1 (5 121316/. COMMISSIONERS' COURT AGENDA REQUEST PLEASE FURNISH ONE ORIGINAL AND ONE (1) COPY OF THIS REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT MADE BY: Fourth Coates OFFICE: KCAD MEETING DATE: December 13, 2010 TIME PREFERRED: 9:15 AM SUBJECT: Presentation from the Ingram FFA Agriculture Issues Team on Wildlife Management Presentation and short presentation Kerr Central Appraisal Districts Chief Appraiser, Fourth Coates, regarding Agricultural Exempt properties. EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON) NAME OF PERSON ADDRESSING THE COURT: Fourth Coates ESTIMATED LENGTH OF PRESENTATION: IF PERSONNEL MATTER - NAME OF EMPLOYEE: Time for submitting this request for Court to assure that the matter is posted in accordance with Title 5, Chapter 551 and 552, Government Code, is as follows: Meeting scheduled for Mondays: 5:00 PM previous Tuesday THIS REQUEST RECEIVED BY: THIS RQUEST RECEIVED ON: @ .M. All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepared for the Court's formal consideration and action at time of Court Meetings. Your cooperation will be appreciated and contribute towards your request being addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners' Court. Make sure any and all back up material is attached to this form. 4, • P4ge 1 of 2 Jody Grinstead From: Fourth Coates [ivcoates @ktc.com] Sent: Tuesday, December 07, 2010 10:19 AM To: 'Jody Grinstead' Cc: jesses @ktc.com; leifeste @windstream.com Subject: RE: Productivity Applications Jody, I plan to have the Ingram FFA Ag Issues Team give their presentation on Wildlife Management to the Commissi.ner's Court as part of my presentation. They gave their presentation to the Kerr Central Appraisal District prior to the it competitions which they won 1 in Regional and 8 In State. They do a very good job of explaining Wildlife Management Productivity Value issues including the history, legislation, pros and cons. I'm sure the Commissio er's Court will also enjoy seeing one of our school's students in action. I will follow up with a short presentation an. handle any questions. See you at 9:15 Thanks, Fourth Coates From: Jody Grinstead [ mailto :jgrinstead @co.kerr.tx.us] Sent: Tuesday, November 09, 2010 2:28 PM To: 'Fourth Coates' Subject: RE: Productivity Applications I'll put you down for 9:15. Thanks! Jody Grinstead Kerr County Commissioners' Court Coordinator 700 Main Street. Ste. 101 Kerrville, TX 78028 (830) 792 -2211 From: Fourth Coates [mailto: ivcoates @ktc.comj Sent: Tuesday, November 09, 2010 1:37 PM To: 'Jody Grinstead' Subject: RE: Productivity Applications I guess the 9:15 slot would be good. Thanks, Fourth Coates From: Jody Grinstead [ mailto :jgrinstead @co.kerr.tx.us] Sent: Tuesday, November 09, 2010 9:41 AM To: 'Fourth Coates' Subject: RE: Productivity Applications Fourth, 12/07/2010 . Property Taxes: A Tale of Two States Contributed by Foy Mitchell, Jr. Marvin F. Poer & Company, Dallas A Brief History of Property Taxes There has been no tax more condemned than the property tax. Numerous economists and other associated �. u "experts" have opined and studied property taxes for centuries; yet they prevail. Property taxes, in some "4 t form or another, have existed since 6,000 BC. The fast known reference to a system of property taxanon is found on clay tablets in the city of Lagash in what is now modern Iraq. A review of other ancient cultures l a would find that the Egyptians, Greeks, Romans and virtually every other civili>ation since has relied on property taxes as a major basis for their revenue. The Ancients also understood that a basic tenet of successful property taxation was to be fair. Interestingly, Alexand ' r the Great charged his tax collectors with the responsibility to (1) lower taxes in conquered lands and to (2) use one -half o the taxes collected to pay for infrastructure improvements and public services in those conquered lands. He clearly unde stood that by providing visible benefits received by the conquered for the taxation imposed he could avoid revolt and turm il. Aristides, the Greek General was also a tax collector. His honesty and fair play were so well respected that he was lat r called "Aristides the Just" and a statue was raised in his honor. About Property Taxes Negatives: It is well established that property taxes are "the most unpopular of all taxes" according to many experts Whether or not they are as unpopular as claimed, there is no dispute that they: • Are somewhat regressive, tending to fall harder of low value property • Often penalize a property owner for improving the property's value • Are difficult to administer because: o Complex properties are difficult to accurately value o Business personal property is difficult to value and often escapes taxation o Settlement of issues of taxation rely on a fairly administered appeals system • The amount of tax levied does not always reflect an owner's ability to pay. • Uniformity of valuation and thus taxation is an almost - unachievable goal. taw The wisdom of man neveryet contrived a system of taxation that would operate with pe equality.1 natal— . • Tend to be relied on too heavily. Too often state governments issue unfunded mandates down to local government, whose major source of revenue is the property tax. Thus, local property taxes rise. ! Positives: While we may complain about property taxes, they, like cockroaches, have been resilient and reliable. But, they are understandable and are difficult if not impossible to escape. They are reliable and predictable. And, their greatest strength lies in the fact that those officials imposing property taxes are the nearest level of government to those who pay. Every intizen knows exactly to whom to complain, i.e. city councils, school boards and commissioners. Often we run into these officials at church, school or the grocery store. If not there, the individual(s) who are directly responsible for their imposition are within an easy phone call or visit. Thus, while