Demand the Effective Rate be central to all tax rate setting discussions

Robert Pratt photo Copyright Pratt on Texas

Robert Pratt

I’ve pointed out that it is very important that, beyond your own notice of appraised value, you take note of the aggregate numbers announced in each jurisdiction. For example, it has been announced that the aggregate increase in property values across Lubbock County is seven percent over the previous year. This means any taxing entity which sets next year’s tax rate the same as this year would be passing a massive seven percent tax increase.

because the value of the taxable base of property changes each year, the “tax rate” local governments set is essentially meaningless without comparison to the newly calculated Effective Rate.

This is how local governments, from counties and cities to schools and special purpose districts, have been obtaining massive revenue increases over the last few decades: They say publicly that they set the tax rate the same, or slightly lower, than the previous year while reaping a windfall of new revenue due to the up-creep in property values. This happens when they set a tax rate higher than the Effective Rate.

The Comptroller’s office describes the Effective Rate this way:

“The effective tax rate would provide the taxing unit with approximately the same amount of revenue it had the year before on properties taxed in both years. For example, if property values go up, the effective tax rate goes down. Comparing property tax revenues from one year to the next year tells you whether there will be a tax increase.”

Understand that because the value of the taxable base of property changes each year, the “tax rate” local governments set is essentially meaningless without comparison to the newly calculated Effective Rate.

You should demand that members of the media and government officials understand this and that summer discussions of tax rate setting always be in the context of the Effective Rate.

What do you think?...

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