Local Government

Property Tax Assessments Hit the Mail Today; We’re Probably Not Paying Enough

Analyzing whether the county is collecting enough in property taxes for the city to meet its infrastructure needs.

There’s a certain symmetry in our latest property tax assessments that will hit the mail today, on Friday the 13th. The nail biting, flop sweat, and sleepless nights waiting for the boom to be lowered … or not. But here’s the thing, regardless of what your bill is, it’s not enough. Even though Attom Data Solutions reports Texas has the fourth highest property tax rate in the country. Even though average property tax bills have risen over a third since the Great Recession. Even though the latest fiscal budget for Dallas through 2018 is $3.123 billion and slated to increase another $71.7 million in 2019.

I say we, as a city, are not collecting enough in property and sales taxes because we approve billions in bonds that largely pay for maintenance on stuff that already exists. Using bonds in this way is like taking out a loan not to build a home, but to paint it. Because of our municipal need to finance maintenance, we’re paying $267,322,998 this fiscal year in debt service (that’s interest).

Put another way, were Dallas to pay its bills on time, the most recent $1.05 billion bond could have been paid in cash in under four years instead of the decades of principal and interest required. According to the Texas Bond Review Board, the city of Dallas has a total of $4.1 billion in outstanding bonds for fiscal 2017 that will require an additional $2.388 billion in interest payments. That equals to a total indebtedness of $6.496 billion, or $2,500 for every man, woman, and child in Dallas County.

Net-net, deficit spending means the city isn’t generating enough money.

How can this be when Attom says we have the fourth highest tax rates in the country? Easy. High rates and lower property values generate less actual money. In Dallas, Attom reports the average 2017 residential property value was $274,127 and the average property tax was $6,117. Compare that with Hudson County, New Jersey, where the average home was valued at $472,055 with $9,211 in property taxes.

Where property taxes go. (Source Dallas’ 2017-2018 Budget)

The other problem Texas has is that we’re a real estate non-disclosure state. Because Texas doesn’t require reporting of real estate sales prices, taxing bodies like DCAD don’t have a great/accurate picture of property values. Does anyone look at their property tax bill and think: ‘Yup, that’s almost exactly what I’d sell my house for!’ The only people who do are those who purchase a newly built home or who have lower-valued residences. DCAD is most accurate the lower a property is valued. Get into the wealthy areas like Preston Hollow and the hired tax fighters are on speed dial; they cry poor to DCAD while their property is listed for sale at double their assessed rate. This robs the state of revenue, forcing deficit bond spending just to fill potholes.

There needs to be someone at DCAD who scans Ebby.com each morning for new listings. Those listings should immediately have their assessed values raised to 80 percent of their asking price (allows a little fudging). After all, isn’t the owner’s opinion of the home’s value the only opinion DCAD needs? Their mantra should be, “If YOU think it’s worth X, who am I to argue?” It would be up to the buyer to show a purchase price that’s less than the new assessed value to get it lowered.

Yes, that would jump everyone’s taxes, but here’s the thing … in Texas you can only raise taxes by 10 percent a year, even though assessed values can increase unfettered. But when the home sells, the assessed value becomes the taxed value. The other wrinkle is that taxing districts are limited to an 8 percent overall gain in total revenue generated by property taxes per year (not including new construction). Couple both of these together and the state would be forced to reduce the taxation rate. Win-win for everyone (except those living in the most expensive homes and who coincidentally have the greatest ability to pay their fair share).

Source, DCAD Annual Report

The other glaring problem in property taxation is in the commercial space where there isn’t even an MLS to aggregate for-sale properties and data in one place. Sales are private and hush-hush, and so the taxes paid by the commercial sector are witheringly small compared to the residential sector. Open those books and send appraisers to those buildings; the city’s coffers would reap the rewards.

And that’s what I don’t understand about city government. Revenue-generating entities should be properly staffed to maximize revenues. Construction permits should cost enough to, at the very least, self-fund the department, if not cough up a salary for city plan commissioners. After all, when a position is salary-free, you get what you pay for. As for DCAD, if hiring 50 appraisers to inventory and inspect commercial properties would generate more tax revenue than they’d cost, do it.

One Big Check

The reason we complain about property taxes is because Texas effectively has only two tax buckets. Sales tax is something we barely pay attention to. Like potholes, sales tax is just there. Property taxes are similarly there, but they’re a once-a-year lump sum versus the slow drip of sales tax. If Texas were to split payments in two, the drama would be lessened, like semiannual car insurance payments. Doubly true when you get a whopping bill in October just as you’re thinking about getting into the holiday spirit.

But Small in Comparison

Yes, an annual wallop is hard to take, but consider that Texas has no state income tax. Remember the New Jersey example above, showing how higher-valued properties pay more? Well, add in a further 8.97 percent in personal state income tax. Or how about the other two states that also had higher property tax rates? Illinois residents would pay a 3.75 percent income tax while Vermonters pay 8.95 percent.

In fact, as an overall tax burden, Texans pay less than 21 other states according to WalletHub. According to their 2017 numbers, the average Texas household pays $5,347 in state and local taxes. Compare that with New Jersey, where you’d be paying $11,237 in taxes.