they are unpopular, the taxpayer generally knows how to ameliorate them to lichieve a more reasonable level of taxation. In summary, property taxes are: • A resilient and reliable source of revenue for local government • Almost impossible to escape, insuring all pay some share of the cost of government • Understandable • Easily appealable I Andrew Jackson, President, United States • • Locally controlled and administered • Necessary: Taxes are the puce eve pay far aviGtiation x § .. A Tale of Two States There is perhaps no better comparison of how two states approached the issue of rising taxes than Texas and California. Both states began addressing the matter of rapidly rising property taxes at almost the same time: California in 1978 and Texas in 1979. But, both states took dramatically differing approaches. California chose to significantly diminish their reliance on property taxes and almost completely abandon the idea of local government control of taxation with the passage of Proposition 13. Texas on the other hand chose to improve its property tax system and to continue to rely on the property tax leaving, significant local control in place. California's property tax legislation was sponsored by Howard Jarvis, a representative of the Apartment Owners Association and was known as Proposition 13. Texas' legislation began with a coordinated effort by Senator Grant Jones and Representative Wayne Peveto. The Texas bill (Senate Bill 621) became known as the "Peveto Bill". Proposition 13: This was and remains a landmark piece of legislation. It has been emulated in other states, mostly in a somewhat lesser degree. The general provisions of Prop 13 as it is called and its subsequent amendments are: • Rolled back real estate values to their 1975 levels • Capped value increases for appreciation /inflation to 2% per year • Property tax rates were limited to 1% of the property value • A change in ownership triggers an automatic reappraisal • Allows parents to pass the property to their children /grandchildren without causing a value change SB621 /Peveto Bill: Few states have emulated Texas' property tax system inasmuch as it has taken a radically different approach to property taxes. Rather than abolishing them Texas has chosen to include them as an integral part of the overall state plan of financing government. Property taxes have been reserved for local government. In fact, Texas has a constitutional amendment prohibiting the state from levying property taxes. Rather, Texas chose to work to improve their administration and fairness. Among the provisions of SB 621 and subsequent legislation are the following: • Established a central appraisal agency within each county whose job is to fairly appraisal all taxable property • Established an independent board of governance for the agency • Requires the education, examination and licensing of every person having the authority to make a value or taxation determination. • Established an independent appeals panel to hear appeals of valuation and exemption • Established a State Property Tax Division to conduct annual studies of the appraisal accuracy of each appraisal office • Legislatively empowered the Comptroller of the State of Texas to conduct audit and compliance studies of appraisal offices to insure their compliance with state laws and policies. 2 Chief Justice Oliver Wendell Holmes, U.S. Supreme Court 3 A change in ownership must meet a three - pronged test: (1) transfers a present interest in real property, (2) transfers a beneficial use of the property and (3) property rights transferred are substantially equivalent to the fee interest. There have been numerous amendments and challenges to these general guidelines since the passage of Prop 13. 2 A Performance Review of California and Texas from 1978 to 2008 Action California Texas Passage of Prop Tax Legislation 1978 1979 Provides Local Control of Tax Effort No Yes Limits Property Appraisals on All Property Yes No State & Local Tax Burden as % if income, 1978 11.7% 8.1% Per Capita State & Local Tax Burden, 1978 $1,182 $655 State & Local Tax Burden, 2008 10.5% 8.4% Per Capita State & Local Tax Burden, 2008 $5,028 $3,580 Overall State & Local Tax Rank, 1978 3 48th Overall State & Local Tax Rank, 2008 6th 43rd Changes in Public Education from 1978 to 2008 California Texas Rank of Public Schools in 1978 5th 420d Rank of Public Schools in 2008 38d< 29th Expenditures per Student, 2007 $8,267 $7,275 Pupil /Teacher Ratio, 2007 (National = 153) 21.3 14.9 The Impact of Prop 13 on Property Taxes Positive Impact of Prop 13: Proposition 13 has both its critics and its supporters. Depending on whether one bene its or suffers seems to be the major determinant of the position chosen. In a paper entitled The Evolution of Proposition 13, th author, David Doerr of the California Taxpayers Association offers a number of arguments in support of Prop 13. Among ese he maintains the following points. The opposing view of the author of this paper follows in Italics. • Stability is added to the "flow of property tax revenue ": He argues that during times of rapid inflation no major change occurs. During times of recession, no major loss in revenue to local governments occurs. It is agreed Oat "stability" is achieved However, what is not said a that the tax levy necessary for supporting local governments needs remains well below that level necessary to provide the needs expected by the citizens, who in the case of California have demanded expanded social relicts. The stability" achieved is akin to stating that "We have stabib'zed the daily food calories of our inmates; it remains at 500 per day gven in there difficult times ". • No shift in the tax burden occurs: The basis of this claim is that the assessed value of a single homeowner occupied property has averaged only a 7.1% growth over the past 30 years and that the average value increase based on! median sales is 7.5 %. This argument is buttressed by the fact that homeowner occupied properties paid 34.3% of the property taxes in 1979 -80 and in 2006 -07 they paid 39.3 %. Every study and comparison published indicates that a marir shift in the tax burden has occurred See the table on page six of this report comparing the appraisal ratios of commercial property for the previous twenyyears. 