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Friday, May 29, 2015 by Elizabeth Pagano

Council moves forward with appraisal challenge

City Council presented a united front yesterday and voted unanimously to file a petition challenging the Travis Central Appraisal District’s valuation of commercial properties this year.

On May 19, the city released a report that showed undervaluation of commercial properties by an average of 47 percent from 2012 to 2014. Many reason that this disparity has led to residential taxpayers shouldering a disproportionate amount of the tax burden.

Austin residents showed up to support the challenge, which they hope will pave the way toward increased affordability and more equitable property tax bills. But nearby taxing entities urged caution, asking Council to consider the ripple effect the move could have.

Though it seems clear that the city will move forward with filing the challenge posthaste, the state’s Appraisal Review Board has 10 days to set a hearing. Before that, the city has the option to back out of the challenge.

In the meantime, filing the challenge allows the city to share data it has collected that shows commercial property has been undervalued in appraisals. Because the state does not have a law that requires property buyers and sellers to disclose sale prices to the government, the appraisal district has not previously had access to that information.

During Tuesday’s meeting about the potential challenges, appraisal district attorney Debbie Cartwright said that the city’s filing of a challenge petition would allow the city and district to exchange that information – even if the petition was later revoked.

Though he didn’t state that scenario as his intention outright, Mayor Steve Adler hinted at the option during his remarks. He noted that the city would be allowed to continue conversations with the chief appraiser “for a couple of weeks,” and that conversations between city attorneys and attorneys for other jurisdictions would also continue to take place.

“This is truly a collaborative effort, as evidenced by the unprecedented conversation we had in this chamber earlier this week,” said Adler.

If a challenge moves forward, it could present issues for the city’s budget process. Deputy Chief Financial Officer Ed Van Eenoo told the Austin Monitor that “it definitely complicates things.” Though no one knows precisely how long it might delay certified appraisals, any postponement means the city will have to set its tax rate later than scheduled.

Van Eenoo explained that while it is possible to move forward with a September budget without a tax rate, it’s not possible to determine what the fiscal impact on taxpayers will be without knowing what the tax rate is. If the city were successful in its challenge, certification of the tax roll would be bumped to mid-November instead of July 20 as currently planned.

In other words, though Council is moving forward with the explicit intention of lowering the residential tax bill, that result might not be guaranteed at the time the budget is adopted.

“It’s not ideal, but this whole construct that state law has created sets a deadline for doing these things,” said Van Eenoo. “You can’t estimate exactly what their tax rate is going to be. … If we are highly successful with increasing commercial values, then the tax rate would be lower. If we’re not as successful with our increase in commercial values, then the values would be lower, and the tax rate to balance your budget would be higher, and the ultimate impact to your residential taxpayers would be unknown until we get that certified tax roll.”

If the city moves forward with the challenge, and TCAD does not certify the appraisals until November, the city will have 60 days to set the tax rate, although that rate will be dictated largely by the already adopted budget.

Though Adler emphasized the collective nature of the decision to move forward, some of the 100-odd taxing entities that could be impacted by the challenge were on hand to ask the city to do the opposite.

In a letter, Round Rock Mayor Pro Tem George White wrote, “This action will disrupt other independent governing bodies’ ability to set tax rates and collect tax revenues necessary to provide essential city services. Austin’s filing of a challenge petition will have a negative impact on the City of Round Rock and as many as one hundred other local political subdivisions.”

White goes on to explain that while the concern with commercial appraisals is understandable, the city disagrees with the timing and method of the challenge because “it has not been conducted with the involvement of Austin’s regional city partners and will be detrimental to the operations of many entities.”

Cedar Park City Manager Brenda Eivens echoed those concerns to Council and, later, to the Austin Monitor.

Eivens said she wasn’t yet sure of the impact a challenge would have, but is concerned about how to handle a budget without knowing what the city’s change in cash flow could be.

“Are we going to have to put off capital improvement projects we were planning at the front of our budget … to ensure we have cash to be able to pay for things? … It’s requiring that our normal course of business and operating procedures and our payment processes be impacted by this.

“When you don’t have a tax rate or budget, and you’re trying to go to your public and communicate about a substantial bond program for some of those needs, I think it makes our communication on accurate tax financial information incredibly difficult,” Eivens continued. “So we’re concerned about some of these indirect impacts and what that means for us.”

Eivens also worried about the potential impact on residents. She said 60 percent of her residents pay taxes through escrow. Typically, at the end of the year, their lenders get a tax bill, and the mortgage company pays it. Eivens explained that if those people can’t pay by December, they can’t use it as a tax deduction.

Speaking to the Monitor, Cedar Park City Council Member Corbin Van Arsdale put a finer point on it.

“The irony of that is they’re doing it in the name of helping out the homeowner taxpayer, sort of at the expense of the business taxpayer,” said Arsdale. “But if at the end of the day the homeowner taxpayer has to pay more taxes at the end of the year, that would probably not go over too well.”

This story completed with the help of Sunny Sone.

Image by Images Money available through a Creative Commons 2.0 licence.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Texas Appraisal Review Board: A group of citizens that resolves disputes between taxpayers and appraisal districts.

Travis Central Appraisal District: The tax appraisal district for Travis County.

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