Property tax Q&A with McLennan County Chief Appraiser Joe Don Bobbitt: Texas’ system challenges easy understanding | Opinion

Question: Every so often we go through angst, outcry and the gnashing of teeth over property appraisals mailed out by the McLennan County Appraisal District. This year is no exception. Is there anything different about this year as opposed to previous years? I mean, obviously, your office pegged the rise in property values at an average of 30 percent in general market values, not taking into account the 10 percent homestead cap that people sometimes forget when hyperventilating or certain tax exemptions allowed by state legislators. Has the temperature in encounters with property owners risen?

Bobbitt: The conversation has changed from year to year in the past. Maybe we’re starting to get the word out about how all this works. But it seems like even though property values have gone up exponentially compared to previous years, the people who come in have for the most part been understanding. They know the real estate a has changed. They just want to make sure their values are correct. But we haven’t had as many as in the past who are upset — people who, you know, can’t listen or don’t want to listen and are just mad about the situation. There’s actually been less of that this year than in the past, which is surprising. So far the ones who have scheduled a meeting with us and have come in to talk to us informally — most of those have left amicably.

Q: Why do you think people are more reasonable? I mean, I’m the guy on the Waco Tribune-Herald opinion page who gauges political temperatures, which I would say are very, very hot lately in matters admittedly not always related to property taxes. A group of angry taxpayers showed up at the county commissioners court recently. I mean, they were upset and lashing out at everything and everybody. They were also confused. Many clearly didn’t understand the system. For instance, one woman castigated county commissioners for not promptly paving Bosque Boulevard. I say all this with understanding and empathy because, well, the Texas property-tax system is pretty byzantine.

Q: Yet you say you’re not seeing that kind of thing the way you have in years past.

Bobbitt: Not yet. People first experience sticker shock over their values (as appraised). Even my staff, when some of them saw their own values — and they know what’s going on in the market — but it was still like, “Man, that can’t be right.” But then you go and look at the data, and it is right. So there’s initial shock, but most people, when we talk to them, they understand market forces. They don’t like it. The biggest fear is that because the market went up 30 percent and because of years past involving the market and the tax rate, they worry one will follow the other (in rising). Your taxes were more based on value because the governing entities didn’t have to lower their rate to stay under the voter approval rate [which kicks in when property-tax revenue rises to a certain point].

Q: And now we have a 3.5 percent cap in year-to-year property-tax revenue growth for cities and counties and a 2.5 percent cap for year-to-year school property-tax revenue growth per state legislation passed in 2019. [NOTE: An April 2022 Texas Taxpayers and Research Association report pronounced the new state caps successful despite Texas’ hot real-estate market raising property values: “Though few tax bills are actually shrinking, the spiraling growth of property taxes of the past few decades has been abated. As property values rise, jurisdictions are finding they must cut tax rates or face voters. As a result, property tax rates are dropping like never before. And that has translated into taxpayer protections. Based on historical trends, TTARA estimates Texas property tax bills would have been $6 billion, or 8%, higher in 2021 had it not been for property tax reforms lawmakers enacted recently.”]

Bobbitt: That’s probably the biggest change. That’s been in effect for two years, but there’s always been some disaster. There was COVID, then there was Winter Storm Uri (in February 2021). And in disasters state law allows governing entities to opt out [of the property-tax revenue scheme] and go back up to 8 percent. Again, that’s because there was a disaster. That’s because usually when there’s a disaster, additional costs are incurred on local governing entities and that’s their fallback [to cover costs incurred because of disaster]. I mean, there have been things outside our area that have been formally declared disasters just this year. COVID is not eligible as a disaster this year, but with fires and flooding, tornadoes, there are some counties that may fall into that category. As far as I’m aware, there haven’t been any of these in McLennan County.

Q: Let me go over some ground you covered when you very thoughtfully visited the Waco Tribune-Herald a couple of years ago and talked about property taxes and appraisals to our staff. First, I don’t hear Chip and Joanna Gaines of “Fixer Upper” fame blamed as much for rising property values as I did a few years ago. In fact, when someone blamed them during the taxpayer protest at the county commissioners court this spring, one of their number objected and said: “That’s not true.” OK, once and for all, what is the deal with Chip and Joanna when it comes to property values?