4 Texas has a constitutional amendment limiting annual residential homestead increases in value to 10%. No other appraisal caps are allowed by constitution. 5 Report Card on American Education, American Legislative Exchange Council, 2009 3 • Homeowners are no longer "Taxed off their property ": Eighty -two percent of Los Angeles County's 900,000 citizens 65 and older are in the same house they lived in when Prop 13 was passed in 1979. Ninety percent of homeowners who benefited from Prop 13 are in the same houses they owned in 19787 This is a well documented fact. Numerous reports paint this out and also note that persons owning property in 1978 have been able to pass this properly on to their grandchildren at the same low tax rate, thereby exacerbating the inequities among residential assessments. Texas solved the problem of taxing the elder y off by passing legislation that prohtbits a senior citkens home from being taken for taxes during their kfetime by granting them a property tax defetra/. • Property taxes have been controlled: In 1978 Californians paid $1,182 per capita in state and local taxes. In 2008 they paid $1,345; a change of only 13.8 %! Again, probably true. What is overlooked or not mentioned is that they still pay among the highest overall tax burden in the nation due to personal income taxes, fees and levies by local government to pay for services and the highest properly values in the nation. Interestingly, Mr. Doer's paper also contained a table indicating the claimed level of commercial and industrial property assessments as a percentage of market value. Below is that analysis prepared for California with a similar analysis prepared by the Texas Comptroller's office for the same period of time. Table 4. Commercial and Industrial Property Assessments as a Percentage of Market Value (Commercial Property Only) Assessment Ratio Assessmaat Ratio 1988 -89 70.4 .93 1989 -90 71.1 .93 1990 -91 74.2 .97 1991 -92 74.9 .98 1992 -93 81.9 .99 1993 - 94 84.9 1.0 1994 -95 87.6 1.0 1995 -96 86.7 1.0 1996 -97 86.1 .99 1997 -98 80.6 .99 1998 -99 76.2 .99 1999 -00 75.6 .98 2000 -01 71.7 .97 2001 -02 74.9 .98 2002 -03 72.7 .98 2003 -04 71.5 .98 2004 -05 65.6 .97 2005 -06 61.0 .97 2006 -07 59.9 . 96 Negative Impact of Prop 13: As stated previously, whether one benefits or pays appears to influence ones opinion concerning Prop 13. The following are observations concerning the negative impact of Prop 13. The above table indicates that despite the claims of many supporters of Prop 13, the ratio of commercial property appraisals has continued to slip for the past decades. Given California's revenue limit laws passed in conjunction with Prop 13, this insures a transfer of the tax burden to other property whose value are not appraised as far from their actual fair market. Included in this group would be newly sold property, both residential, commercial and developed. 6 Joel Fox, Howard Jarvis Taxpayers Association, 2008 The Devastation of Prop 13, Mammoth Lakes Press, 2007 8 The Evolution of Proposition 13, David Doerr, California Taxpayers Association, 2008 4 • For purposes of comparison, on the following page is a chart prepared by the Texas Comptroller's Office, Property Tax Division indicating their estimates of appraisal accuracy for the period from 1997 to 2007 for all categories of property-. Unlike California, you can see that Texas has performed an admirable job of maintaining equity in the appraisal process among the various types of properties being taxed. Texas Median Appraisal Ratios by Property Type, 1997 -2007 Pxopet Categoryy '997 '1998 1 20OO; 2001 2202 2003 2004 2005 '2006 -2007. A. Single -family Residences 0.97 0.98 0.98 0.98 0.97 0.98 0.99 0.99 0.98 0.98 0.98 B. Multifamily Residences 0.98 0.99 0.98 0.98 0.99 0.98 0.98 0.98 0.98 0.97 0.97 C. Vacant Lots 1 1 1 1 1 1 1 1 1 1 1 D. Rural Real 0.98 0.98 0.98 0.98 0.98 0.99 0.99 0.98 0,99 0.99 0.99 Fl. Commercial Real 0.99 0.99 0.98 0.97 0.98 0.98 0.98 0.97 0.97 0.97 0.96 G. Oil, Gas, Minerals 1.01 1 1.02 1.03 0.99 1.01 1 1 1.01 1.02 1 J. Utilities 1 1 1 1 1 1 1 1 1 1 1 LI. Commercial Personal 1 1 1 1 1 1 1 1 1 1 1 OVERALL 0.99 0.99 0.99 0.99 0.99 1 0.99 0.99 0.99 0.99 0.99 Source: Susan Combs, Texas Comptroller of Public Accounts, Property Tax Assistance Division • Shifting the Burden: Prop 13 failed to reduce Californians' total tax burden; it shed it from property taxes to state sales income and corporate tax. And fiscal crises as predictable as drought have prompted frequent state tax increases. Californians now pay the highest income and sale -tax rates in the country. Cold comfort that the property tax rate ranks 45'4 • Loopholes: Of all the ways in which California residents have slit their fiscal throats over the last 30 years, surely the most i4explicable is the bestowal of a gaping tax loophole on commercial and industrial property owners. The culprit, no surprise, is that 31 year -olld wolf in sheep's clothing, Proposition 13, which prohibits the reassessment of any properly except at the time of a change in ownership. California's property tax burden has gradually shed to homeowners because commercial and industnal property doesn't change hands as ofte as homes and the sales can be easily disguised 1 ° II • Shifting the Burden: Refer to Table 4, footnote 9, • Shifting the Burden: In Los Angeles County, for example, single family residences accounted for 39.9% of the tax roll, by 'alue, in 1975, before Proposition 13. This year their share is 55.8 %. In the same period, commercial - industrial property has gone from 41.6% of the tax roll to 30.9 %. These figures are from the county assessor's annual