Texas is considering a 2.5% cap on tax revenue collected year over year (YOY) by taxing entities (school districts, cities, counties, etc). I previously wrote a lengthy article, looking at the previous 10 years to determine what the cap would have cost Texas schools if the cap had been in place. The results were startling, with a gap created of $30 Billion from 2008–2017.
To try and illustrate how a cap like this works (and doesn’t work), I thought I’d create an example “My Town”.
My Town has one neighborhood with 100 homes in it, all valued at $100,000 each.
The My Town School District has a tax rate of 1.04 for every $100 of property valuation.
With 100 homes, all worth $100,000, that means the My Town property valuation totals $10,000,000. When I take that valuation and the My Town School District tax rate is applied, each homeowner would pay $1,040, with the school district collecting a total of $104,000 in revenue.
When we go into year two, the 100 homes in the neighborhood all appreciate 2%, and are now worth $102,000. Someone builds a new neighborhood in My Town, adding 20 homes, all worth $100,000 each. My Town School District keeps their tax rate static, at 1.04 per $100 valuation.
My overall My Town property valuation is now $12,200,000. That’s a 22% increase, based on both property appreciation and new growth.
Without a cap, and with my tax rate staying static, the My Town School District would collect $126,880 in revenue. This is an additional $22,880 vs the year one revenue, which allows the district to pay for new teachers, educational materials, etc.
There is a reason that people are still moving to Texas while many states in the US are seeing declines in population. From 2008 through 2017, Texas has seen an average of over 76,000 new children moving into our public schools every year. That’s a lot of families. As that continues, properties will appreciate. New communities will be built. Our local infrastructures, services and schools will have to keep up. Let the local markets and local communities decide what they need. We don’t need to hamstring them with revenue caps.