Following the release of a report stating that Austin commercial property in Travis County is “significantly undervalued,” City Council is considering an appraisal challenge that could reduce the burden on residential property taxpayers.
Council discussed the potential move at a Tuesday work session, during which Budget Office and Law Department staff said the city would have to file a petition with the state’s Appraisal Review Board by June 1 in order to move forward this year.
If the independent board were to rule in favor of the city, the Travis Central Appraisal District would have to reappraise the Austin commercial properties for which it is responsible, potentially increasing their valuation.
Mayor Steve Adler said that he hopes the city can enter into a conversation with the appraisal district to ensure that such valuations are reflective of market values.
“I look forward, with additional methodologies or with additional data, to discussing ways that, together, this community can move forward to where the ad valorem and property tax system is fair to everyone, regardless of the kind of property that they own,” Adler said.
Mayor Pro Tem Kathie Tovo, who sponsored a resolution on Thursday’s agenda that would direct staff to file a petition by May 31, encouraged members of the public to comment at or ahead of the meeting. However, she and many of her colleagues indicated that they do not plan to take action until the following Council meeting on May 28.
Prior to the discussion, Adler’s staff released a previously confidential report that asserts that the appraisal district undervalued commercial property by an average of 47 percent from 2012 through 2014.
The appraisal values, the report reads, “would have needed to increase by an average of 47% before the properties would be assessed at their market values as mandated by the Texas Constitution.”
Though there was speculation that much of the undervaluation resulted from property owners protesting the appraisal district’s initial appraisals and getting them lowered, the report states that “only a small portion” of undervaluation was related to this process. “The median undervaluation in the initial TCAD appraised values before protest was 40% compared to the 47% found in the final TCAD appraised values after protest,” it reads.
According to the report, “The greatest undervaluation was for unimproved or under-improved land.” During the study period, it continues, the “appraised value of the typical Austin undeveloped or underdeveloped land parcel would need to almost double to reach the level of its market value.”
If the city were able to successfully challenge the commercial appraisals for the current tax year, the report states, commercial properties could yield increased tax revenue this year: “If that additional revenue was used to decrease the city’s property tax rate, there would be potential savings for both Austin renters and homeowners through lower property taxes.”
The report concludes that “the primary cause of the undervaluation appears to be the unavailability to TCAD of sales price data on commercial properties.” Texas is a nondisclosure state, meaning there is no state law requiring the parties involved in a property transaction to disclose the sale price.
Council directed staff in a June 2014 resolution to initiate a commercial property valuation study. Aegis Group, which carried out the study, based its results on a sample of 735 sales of commercial parcels in Austin from 2012 through early 2015.
Deputy Chief Financial Officer Ed Van Eenoo told the Austin Monitor that Council could potentially incorporate such changes into the upcoming fiscal year 2015-2016 budget, though the challenge petition would impact the adoption process.
Under normal circumstances, TCAD would certify the tax roll on July 25, Council would adopt the budget and tax rate between Sept. 8 and 10, property tax bills would go out in October and property taxes would be due by Jan. 31.
If the city were to file a challenge and win, TCAD would certify the tax roll in November, Council would set the tax rate in the middle of December, tax bills would be mailed in the middle of January and property taxes would be due on March 1.
In addition to putting tax revenues behind by about a month, Van Eenoo said the new timeline would force the city to adopt a tax rate after adopting a budget. The City Charter requires that Council adopt a budget by Sept. 27. Although Council traditionally adopts the budget and tax rate together, Van Eenoo suggested an alternative timeline that would nonetheless conform to the Charter’s requirements.
“We would go through our whole budget process, determine what the budgetary needs of the city are and set our revenue projections accordingly,” Van Eenoo said. “Then we would look at property tax revenues in regards to how much property tax revenue we’d need in order to keep our budget in balance, and then we just wouldn’t set the tax rate until we knew what tax rate we needed in order to generate that amount of revenue.”
If the Appraisal Review Board does not rule in favor of the city and there is no reappraisal, TCAD would certify the city’s tax rolls on Aug. 28, which is about a month later than the normal timeline but before Council’s budget adoption deadline.
Even if the city were successful in its challenge and TCAD increased commercial property appraisals, Van Eenoo said, individual property owners would be able to protest those increases and potentially have those appraisals lowered.