report, but a similar pattern holds statewide." • Inequities: No longer do we hear about senior citizens being forted to sell their homes because they can't pay outrageously high property tax bills. But Proposition 13 had the unexpected result of putting a lid on taxes from commercial properties -- and shying the ovfrall burden toward homeowners. The share of state revenue from residential property taxes has steadily increased, while the proportionImm commercial properties has steadily declined. Why? Proposition 13 requires reassessment of a properly only when it changes ownership. Commercial property simply doesn't change hands as often as residential property. That means there are fewer opportunities to reassess them at market rate. (2 9 Barron's, Thomas G. Dolan, June, 2009 1° Los Angeles Times, Michael Hiltzik, July, 2009 11 ibid 12 On Grim Realities and Escapism: Rethinking Prop 13; San Francisco Chronicle, January, 2003 5 • Inequities: The Beverly Hilton in Beverly Hills should be paying another $2 million ayear in property taxes on its land. The hotel only pays $1.35 /sq. ft. in property taxes compared to otherproperty owners who pay roughly $5.00 /sq. ft. The Luxe Hotel Rodeo Drive, a nearby competitor, pays $7.46/sq. ft Both hotels charge similar room rates. • Inequities: Goldberg calculates that Disneyland, which hasn't had a reportable change of ownership since, well, forever, is currently taxed at an average of about a nickel per square foot. For comparison, a median California home bought last year out of foreclosure, measuring 1,600 square feet and selling for about $330,000 (these are averages from the California Assn. of Realtors), would incur properly tax of about $3,300 peryear, or $2.06 per square foot.b Summary: The argument between the pros and cons of Proposition 13 will continue unabated. It is undisputed among most organizations and institutions that have studied the matter thoroughly that any type of effort to abate property taxes using appraisal or revenue caps only serves to exacerbate the problem rather than ameliorate it as desired. The Economics of Property Taxes gy R �atidtf* t ,e „ - ..r., Tax Collections By Major Tax Amount Percent of Total Sales Tax $21,604,090,350 26.75% Motor Vehicle Sales /Rental $3,341,588,813 4.14% Motor Fuels Taxes $3,101,526,779 3.84% Franchise Tax $4,451,325,736 5.51% mm Insurance Taxes $1,450,184,267 1.80% Natural Gas Production Tax $2,684,647,510 3.32% Cigarette and Tobacco Taxes $1,446,894,671 1.79 /° Alcoholic Beverage Taxes $784,068,675 0.97% Oil Production Tax $1,436,879,156 Inheritance Tax $5,580,142 0.01% Utility Taxes $503,878,555 0.62% Hotel Tax $370,979,724 0.46% Other Taxes $176,284,575 0.22 ° /o Local Property Tax $39,400,000,000 48.79% Total Taxes $80,757,928,953 �...� 13 Michael Hiltzik, California Tax Reform Association, July, 2009 6 The Economics of Property Taxes:Texas TAX Revenue by Source Amount • Inheritance Tax • Other Taxes • Hotel Tax , Utility Taxes . * - i Alcoholic Beverage Taxes "_' • Oil Production Tax , t. " "' 3 Cigarette and Tobacco Taxes • Insurance Taxes ,h . • Natural Gas Production Tax • Motor Fuels Taxes • Motor Vehicle Sales/Rental a Franchise Tax Sales Tax r Local Property Tax Let's Do Away With Property Taxes Sales Tax Required to Off - set Property Tax: In Texas, for at least the last 30 years there has been discussion ab• ut doing away with property taxes. Many plans have been offered. Among the more popular schemes is the plan to substitu e a sales tax for the property tax. Proponents of this argument have opined that it would only take a "few more cents" on th- current sales tax rate, generally set at 8.25% to accommodate this change. Understand that in Texas in 2008, the last year f.. current data, $38.9 billion'a in property taxes were collected. This is 48.79% of total taxes collected ($80.757 Billion). The fo 1 owing is a summary of State sales tax collections: Current Gross Saks Rate 815° Total Sales Tax Collected, 2008 $28.539 Billion State Share of Sales Tax Collected $21.604 Billion Local Government (Cities) $6.935 Billion Total Property Taxes Collected, 2008 $39.4 Billion Minimum Sales Tax Rate Required to Equal Prop .�...._.._ _�._ 11.39 %15 Tax Carefully avoided in the arguments for substituting sales taxes for property taxes is the undisputable fact that virtually 11 economists acknowledge that the sales tax falls hardest on those least able to pap. "State and local sales taxes are re essive, requiring low income and middle income taxpayers to pay m ore of their income in tax than wealthier taxpa ers. These taxes are regressive because low- income families spend more of their income on items subject to sales tax than o wealthier taxpayers ". Substituting a Sales Tax Results in Great Tax Break for Non - Texans: Even more amazing is the fact that conv ng to a strictly consumer based tax s as an incredible tax break for non - resident aliens who would no longer pay pr perty 14 Comptroller's Office Annual Property Tax Report for 2008 15 Calculated by dividing $39.4 property tax revenue by gross sales amount of $345.927 billion. Other reports indicate this requirement may be as high as 14 %. 