Bobbitt: Originally we weren’t sure of the direct impact they were having on the local economy [as opposed to such factors as, say, Central Texas’ growing appeal along busy Interstate 35 between Dallas/Fort Worth and Austin and other evolving economic improvements in the Waco area]. But now we’re seeing values increase in economies all around us, the entire state. I mean, Chip and Jo are great, but they’re not impacting the entire state market. They’re helping in doing a lot of great things in Waco, but there’s no way even they can impact these 30 percent increases across the state. So whatever impact they had is probably more localized to around the (downtown Magnolia Market) Silos. But beyond that? When Hill County and Bell County and Navarro County — when all those are going up in similar amounts, that’s beyond (the Gaineses’ influence). That’s really the state of the state.

Q: Are the Gaineses scapegoated in some ways?

Bobbitt: Especially this year if people are blaming them. If they had any impact, it would have been in the past. I don’t think this year has — well, I can’t measure it. I’ll put it that way.

Q: A few years ago I was out knocking on doors and interviewing homeowners about midterm elections and some people kept complaining about immigrants. I thought they were talking about people crossing over our Southern border, but they meant fellow Americans moving here from California or Colorado and buying up homes in McLennan County. That has been a theme I’ve heard a lot more this year. An acquaintance of mine from decades ago, Richard Petree, who has been serving as interim chief appraiser over the Bandera Central Appraisal District — I knew Richard when he was a kid, hell when I was a kid — he suggests a lot of what we see is a perfect storm that, among other things, simply involves folks caught up in the so-called “Texas miracle” and relatively low property values and the fact one can buy a whole lot more house fairly cheap here in Texas. Is that accurate so far as McLennan County housing sales and property values are concerned? Are we seeing a lot of people moving here from out of state? I can confirm that anecdotally but statistically that conclusion may be erroneous.

Bobbitt: I don’t have the data to say for sure, because I don’t know where everybody came from, but Texas A&M Real Estate Research Center did a study on it and they said it was less than what some people believe. Anecdotally it may seem pretty likely, but when they actually started looking at the numbers, it’s not. [NOTE: The Texas A&M Real Estate Research Center reports that more than one of every 10 people moving to Texas in 2020 was from California — and that in 19 of the 20 previous years, California ranked as the top move-to-Texas state. The only exception was Louisiana in 2005 as the result of Hurricane Katrina.] There’s probably not one scapegoat (rating blame for rising property values), it’s probably 12 different things going on and they all contribute. Construction costs impact — they’re up 17 percent right now. Builders are saying they can’t get doors, they can’t get windows, you have to get the appliances when you sign with the builder. So there’s backlogs affecting pricing. It’s just basic supply and demand, because for whatever reason more people are trying to buy houses. The other thing we’re seeing is more institutional investors. Large companies like Zillow come in and buy a bunch of them to be rentals or whatever the case is, and then you have Airbnb and the whole rental market. They’re using these for rental or short-term rental.

Q: And with fewer residential properties available, the price naturally goes up.

Bobbitt: It’s a lot of different things all impacting values at the same time. I mean, was Harvey the last hurricane? When that happened (in 2017), construction costs went up because all the material went south (for rebuilding). And it kind of got better, but then COVID hit (in 2020). Between all this, new construction costs can never quite catch up.

Q: Why is there this supply shortage presently?

Bobbitt: I don’t know if it’s the same as all these boats sitting off the coast, the trucking shortage or this shortage of people. I mean, I’m down eight staff out of 44. It’s like everywhere you go, there’s less people and I don’t know why.

Q: I’ve heard a lot of people are trying to get better jobs, which I can appreciate. That’s a good thing, a very market-driven, even capitalist-savvy thing, even if it means higher prices and stressed-out employers.

Bobbitt: There’s just a lot of strange things and I don’t know if it’s all because of COVID or just the repercussions.

Q: Is there one big misunderstanding that people have when they come in to question or protest their appraisals?

Bobbitt: (Pauses.) Well, with the whole process, they assume that the local governing entities [the school districts, cities, county and local community college] and my office work hand in hand and that these entities simply tell me they need more money. They assume those guys talk to me and say, “Raise the values, we need more revenue.” That’s not the way it works. They’re actually prohibited by law from even discussing values with us.

Q: Precinct 3 McLennan County Commissioner Will Jones mentioned something like that during a recent town-hall meeting held by Congressman Pete Sessions in West. He mentioned that as a commissioner he has to be very, very careful because of certain penalties.

