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Fair Share Argument on Commercial Appraisals Doesn’t Add Up

September 10, 2015

Do you work in an office? Does your employer rent that office space? Do you buy things in stores? Of course you do, and now you’re on the wrong side of a lawsuit the City of Austin just filed.

As part of its ongoing effort to “cut taxes” without actually reducing its spending, the City of Austin has taken to the next level its efforts to soak commercial property owners, and their tenants and customers, in the name of “fairness.” As the story goes, commercial owners (“fat cat developers”) are able to game the property appraisal system in ways that residential owners (“working families”) cannot, leading the latter to pay more than “their fair share” of the cost of government. However, the story is far from the truth.

Originally, the City filed a challenge to the Travis Central Appraisal District’s commercial appraisal roll. Now, Mayor Steve Adler and his council colleagues have filed suit against the state, against TCAD (which is actually on Austin’s side of this issue), and against thousands of commercial property owners, who are very much not on the City’s side.

At RECA, we believe in fairness as a value, and we also believe in honesty. As we’ve said before, the fair share argument is a gimmick that ignores the fact that higher commercial property taxes will also be paid by Austin’s “working families” — through higher rents, higher prices and lower wages. That’s why you, and not just “some rich guys,” are really on the hook if the City succeeds in its lawsuit.

First off, there really is no huge disparity between commercial and residential property appraisals in Travis County. RECA conducted our own study. Unlike the study commissioned by the city and used to “prove” what the council already believed — we focused exclusively on comparing current appraisals and sales, in the current market. Between January 2014 and March of this year, the median residential property was assessed at 96.24 percent of its market value. The median commercial property? 93.10 percent.

That’s not a difference that’s going to translate into a major shift in tax incidence away from homeowners — especially when you consider that, on a per-acre basis, commercial property produces much higher tax revenue than does most residential property. As well, note that both residential and commercial properties are appraised slightly below their market value. This is common in a hot market, when prices escalate faster than appraisals can keep up. We suspect that many readers would not willingly sell their houses right now for their appraised value, when they could almost certainly earn more.

However, we also know that many of those same readers have gone to TCAD in recent years to protest their appraisals. Contrary to the “fair share” side’s talking points, commercial owners do not have access to a special get-out-of-taxes-free card unavailable to homeowners; both can seek the same protections (the “equal and uniform” provisions) of the Texas Property Tax Code and the state constitution.

More than 60,000 residential homeowners protested their property values this year based on the same equal-and-uniform provision that commercial owners rely on, which the City of Austin now seeks to outlaw through its lawsuit. This is why six homeowners intervened in the city’s lawsuit on Friday to preserve their – and every homeowner’s – right to this provision.

While its (and TCAD’s) endgame is to ultimately force mandatory sales price disclosures to the appraisal district, that’s not a weapon that can only be pointed at politically easy targets. Ultimately, everyone’s taxes would go up, and the “working families” whose interests the City Council claims to be protecting would have no recourse.

Meanwhile, by filing suit against its own major employers and responsible corporate citizens, the council is hardly rolling out the welcome mat to job creators, who would rather be treated decently by competing peer cities and our own Texas neighbors. Some no-growthers may like that, but Austin needs to see wage and income increases, and not just cost-of-living reductions, to really address its affordability crisis.

What makes this all most depressing and absurd is that the City of Austin has so far made only the most cursory efforts at reducing its own cost of doing business, and thus the burden on taxpayers. The day council members sat down to start making “hard choices” about the 2015-16 budget, they learned that the commercial tax roll — the same one they sought to challenge as unfairly low — instead came in much higher than expected.

Did the council respond by lowering the proposed tax rate? Of course not! (To be fair, not yet — it could happen when the budget is finally adopted.) Instead, that money looks destined for pet projects and “investments” that will receive no scrutiny even as the council claims to be lowering taxes. Until that pattern changes, Austinites will never see the fiscal responsibility they deserve from their city government.

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