16 Institute for Taxation and Economic Policy, July, 2009 7 taxes on their substantial real and business personal property in Texas. Not living in Dallas, they would pay no additional sales tax as well. The Dallas Central Appraisal District reports the following data for its 2009 appraisal rolls. .. � Tota Pr aCue $213,264,955,430 KK t Ff. Total Residential Property Value $103,567,923,910 49% Total Commercial Value (in above) $78,986,835,670 37 Total Business Personal Property $30,712,195,850 16% Number of Residential Accounts 642,716 Number of Commercial Appraisals 72,867 Number of Business Personal Property Appraisals 82,038 Total Appraisal Roll by Property Type and Percent Total Business Property Val 14 %0 Total Commercial 0 , Property Value The above numbers and values represent the basis on which property taxes are collected. The total tax levy for all entities in Dallas County is approximately $4.833 Billion. Property Owned by Non - Resident Persons /Corporations: For 2009 the Dallas Central Appraisal District reports the following concerning commercial and /or business personal property owned by persons or corporations whose domicile is outside Texas. Number of Commercial Accts Owned by Person /Corp Outside Texas 7,816 Number of Business Property Accts Owned by Person /Corp Outside 23,890 Texas Number of Residential Accts Owned by Person /Corp Outside Texas 19,812 Value of Commercial Accounts Owned by Persons /Corp Outside Texas $24,338,893,000 Value of Business Property Accts Owned by Person /Corp Outside Texas $19,170,860,000 Value of Residential Property Accts Owned by Person /Corp Outside $ 2,269,609,000 Texas Total Value of All Property Owned by Persons /Corp Outside Texas $45,779,362,000 8 fr Non - Resident vs Resident Owned Property by Value Value of Property of Non- Resident Owners Value of Resident .Openers From the above data and charts it can easily be established that of the $4.833 billion in property taxes collected in 200 in Dallas County, a tax break of $1,037,000,000 (21.46 %) would be given to persons and /or corporations not residing in Texas. This huge "tax break" for non - residents would result in a redistribution of the cost of government being hifted to the citizens of Dallas County in the form of increased sales and other taxes and fees! How About an Income Tax for Texas ?: Most economist and property tax experts who have spent their careers studying this issue conclude there is only one viable altemative to effecting a major shift from local property taxes; that alte native is the income tax. This of course is the "third rail" that most politicians feel cannot be touched for fear of ending th - careers. As an aside, Texas has a Constitutional Amendment° that prohibits the imposition of an income tax except f r school fmance. This amendment even limits the Legislature's authority to adjust the income tax rate without voter approv 1, should one be adopted. This fact clearly demonstrates the general public fear of both an income tax and the Legislature. Thus, most can conclude that Texas will continue with a property tax for some time into the future. How it is ame{tded and applied will continue to be a hotly debated issue, as it has been since its initial imposition in 1845. 17 Texas Constitution, Article VIII, Sec 24 (f)(g)(h) 9 We're Number 1! INSI TH IS WEEK: A 1O -PAGE SI CJAL REPORT ?N TE may Beijing's nightn►ares the Uighur revolt 111 The publirsector pension scam E ( 1 S The sur ge in Afgha nistan • Eat less, live longer: it's true a „r.� n tea. e omsc m,, Don't protect bad Belgian arf America future :all Texa ry`� Hn _ ._<.,,,,,,-,,,..t. r<'c ' Rf .g.YX' • 'ma �,(+ a ;. ' # ,� � gy 9a t w tom, L _ _•• . /9,44.,..-•„•:&.,..:,, e : a k + Y ¢ .m �/! 4 q . t: , ct #9 � ..: v - :x"45 N p ' d 10 Articles and Studies Literally dozens of articles and papers have been written about Texas' economy and its assumed insulation from the r vages of economic downturns on a scale suffered by other areas of the country. An analysis of the various opinions seems to dicate that Texas does well because: • We are a Right to Work State • We Have a Pro - Business Environment • We Have low Taxes • We Have No Personal Income Tax • We Have a Favorable Regulatory Environment Buttressing these points are a number of articles and papers that have purported to study the various factors contrib g to Texas' phenomenal economic growth and stability. Among the more interesting are: • The Lone Star State may have lost a powerful advocate in Washington, but its home to a remarkable eight of the top 20 cities n our list- - including No. t - ranked Odessa, a small ciy in the state's northwestern region. Further, the top five large metropoli n areas for fob growth -- Austin, Houston, San Antonio, Ft. Worth and Dallas- -are all in Texas' "urban trian k. " • Texans on average believe in laissezfair markets with an emphasis on individual responsibility.l • California has placed `ethnic diversity " above "assimilation" while Texas as done the opposite.'ldentity politics" has created p.richological ghettos that have prevented many of California's diverse ethnic groups and subcultures from integrating fully into the mainstream. Texas, on the 20 other hand has proactively encouraged all the state's residents to join the mainstream. • Bgond taxes, diversity and the environment, Texas has focused on streamlining the regulatory and litigation burden on its resi4nts. 1e Forbes Magazine, April, 2009 19 Tory Gattis, "The Essence and Future of Texas vs. California, January, 2010 2° ibid 21 ibid 11 Comparison of California v Texas Comparison of California v Texas Tax & Regulation Environment (Taken from Rich States, Poor States, 2009) Tike g � 9 bin. S=+'' ' � �} i b Uf a i y , ,.. • , - xi .� <.+ ..... _ .: a+ ���, . �x� ,�`'wL*'�'Q +lrlEttYk�7':_ �. Tens: it. • ._ "_� ,.�_,e.4 , Top Mar coal Personal Income Tax Rate 10.30% 0.00% Texas Marginal Personal Income Tax 9.30% 0.00% Texas •axes' on o tR4' 's'y`""',`v' 1�,3 a x=. "' '`"' `F. s k�e "` r': te?:: w 3 - . • Property Tax Burden (Per $1,000 of personal income) $26.63 $41.06 California Estate /Inheritance Tax Levied NO NO Same Top Marginal Rate: Income Dividends and Capital Gains 10.3°A 0.0% Texas Top Marginal Corporate Tax Rate 8.84% 0.0% Texas State Sales Tax Rate 725% 6.25% Texas Sales Tax Burden (Per $1,000 of personal income) $23.72 $23.31 Texas Overall Tax Burden $118.33 $99.49 Texas Personal Income Tax Progressivity $34.88 $0.00 Texas Recently Legislated Tax Changes (Per 51,000 of personal income) +$0.88 43.92 Texas Number of Tax Expenditure Limits 2 1 tat Yf flt)ti)'Lents' ' , State Liability System Rank 44th 41st Texas S to Minimum Wage $8.00 $6.55 Texas Average Workers' Compensation Cost $2.72 $ 2.61 Texas . Right-to-Work State NO YES Texas t" oventaientF9iendin li ies ° t sr -` ! '_u� a : w �.