By Tim Brown, Bell County Commissioner, Precinct Two
Anti-government, anti-tax sentiment is all the rage these days. It has come to dominate political dialogue and, to an increasing extent, policy.
Since Texas is heavily dependent on property taxes to fund local government and public education, rates here are higher than in states which rely more heavily on other sources of revenue, such as a state income tax. This has fueled cries for property tax relief and the Lieutenant Governor has identified this as a legislative priority. The discussion around this issue, however, has focused not on examining legitimate ways to reduce the costs of government, or alternative ways to fund essential governmental services, but rather on various devices to arbitrarily “cap” property taxes (affecting local governments only), either through modifications to the way properties are appraised for the purposes of taxation or through restrictions on the total amount of revenue local governments may receive. Both ideas will produce dangerous, unintended consequences but, since the focus of current discussion is on revenue caps, rather than appraisal caps, let’s look at this concept more closely.
Citing examples of double digit growth in the taxes as proof of “run-away” expansion of local government, proponents seek to impose a cap which would limit the rate of increase in the revenue a local government may receive to some defined measure of inflation. On its face this idea sounds sensible enough but is in fact problematic for several reasons.
First, the underlying premise is flawed. In looking at growth in revenues from property taxes, proponents of caps fail to note that the bulk of the revenue increase in recent decades has come from growth in the tax base (total value of taxable property), not the tax rate, which is controlled by local officials. And this increase has been driven by population growth and the new construction that comes along with it – not from indulgent spending or hikes in tax rates by local governments. When the value of new construction is removed from the calculation, the rate of growth in local government budgets has been very modest. More importantly, they also fail to note that population growth brings with it an increase in demand for the basic services local governments provide – more streets and highways to build and maintain, more police, fire and emergency services, more cases in the courts, etc.
Secondly, limiting revenue to some benchmark of inflation requires defining what an appropriate measure of inflation is. For local government spending, no standard measure exists. Commonly cited indexes, such as CPI, measure the costs of consumer goods representing a cross section of normal domestic buying habits. But local governments have a different “shopping list”. Our budgets are heavy in concrete, asphalt, steel, heavy equipment, specially equipped vehicles for law enforcement and emergency response agencies, information technologies, etc. – all expensive and subject to market forces not normally felt by domestic consumers.
Thirdly, an arbitrary cap denies local governments the flexibility needed to respond to major emergencies or swings in the economy. Counties impacted by natural disasters may encounter extraordinary costs that can’t be covered by normal revenue streams. A major weather event or wildfire could literally bankrupt a city or county. Local officials’ hands would be tied.
But there is a larger and more insidious aspect to this policy that isn’t immediately apparent. Statutory restrictions on the authority of locally elected officials to make decisions about spending – and taxes – amount to a de facto transfer of authority from local governments to the state. This is the California model of government, put in place in 1978 with the adoption of the now-famous Proposition 13, an initiative designed to reduce property taxes there. History has clearly shown us that Prop 13 actually resulted in a loss of local control and an unprecedented expansion of state government. It gutted the ability of cities and counties to provide essential services and put in place an inefficient, top-heavy system of agency-controlled, formula and block grant based distribution of state funds for transportation, public safety, public health, public education, etc. and the measurable level of service or performance in each in each of those categories has declined steadily over time. By any measure, this approach to government has been a dismal failure in California and other states where similar initiatives have been tried.
Why would we take Texas down that road?
The answer is purely political. Proponents of caps conveniently point to local governments as the villains responsible for high property taxes. This is a deliberate application of an old magicians’ device known as misdirection – focus your attention over there so you don’t notice what’s going on over here. Advocates of caps fail to note that in Texas, most essential governmental services are provided through local governments, and the costs of these services comprise the bulk of local budgets. This is particularly true for counties, whose duties and responsibilities are narrowly and specifically defined by state law. The costs of these services are tied directly to market forces and population-based demand. Moreover, in recent years notable increases in local government spending have actually been driven by the state. For example, following the economic downturn in 2008, the legislature, desperate to not raise taxes, slashed funding for state mental health services. This forced an influx of patients with chronic mental disorders into county jails where local tax payers are legally required to pay the bills. The result was a significant increase in jail costs, a situation counties continue to struggle with today. This is just one of many examples. And, remember, these mandates do not go away when Austin politicians tweak the mechanisms of the tax system.
I encourage everyone to examine this issue very carefully and recognize it for what it is – a disingenuous effort by a few to curry political favor by championing a flawed populist notion with no regard for the long-term consequences. There may indeed be some minor benefits for certain classes of tax payers in the short term, but, make no mistake, the end results will be a loss of local control, reductions in essential services and bigger government in Austin.