In 2003, Houstonians amended their city charter to provide that the City Council could not raise the total amount it collected in property taxes by more than the sum of inflation and population growth, without getting their permission. Since then, a succession of mayors and council members have chaffed at the idea that voters were not willing to give them unfettered discretion to raise taxes by as much as they want.
Every time the City gets into financial exigency, which is pretty much every year, City officials blame the 2003 charter amendment, deliberately mischaracterizing it as a “revenue cap” and calling for its repeal.
One of the arguments regularly floated to support repeal is that Houstonians pay lower property taxes than other major cities in Texas. For example, this slide from a recent presentation by the City’s finance department compares the tax rates of the other five largest cities in Texas, showing that Houston has the second-lowest property tax rate.
Of course, the property tax rate is just one of the numbers that determines the actual property tax amount. The other is the appraised value of the property. In addition, many other factors must be considered when comparing the property tax burden these cities have placed on their residents.
At the Baker Institute, we examined the relative property tax burdens on the residents of Texas’ five largest cities. We did so by taking the total property taxes assessed by each city and dividing them by the population to derive the per capita property tax burden imposed by each city. That analysis showed that Houston’s per capita property tax burden was only about 10% below the average for the other Texas cities.
We then calculated the per capita property tax burden as a percentage of the per capita personal income for each city, as shown in U.S. Census data. This showed that Houstonians pay approximately 1.7% of their income in property taxes, which, again, is only slightly lower than the average for the other cities.
The City recently released a dire five-year financial projection, which showed general fund deficits ballooning to over $400 million annually by 2030 (see p. 38). And that is after the savings the City hopes to realize from the recent Efficiency Study. Frankly, even that bleak assessment probably does not capture the true financial challenges the City faces, with likely stagnating population growth and badly deteriorated infrastructure.
However, the poor financial condition of the City is not due to Houstonians being under taxed. It is because the City gives away half of its sales tax revenue each year to public transit; it continues to give its employees antiquated and financially crippling defined-benefit pension plans; and it gives away almost 15% of its property taxes to tax increment zones that mostly goes to benefit wealthy neighborhoods and to support a TIRZ cottage industry of consultants, attorneys and bureaucrats.
Houstonians may be forced to approve high property taxes for the City to work its way out of its fiscal mess. However, it would require an increase of staggering proportions to solve its problems with just higher property taxes. It would be an increase so large that it would send even more Houstonians running for the exits.