°.: . s , ;. Total Expenditures per Capita $10 $6,845.26 Texas Average Growth in State Government 7.04% 5.96% Texas What Does this Mean to Us? Let's Not Make the Mistakes California has Made: The dramatic comparison between California and Texas made in this paper is not intended to in any way vilify California nor to diminish it's great accomplishments. Texas and the United States need a healthy, vibrant California. We sincerely hope they will be able to achieve a full recovery of their economic power. This paper is intended to illustrate the dramatically different approach to taxes, and property taxes specifically, in California and Texas as each state has progressed through the last thirty years. California has supplanted local control of public schools and to a great extent, local governments with broad supervision and control from Sacramento. One of the "unintended consequences" of Prop 13 in particular has been the dramatic increase in developers cost when building new homes and businesses. Cities and counties now require that not only infrastructure improvements be included in the developers' plans, but also fire stations, recreation centers and in some circumstances public school facilities. All of these costs are imbedded on the real estate, thus accounting for a major portion of the high cost of real estate in California. Worse even is the fact that these costs, once provided by local government in the form of property taxes, are no longer deductible from ones federal income taxes. Thus, Californians pay the full impact of this cost! What Should We in Texas Do? 1. As citizens it is important to understand that we should not consider property taxes as a single aspect and determine they are bad. Rather, we should look at the broader overall tax picture (property taxes, sales taxes etc.) and consider our state's efforts to spread the cost of government among its citizens in a fair manner. Property taxes deserve inclusion in this effort given the reasons previously mentioned. Knowledgeable professionals are the first to admit that the Texas property tax system needs additional "tweaking ", particularly in the enforcement of uniform rules and 12 • regulations and the conduct and impartiality of the Appraisal Review Boards. Nevertheless, property taxes a4 clearly and important and necessary part of the total tax equation. 2. As Texas citizens we should work to minimize our tax burdens. We should also be very careful to understan that for a state to be able to provide the services to its citizens that establish a vibrant and economically strong comm nity; a necessity for a successful commercial endeavor, the state and local governments must have access to taxes. gain, Judge Holmes statement, `Taxes are the price we pay for rim' liiation "is an absolute fact. We should understand w at has contributed to California's struggles and insure that we do not emulate them in Texas. 3. Improve the process by increasing taxpayer awareness of their rights and opportunities within the existing pr perry tax system thru the appeals process. 4. Insure that the appeals process is fairly administered and is independent from those establishing the property alue. 5. Amend our Truth in Taxation laws to insure that a local governments desire to increase their property tax re nue be clearly understood and communicated to individual taxpayers in a manner that will insure that taxpayers awareness of the governmental intent. I 6. Ouit rely on pr taxes so much! Too often we hear of bond programs and special projects that appe 1 to many citizens. Within the framework of the presentation of such programs should be a definitive and accura e estimate of the property tax impact that each citizen can expect if such a program is enacted. Programs orde d by the State or Federal Government requiring a property tax increase should be eliminated or funded by the app opriate authority. Summary: Texas is the greatest place in the world to live! Let's keep it that way! I! 33 f i 13 The Roundup on Agricultural Property Tax Appraisals The Roundup on Agricultural Property Tax Appraisals" is from the October 2010 issue of The Cattleman magazine. By David F. Crosby i Hard decisions are ahead for state senators and representatives in the 2011 session of the Tex}rs Legislature. The state faces a multi - billion dollar budget shortfall and legislators must turn in a balanced budget by the end of session. Will agricultural -use valuation for rural lands be on thg negotiating table? Probably, yes. Are rural lands getting a "tax break "? No. Rum! lands actually subsidize urban and suburban areas. For every $1 raised in property taxes on farm or ranch land, the property owner receives 37 cents back in public services. Residential landowners never quite cover their bill, paying in $1 for every $1.19 they receive in public services. Those quiet country acres provide more than peaceful vistas. They provide food production and value. Whenever the budget slips into the red, ranchers begin to cast a wary eye toward Austin and th Legislature. In the past — such as when the state needed to increase funding for public schools — urban Democrats would begin to howl that agricultural property tax appraisals removed too much property value from the tax rolls and that corporations and the rich gamed the system. They argued that the rules should be rewritten to tighten the requirements to allow only full -ti e ranchers and farmers to claim the property tax reduction. Rural legislators never let those arguments get any traction, but now that the state faces a deficit once again some ranchers wan to know where agricultural property tax appraisal politics stand. So here is a roundup on this bread- and -butter issue. The history of agricultural - use appraisals Texas taxed ranch and farm land at its market value until the 1960s. When urban growth took hold in the state, a problem began to occur. Land development