Bobbitt: I think it’s a class A misdemeanor. I’d have to go and look. But if the school superintendent or somebody contacts me and tries to influence the values of local properties up or down, it’s a violation of the law. They can get fined. So they’re restricted from that. It has to be in a public meeting and even then it’s still real iffy if they’re trying to influence the values.

Q: Now, so far as property values go, county appraisal districts must abide by property-tax studies of a sampling of local property conducted by the state comptroller’s office. Now, these come out before you set appraisals, right?

Bobbitt: No. One misperception that gets spoken a lot is that the state tells us what to do and how much to increase the values. Yes, they forecast in the state budget how much values are going to go up, but they’re not telling us we have to hit that mark because there’s some counties out there in West Texas where the average value went up only 3 percent because there’s nothing going on [economically] while some others have gone up, say, 50 percent. Each county has a market specific to its area. And right now this is a property-value study for McLennan County, so we have to do the best we can with the data we have —

Q: And that data is limited in Texas, I know, because Texas doesn’t provide for disclosure of all real-estate sales prices.

Bobbitt: Yes, sir. And then the state gets all our data and all of our sales (as can best be determined) and then they have other sources. And they check all that. And after we’re done with all our values — and we went up an average of 30 percent in McLennan County — the state may well come in and say, “Well, you should have gone up 40 percent.” And then we get dinged. Or they may come in and say, “You should have gone up only 20 percent.” So they’re going to grade us after the fact. They’re going to tell us how far off we were by school district and by state code.

Q: That doesn’t strike me as very helpful.

Q: Wouldn’t it be better if the state comptroller did his study first in order to help set local appraisal districts on a more accurate course in appraisals?

Bobbitt: I don’t think they have the staff. Also, our state is prohibited by constitution from having a state property tax, so if the state is valuating everything ahead of time, that’s essentially what they’d be doing. So we have to hit the mark [in property appraisals], then the comptroller’s office comes in subsequent to that and determines whether we did a good enough job or not.

Q: And if the appraisal district overshoots or undershoots?

Bobbitt: Then we get two years of grace. That means we can screw it up for two years but the third year we better get it right. And as far as me, my name goes on a website saying I didn’t do a very good job. That’s really the only punishment I have beyond potentially getting fired if the appraisal district board gets tired of it. But really what happens is it affects school funding because the second reason behind the [state-comptroller] property-valuation study is state funding of schools and trying to share those funds between the rich schools and poor schools [in regard to property-rich or property-poor school districts]. And they use my values, total values, to determine, “This is how much taxable revenue there is in this school district,” and they use that to try and equalize. So if I intentionally keep the values low and that school gets extra state funding because it looks like they have less tax base to play with — well, the goal is to make sure I’m staying at 100 percent market value so that all of the schools are funded equally.

Q: Are we getting “dinged” a lot as you say?

Bobbitt: We got dinged in 2020 for McGregor. That was the first time since about 2010 or so. We went up 12 percent, the state said we were still 10 or 11 percent too low, so the next year we doubled down and hit it even harder, McGregor, and the state came back and restudied just McGregor and we were within the proper range — that is, within 5 percent plus or minus.

Bobbitt: It is. For a state that bases so much of its revenue on property taxes, we’re one of only three states that don’t have (property) sales disclosures. Actually, there are like nine states that don’t have sales-price disclosures, but some also have a state income tax.

Q: Is anybody in state government suggesting we have the cart before the horse in all this and that maybe the state comptroller should be doing his school-district property studies beforehand? That way you guys wouldn’t get dinged and appraisals would have the benefit of being bolstered by state authority at the comptroller’s office.

Bobbitt: No. The state doesn’t want that responsibility, that burden. Everybody’s happy with my office being the scapegoat, which is fine. We knew what we were getting into, and that’s fine. Again, the state’s not going to get into that. I don’t think something like that would even get very far in the Legislature. The biggest thing appraisal districts argue for is sales disclosure. If we’re going to have to do this, then tell us what they’re sold for. [NOTE: Given no state law allows state government, including county appraisal districts, to compel one to provide it with sales price information, real estate broker Randy Reid, co-founder of Reid Peevey Commercial Real Estate, proposed in a recent Waco Tribune-Herald column that the appraised value for homeowners who voluntarily disclose purchase prices be discounted by 20 percent — and that this discount be granted in perpetuity.]

Q: Every once in a while, often in the lead-up to the Legislature every two years, I hear something about a bill proposing sales-price disclosures. Such a bill may even get filed. But it never seems to go anywhere. Is sales disclosure something that would really help you guys a lot? You say we’re one of only three states in the nation that don’t have public disclosures of property sales prices.