More, not less

Dallas would need to increase taxes in order to maintain city infrastructure and avoid bonds that largely finance maintenance. To do that, they could begin by taxing the property of those who pay too little (based on solid data). In many ways, this starts with supporting real estate disclosure of selling prices. Barring that, it means funding DCAD to allow them to sniff out the cheats, beginning with Dallas’ most expensive residential and commercial properties.

Oh, and before you start whining that our roads stink and calling DISD terrible and complaining that there aren’t enough cops on the streets, remember, they’re in that state because they’re poorly funded. Remember that the police and fire pension problem was a bomb whose fuse was lit because we paid so poorly that we had to “pay later” for work now. And that blew up in our faces long after the architects and politicians were gone.

Better streets, schools, and policing come down to budget.

Comments

  • EricCeleste

    This is so damn good. I was just ranting yesterday about the juvenile, anti-intellectual, faux-populist crap the DMN is producing via that embarrassing “watchdog” column, and this comes along to make me feel so much better. Thank you, Jon.

  • dallasboiler

    While I agree that most DCAD appraisals are below today’s market value, that statement is a bit of an over-generalization; and I don’t believe that how they arrive at those valuations is described accurately.
    I protested a large increase assessed to me 11 years ago, and the DCAD rep arguing for their case put up on screen MLS sales comps in the neighborhood for sales in the same vicinity, similar construction dates, similar size, etc. That was actual transaction data. (Although, I would note that MLS data does not capture sales of homes which were done off-listing … as are most new-build homes.)
    I handled my protest myself and was successful beyond what I expected. I based my argument on cherry-picked comps on DCAD (I had no MLS data). I argued for a rate 10% lower than DCAD proposed. DCAD put up their comps after I made my argument. They picked one comp out of the 3 or 4 that had the lowest sales price and recommended it as the basis for my appraisal. Even worse, the one with a lowest value fed into a different elementary school; and any realtors in the area could tell you that fact alone would lead make it too low of a comp for my house. It was 15% lower than their original appraisal (and 5% lower than the price I had just argued for). So, I left the proceeding a very happy homeowner with a bigger savings than I even was asking for!
    Fast forward to my current home. It is valued by DCAD at almost 20% more than I paid for it in August 2017.
    Valuation is not a perfect science. The details matter in getting it right, and it changes very rapidly with other externalities (new employers moving to the area, changes in mortgage interest rates, etc.). Also, the interesting thing about DCAD appraisals is how they value the land and improvement separately. When they make adjustments for market conditions, it is primarily to land value since the value of the improvement generally depreciates over time and building costs don’t change as rapidly. Thus, you commonly see adjustments to land value which are partially offset by a decrease in the improvement value. Also, in most of Dallas, it is rare to see outright land sales which make reasonable comps within many neighborhoods; so it leaves DCAD sort of guessing at land values. The cost of homeownership (including property taxes) is the biggest expenditure that most households make. DCAD (and all other appraisal districts) would likely find themselves under siege by angry protesters if they increased home valuations too rapidly and forced people to consider selling their homes to make their budgets work.

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  • David

    This is an absurd article. I was just informed that my house is worth 35% more than last year and that my tax bill should leap accordingly. The same, apparently, is true for my entire street (I checked) and much of my neighborhood. Poppycock. This is nothing less than armed robbery with violence. Dallas must learn to cut its cloth to suit its means, not pick the pockets of homeowners who are expected to fork over a rent payment to live in their own (well, the bank’s) home. Enough!

  • JamieT

    In neighborhoods transitioning into decline, the first thing those responsible for the decline discover if they don’t already know it from having already implemented it elsewhere is that jettisoning the costs of maintaining their home’s appearance is the fastest way to dampen any increase in its appraised value and the increased property taxes that accompany it.

    They and those officials appraising neighborhoods for the district both understand and agree: let the chumps who keep their homes painted, their gutters nailed up, their curb appearances desirable carry that extra appraised value per square foot needed to make up for those who have discovered the tax-saving advantages of not doing so.

    The only problem is, ya just can’t count on the chumps remaining chumps forever. Sooner or later they discover neighborhoods just as desirable or better in districts no longer subject to profligate Dallas taxing and spending.

  • PJCTX

    Very strong article. I believe I saw an article out of Austin last year noting that Travis County was going to start aggressively going after the commercial property taxes, which are grossly undervalued and collected. As for the residential space, it’s going to hurt, but reform needs to happen here. Once that occurs, the city needs to make do with what it has.

  • Jeff

    This article is so flawed with backward logic that I don’t even know where to start, so I won’t. Yes, please blame the people who have worked harder, are smarter, and have more money than you. There are homeowners in Preston Hollow who pay six figures in property taxes in order to subsidize your existence. They don’t even use the public schools they pay for, since they’re so mismanaged. Instead, why don’t you ask what black hole all of this property tax revenue falls into. Maybe there’s some mismanagement happening at the city and county. Also, stop conflating the budgets and bond issuances of the city and county.