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City Council Poised to Take a Wrong Turn on Taxes

May 21, 2015

Last year, the Austin City Council decided, wisely, not to rush into a sketchily conceived challenge of the Travis County commercial tax roll. Now, the new 10-1 council appears ready to make that mistake, appealing to the emotions and biases of its political base and ignoring the realities of the cost of living and governing in Austin.

What’s different this time, say proponents of a challenge — led by Mayor Pro Tem Kathie Tovo — is that the city has a study “proving” commercial properties are undervalued by the Travis Central Appraisal District. This means homeowners are paying more than their “fair share. “

At RECA, we will stipulate that fairness is an important value for local government to observe. But this doesn’t change the fact that the bill for government is ultimately paid by the citizens, regardless of how we pretend to apportion it.

Raising commercial property taxes, through whatever mechanism, simply creates costs to pass onto users and consumers. Tovo realizes this, which is why she’s excluded from her proposed challenge multifamily properties — where her efforts would lead to higher rents. But a higher tax burden on office, industrial, retail or even vacant commercial property wouldn’t be borne by other people in other cities. It would just increase the cost of living in Austin.

The offsetting reduction in residential property taxes, if it happened, would be relatively modest, even by the city study’s own assumptions. Commercial property, at whatever appraised value, produces far more tax revenue on a per-acre basis than single-family homes, which subsidizes the services those residents use. It’s noteworthy that Travis County and Austin ISD — both far more dependent on property tax revenue than the City of Austin — have so far not followed Tovo’s lead.

The “fair share” crusade, though emotionally appealing, is a gimmick. Real solutions require us to get serious about long-term structural reforms that lower the cost of government. The latest update of RECA’s annual Cost of Government Index shows that local taxes continue to increase faster than incomes, despite all the politicking about taxes and Austin’s affordability crisis.

We can also share our tax burden more broadly by keeping up with the demand for places to live and work in Austin, especially where we already have infrastructure. The best way to squeeze more value out of “undervalued” vacant commercial property is by building on it. Rather than challenging the tax roll, the city of Austin should challenge itself to do a better job promoting efficient government and financially sustainable land use.

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