appraise property in the hope of passing the State Comptroller’s Property Value Study. This is referred to as achieving "local value" This is because a school district’s matching state funding is contingent on whether the local Appraisal District has appraised all categories of property within 5% of the median level of appraisal as defined by the State. These matching state funds equate to more than 60% of a school districts budget on average. Actual market value and the State Comptroller’s Property Tax Division’s opinion of market value often vary widely. The result is appraised values designed to get "local value" for school districts and not necessarily market value for property owners. Nearly 500 of the state’s more than 1,000 districts have reached a tax cap of $1.50 per $100 valuation for maintenance and operations, creating pressure to change the system and fueling a lawsuit by districts challenging the adequacy of education aid. It is slated for trial in July. There are no revenue alternatives for school districts to meet the increasing cost of public education.

The system is obviously and painfully broken, few will argue that. Politicians have promised and voters are demanding that a new funding system be created to correct the gross inequities and inefficiencies in the current school finance system

The Governor’s Plan

"Since the implementation of the Robin Hood school finance scheme, the brightest minds in Texas have pondered a permanent solution," Perry said. "The time for pondering is over; the time for action is now."

Perry wants a permanent solution along the lines of the plan he has recently unveiled, but he has also stated that he looks forward to working with lawmakers on their suggestions and ideas on school finance.

Perry’s comprehensive Educational Excellence and Property Tax Relief Plan would cut school property taxes by $6 billion, pump $2.5 billion new dollars into public schools, significantly increase funding equity, and preserve Texas’ strong job creation climate. Earlier this year, Perry proposed a Taxpayer Protection Plan designed to limit local taxing entities from raising revenues in excess of inflation and population growth. This limitation will hamstring communities in high growth areas as these local entities do not have another mechanism to generate taxes. The Perry Plan also has called for Educational Excellence Incentives that will refocus attention from minimum expectations to maximum achievement.

Perry’s plan would lower local school property taxes on homes to a maximum of $1.25 per $100 valuation, separately taxing businesses on the state level at a rate of $1.40 per $100 valuation. This provision is extremely worrisome because it establishes what is termed a "split roll", or separate tax rates for residential and commercial properties. The danger in this is that it opens the door for even greater propensity for unequal treatment, i.e., commercial properties would be vulnerable to continued legislation that would not be beneficial. His plan also lowers the current 10% cap on a homesteads’ taxable value to 3%. Unlike earlier propositions there will be no cap on commercial properties. This will shift an ever increasing proportion of the property tax liability to commercial properties. This precedent has been set in other states with catastrophic consequences associated with economic growth and the business environment.

To make up for the lost property tax revenues, the governor proposes to generate money through higher tobacco taxes, legalizing slot machines at racetracks and certain Indian reservations, and imposing an additional $5 entry fee on topless clubs. These are unreliable sources for taxes as proven by the lottery.

Perry seeks to amend the constitution to require future legislatures to gradually lower maximum tax rates for homes and businesses to 75 cents per $100 valuation as revenue comes available. He is not specific on the timing or the revenue options to replace the tax reduction.

"Property taxes are too high, and fast action is needed to help our taxpayers and our schoolchildren," said Perry.

What will come of all this is still anybody’s guess. The only hard deadline to implement a new system is the fall of 2005 when the current system will cease to exist. I remain hopeful that a system is created that is fair to all taxpayers and is truly beneficial to the children.

On the Local Front

With the previously mentioned change of regime at the Bexar Appraisal District, taxpayers and commercial property owners in particular will see drastic changes in the process of appealing property values. They are vowing to have the entire protest process completed before the end of July. This process usually takes into October or November to complete. This shorter time frame will not allow for as many informal discussions and trading of information in an attempt to settle disputes. Most petitions will have to be heard at a Formal Hearing of the Appraisal Review Board.

Indications are that the process will be much more arduous and much less taxpayer friendly. The result could be an increased number of appeals that must go to litigation in District Court to achieve an equitable and fair appraised value. This will ultimately be more time consuming and costly to manage.