Why Tax Increases Generated by Appraisal Hikes Are Bad Public Policy and BAD Public Finance

I have a friend who is running for local office in the upcoming Texas school board and municipal elections in May, and like many people concerned with issues of public finance he is wondering how lowering Appraisal Caps will affect future public finance.

Specifically, candidates for office want to know if lowering the cap on CAD Appraisals from the curent 30%-over-3-years to the 5%/year now being proposed in Austin will put them in a future position, if they are elected to public office, in which they eventually be compelled to either raise taxes or cut services.

My friend's email to me on the subject is a good example of the concern many people who are already on school boards and city councils have expressed over lower Appraisal Caps.

He writes:

I have read the proposed bill and would like to know your thoughts and I mean
objective thoughts on this issue. You are obviously in support of the bill
as most of us are, but I want to hear what the other side is saying, other than,
it will affect school/city/county services. I want to know how it
will affect those services and how soon, if at all. With the
growth we are experiencing, it seems like a great time to enact such
a limitation but I want to be sure.

I don't want to be put in a position that I would have to raise taxes on our citizens or cut services because the funding isn't keeping up with the cost. [ Emphasis mine -- Tom]

I need to hear as many pros and cons on the issue as I can get and obtain as much
information as possible before I can justify my support of this bill.
Let me know what you know on this bill and if you have heard from those
opposing, I would like to hear what they are saying as well.

I've been asked for my objective thoughts, and I will begin by stating, in no uncertain terms, that I am in favor of lowering the Appraisal Caps and opposed to financing growth in government services through CAD Appraisal increases for very objective reasons that have everything to with the principles of sound Public Finance, and everything to do with opposing harmful schemes of Public Finance.


( Opponents of lower Appraisal Caps have attempted to paint a completely false and misleading picture of the principles of Public Finance involved here, and they have also attempted to convince people that the millions of Texas Taxpayers who favor the Appraisal Caps are just "raising hell" over higher taxes and "don't care" about the "future consequences" of lowering the caps. )


To begin with, a higher tax bill on a homeowner generated by a CAD appraisal increase is, in fact, a tax increase. ( Opponents of lowering the Appraisal Caps have always attempted to confuse the public debate by blurring the distinction between increases in actual taxes owed and increases in the tax rate approved by elected officials and voters. In accounting terms, this is no different from the shell games played by the crooks at Enron.)

However, it is a very bad type of tax increase that violates every good and sound principle of financing government and leads directly to the very problems ( raising tax rates or cutting services ) that my friend --- and everyone else who is concerned with the future consequences of public finance schemes --- wants to avoid.

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it's a "painless" one for the politicians and thus fails to give them an incentive to keep their fiscal ship in order. That's the best way anyone ever came up with to drive costs through the roof and thus cause real problems with the future provision of services against available revenues and create the chance of a future cutback.

The appraisal cap issue is about a lot more than just the taxpayers getting angry over high taxes. It's about very fundamental issues in public finance, and what its good to do and what its bad to do, and these types of painless tax increases are very bad for a community's future fiscal condition.

For in reality, there is never enough money, and funding never keeps up with costs.

This is especially true in a period of growth, we can never actually keep up with total demand for services. In one way it is sorta like trying to fix all the potholes in the roads, you get some of them, the big ones, but you've got other things you have to do.

The trick is not to "keep up with the growth," it can't be done.

The trick is to keep the government entity which is struggling with growth from doing too much in the boom period, because when the growth comes to an end, so too does the growth in the revenue stream it was producing as a side effect, and that's when the cuts in services come.

Fiscal discipline, solid planning and telling the people the truth and taxing according to what we really need to do based on a solid plan is the only way, and everything that militates against that, especially painless accidental tax increases, are bad for the future and will lead to cuts when the growth runs out.

A case in point: look at the state government right now. Perry has given the leg a budget calling for $8.8 billion in spending increases.

Two years ago they had to cut $10 billion in the previous biennium's spending increases when the recession brought down revenues.

The spending increases from four years ago were the result of a boom in tax revenues brought on mainly by a period of robust economic growth --- to put it another way, it was just like the tax revenue generated by increases in appraisals, it was just an accident dumped into their laps, and they spent every cent of it and as a result when the revenue stream created by the growth rate came to an end they had to cut back. And $10 billion is a lot of cutting back.

And now the economy has dropped some of it back into their laps temporarily, and they are gonna spend it all again, thus ensuring another round of cutbacks later when the revenue growth stops again.

The money dropped into their laps by accident is driving the spending increase, not any actual scientific, managerial and professional financial measure of what they have to do to provide adequate services.

If we let these temporary accidental increases in revenues driven by the artificial increases in the appraisals drive the spending pattern, rather than deciding what we really need to spend and then taxing accordingly and telling the people this is what we've got to do, we are conducting our city business by accident or fate, not by sound planning.

And when those appraisal values level off or fall, we've got real problems.

For one, we've been lying to the people about taxes instead of telling them the truth. But then when it all tumbles down and we really do have to raise taxes, they are used to being lied to and think we're cheating them. What? A TAX INCREASE???