Many Texans were recently notified that their properties were appraised much higher than last year. While such increases often leave property owners expecting higher property tax bills, an economist with the Texas Real Estate Research Center (TRERC) at Texas A&M University suggests there is little need for concern.
“Many factors complicate how property taxes are calculated, but by and large, the increases in property appraisals being reported vastly overstate the average increases in property tax bills that should be expected next January,” said Dr. Adam Perdue in a press release.
TRERC’s Texas Home Price Index showed a 3% average annual increase in statewide market value from 2007 to 2019, peaking at 7.6% between January 2013 and January 2014. However, in 2020, the average increase was over 9%, and in 2021, it hit a record high of almost 20%.
But in the case of such unusually high appraisals across the board, the appraisal process is only the first step in calculating the tax bill.
“The second step is deciding on the tax rates,” Perdue said, “and these are largely determined by the cost of providing voter-approved government services.” Tax rates are recalculated each year.
After allowing property owners to protest the initial property valuations, the appraisal district submits the valuations of all properties to the local taxing jurisdictions, which then calculate a tax rate that yields the revenue necessary to continue running the government services voters have requested and approved.
“In an ideal scenario, where voters were happy with the previous tax bills and level of government services, even a 20% increase in average taxable valuations could be exactly offset with a 17% cut in the tax rate and yield the same tax bill for the same level of service, holding everything else constant,” Perdue added.
Many other factors figure into the process. For example, according to the release, the homestead exemption limits growth in taxable value to 10% per year, slowing the growth rate of homesteaded properties’ tax bills. An over-65 homestead exemption places a ceiling on the amount qualifying homeowners have to pay in school taxes (the primary component of property taxes).
“Relative differences in value increases will still impact your tax bill,” Perdue said. “If your value increased more or less than average, then your bill may increase more or less than average.”
Perdue added that property owners must remember that any tax rate that would increase total revenues from existing properties by more than 3.5% must be approved by voters under state law.