increased the value of land used for agricultural operations whether the ag producer intended to develop the land or not — especially land near urban areas or in fast - growing counties. In many cases, land values jumped' dramatically and so did taxes. Recognizing that increasing land values and correspondingly high property taxes would force many ranchers and farmers out of business, the voters amended Article VIII of the Constitution in 1966 to allow the first agricultural appraisal law — Section 1 -d. Under Section 1 -d agricultural land was taxed on its capacity to produce agricultural products, not its market value This appraisal method resulted in significant tax savings for the property owner. Section 1 -d had problems, though. It protected only family -owned ranches and farms and had other restrictive qualifiers that limited its usefulness, such as a requirement that the ag producer earn income primarily from agriculture. In addition, in the early years of its implementation, county appraisal districts' (CADs) procedures and methods for administering the agricultural -use appraisals varied widely. To fix the core problem — protecting agricultural land from rising market prices and property taxes — a less restrictive law was needed. In 1978, voters once again amended the constitution, adding the Section 1 -d -1 appraisal. Section 1 -d -1 dropped the income and occupation tests, and opened eligibility to modern business structures, such as corporations and partnerships. Section 1 -d -1 quickly became the predominate agricultural -use appraisal in Texas and commonly became known as the "open- space" exemption. Agricultural -use and open -space appraisals Two appraisal methods for agricultural property taxes currently exist in Texas— the Agricultural -Use Appraisal Section 1 -d and the Open -Space Appraisal Section 1 -d -1. Only full - time ranchers and farmers can utilize Section 1 -d. Agriculture must be their primary occupation and provide the bulk of their income. In addition, only individuals can utilize Section 1 -d — corporations and partnerships don't qualify. Under Section 1 -d, both the land and the landowner must qualify for the tax reduction. The land must have been used for agricultural purposes for three years preceding the application. Timber production does not qualify as an agricultural use of the land. To utilize Section 1 -d, the landowner must submit documentation proving their qualification to the CAD every year. Once approved, the county appraiser will appraise the property based on its capacity to produce agricultural products, not its market value. The most commonly used ag -use appraisal is the Open -Space Appraisal Section 1 -d -1. Only the land need qualify for the Section 1 -d -1 appraisal. The landowner's occupation and sources of income do not come into play. Corporations, partnerships and other business entities can use it. To qualify, the land must be used principally for agriculture to a degree considered normal for that area for at Least 5 of the last 7 years, and the landowner must initially file the information needed to determine the validity of the claim with the CAD. Timber production is considered an ag use under Section 1 -d -1. Once accepted, the information need only be amended when ownership or land use changes occur. The landowner does not need to reapply every year as with the Section 1 -d. Wildlife management -use appraisal In 1995, Texas voters amended Article VIII, Section 1 -d -1 of the Texas Constitution to allow productivity appraisal of land used to manage wildlife. House Bill 1358 implemented the amendment by adding wildlife management as an agricultural use of land, and including it in the Property Tax Code. The law became effective in 1997. Many ag landowners take advantage o 7 the Wildlife Management -Use appraisal. Before land can receive wildlife management -use appraisal status, it must have been appraises and qualified as open -space land the year prior to application. The second requirement is that the land must be used to sustain breeding, migrating or wintering of a population of native wild animals. Land may also qualify if it supports a breeding, migrating or wintering population. In other words, birds or other animals do not need to permanently reside on the land; they can simply migrate across it or use it seasonally. The third requirement is that the wildlife population must be supported for a human use, such s food or recreation. Recreational uses can include hunting, photography, bird watching, hiking and other activities for pleasure or sport. Enjoyment derived from land ownership and managing wildlife is also a qualifying recreation use. Habitat control, erosion control, predator control, providing supplemental water, providin supplemental food, providing shelter and making census counts are approved wildlife management activities. For land to qualify under Wildlife Management Use, the landowner mi. st implement at least 3 of these 7 approved practices. If is not an ag exemption Many people call these special appraisal methods ag exemptions, but that is a misnomer that leads to misunderstanding and, often, outright animosity from urban property tax payers. Agricultural property in Texas does not receive an exemption from taxation. Instead special appraisal methods are used to reduce the taxable value of the property to balance it against the land's actual capacity to generate income from agricultural use. Two valid reasons exist for the state to allow the use of ag special appraisal methods. First, urb sprawl and market forces can drive the true market value of land to a point that paying taxes o the full- market value of the land would make agricultural use of the land not commercially viable. Since Texas agriculture generates about $20 billion in cash receipts and $100 billion in downstream economic benefit every year, and 1 in every 7 Texans works in an ag- related job, allowing commercial land valuations and ever - growing and insatiable school district budgets toi choke the life out of ranchers and farmers makes little economic sense. Second, they help preserve open -space land. A study by the Texas A &M Institute of Renewable Natural Resources found that from 1997 to 2007 more than 2 million acres of Texas ranches, farms and forestlands were converted to othe uses, primarily due to population increases in the state's 25 fastest - growing counties. According to the study, for every 1,000 new residents in a county, about 149 acres of agricultural land is converted to a non - agricultural use. Ag special appraisals cannot stop this relentless tide of urban development, but do slow down its destruction of valuable agriculture land. The environmental lobby The environmental lobby supports both agricultural- and wildlife management - special appraisals for landowners. Ken Kramer, chapter director of the Lone Star Chapter of the Sierra Club, stating his organization's position on the subject, said, "The Lone Star Chapter of the Sierra Club has supported and continues to support the open space and wildlife management tax breaks as important tools for maintaining open space, supporting wildlife protection, and helping to prevent fragmentation and development of land, changes that are detrimental to wildlife, water quality and land conservation." The open -space lands maintained by these tax reduction appraisals provide enormous environmental benefits. They offer food and shelter to wildlife, help control flooding, protect watersheds and help maintain air quality. They absorb and filter wastewater and recharge groundwater. World and national food security Much of the world depends on U.S. food exports to feed its citizens. In effect, saving Texas ranch and farmland from development is an investment in safeguarding the nation's food supply and the agricultural exports that help feed the world. As the world's population increases and global agricultural markets open, it becomes more important to protect agricultural land from urban development for both economic and national security reasons. Agricultural land is vulnerableto developers The attributes that make land good for agricultural operations also make it attractive to developers. It tends to be flat, well drained and affordable. For this reason, the best agricultural land is sought by developers. Once developers fragment it and begin building, it is lost forever to food production. Ag- and Wildlife Management -Use appraisals help keep this land engaged in agriculture for as long as possible. Ranchers are stewards of the land and rural communities Private citizens own practically all the land in Texas. These landowners determine the fate of their land. Developers turn land into housing subdivisions and shopping malls. Ranchers and farmers conserve scenic and cultural landscapes, plant crops that feed the population and help build and support communities in rural Texas, where the jobs they offer are especially needed. Endangering ranches and farms endangers these already struggling rural communities. Cost of community services Urban dwellers often complain that agriculture gets an unfair tax break on property valuation, that land should be put to its most economic use, and that turning agricultural land into developed land will lower property taxes for everyone by increasing the tax base. These arguments appear valid until you look at the real property contribution of agricultural land to tlpe tax base, versus urban land and structures. A 20 -year study by the American Farmland Trust found that, while agricultural land generated less revenue per acre than urban land, it required little public infrastructure and fewer service resources, such as police, fire, and schools. In fact, agricultural property owners pay much more in property taxes than they get back in governmental services. For every dollar raised in property taxes on ranch or farmland, the property owner receives 37 cents back in public services. For every dollar raised in property taxes on commercial and industrial land, these lands receive 29 cents back in public services. Residential properties receive $1.19 in public services for every $1 paid in property taxes. Farm and ranch land, and commercial and industrial lands, are net payers into the property tax system. On the other hand, residential property requires a vast infrastructure to handle traffic , problems, crime and ever - growing need for schools. It does not pay its way and constantly seelts subsidies in the form of taxes on others to survive. This is the core of the property tax conflict between the urbanite and the rancher. The same research revealed that industrial property paid much more in property taxes than it received in infrastructure and service resources. The answer was clear — converting agricultur 1 land to residential land will not balance urban budgets; to accomplish that, residential communities need to attract industrial development. The bottom line Urban citizens critical of ag appraisal laws argue that they rob the state of about $2 billion in property tax revenue needed primarily to fund schools. A quick look at the numbers disputes th s logic. Agriculture brings in more than $100 billion in economic benefit to the state every year. That money helps all Texans by providing jobs for both urban and rural citizens, lower food bills, and food security — a vital component of national security. Agriculture also helps conserve rural communities, provides hands -on work in environmental preservation, fosters and protects native wildlife, and preserves open spaces and the scenic views that make Texas such a beautiful state. Agricultural -use appraisals fight the tendency of urban areas to force ag producers to subsidize city services. Agricultural -use special appraisals were needed in 1966; they are indispensable in 2010. The Roundup on Agricultural Property Tax Appraisals" is from the October 2010 issue of The Cattleman magazine.