Bobbitt: And that don’t have an income tax. There are like six other states that don’t have sales disclosures but they have an income tax and so that takes away part of the tax burden.

Q: But because we in Texas put most of our eggs in the property-tax basket, we’ve made it increasingly difficult to even think about a state income tax.

Bobbitt: It would make sense if you’re going to put all your eggs in that basket to then give us all the tools to do a good job of it.

Q: Is there anything else you would like to see the Texas Legislature pursue?

Bobbitt: From the taxpayer perspective, one thing we’re trying to fix is we have a very limited window to do all this. We send out appraisal notices in April, the deadline to file to protest is May 15 and we have to be done (with appraisal review board protests) by July 25. And so by the time we get all those hearings in — well, it’s like 200 hearings a day and it’s very packed in our office. We’re just trying to get everybody through. The state comptroller’s model procedures allow for a 15-minute hearing with taxpayers. That’s what they’re promoting and recommending. Well, if you come in as a taxpayer and you get what you want in 15 minutes, everything’s great. If you have a 15-minute hearing and you lose, it’s “They didn’t hear me” or “Nobody was listening” or “It’s a kangaroo court” or “This is just the biggest waste of time in the world.” But if you could at least allow taxpayers 30 minutes, 45 minutes, to discuss the issues with their house — everybody doesn’t need it, but some do — then at least the taxpayer will feel like, you know, “Hey, they heard me. They may not have agreed with me, but at least … “

Q: So the calendar is really important in all this?

Bobbitt: I’m suggesting moving up the deadline to protest, giving us an extra two weeks so that everyone gets properly considered in the review process. You can’t move the end of the process from July 25 to later because then you start getting into the setting of tax rates [by cities, counties, school districts, community colleges]. What I propose: If I get my appraisal notices out April 1 and keep the 30-day window, then let’s do a May 1 deadline for protest filings, because now no one sends them in till about May 16. I mean, today’s the deadline and we’re going to get half of them (taxpayer protest filings) today. Out of all the people we see as appraisers, we settle 70 to 80 percent of those. If we talk to you, we’re probably going to resolve it. If we can get that date moved up a little bit, that would help. I mean, commercial (appraisals) just went out and they’ve got 30 days too.

Q: You know, this spring I saw state candidates suggesting —

Bobbitt: Like Don Huffines?

Q: Well, yes, I saw this huge campaign billboard of Huffines staring down at me not too far from the appraisal district office here. The problem was Huffines didn’t really have a workable alternative to simply eliminating property taxes. You know, I’ve watched some of these legislative hearings, and when they start talking about putting everything in the sales-tax basket, the reality of what might result can be pretty bracing. I mean, one hearing of the Texas House Ways and Means Committee in 2017 suggested that to get rid of the school property tax, which consumes most of one’s property-tax bill, you’d have a sales-tax rate of about 14 percent. And Republicans back then said such a scheme could only work if you strictly prohibit exemptions for certain services and items sold. And if you ignore that and start handing out exemptions — and legislators seeking reelection love to dangle tax exemptions — then the sales-tax rate could go all the way up to 21 percent. All of this prompts the question of how businesses and economists and chambers of commerce around the state would feel about 14 to 20 percent sales-tax rates and the impact on business. [NOTE: During Thursday’s McLennan County Republican Club luncheon, James Quintero and Vance Ginn of the Texas Public Policy Foundation outlined a set of proposals to reduce and eliminate most property taxes through such steps as using the state’s Rainy Day Fund to further reduce the burden of school district property taxes and broadening the state sales tax by eliminating the many exemptions now dotting the tax code, thus keeping the tax rate sufficiently low. The proposals have been debated in the Legislature the past several years, but may be picking up more steam. In an interview with the Trib on Friday, state Rep. Charles Anderson of Waco signaled general support for such a plan. And in April, Texas Lt. Gov. Dan Patrick ordered the Senate Finance Committee to “review and report on proposals to use or dedicate state revenues in excess of the state spending limit to eliminate the school district maintenance and operations property tax.”] But enough of this. What’s the best thing a taxpayer and property owner can do when he comes down here to protest?

Bobbitt: If there’s something wrong with the house, bring us pictures. We don’t need a hundred, we just need like 10 or 15. If the roof is bad or the foundation has problems, if the windows are leaking, wood rot and that kind of thing, and it’s just an old 1940s house and it’s got the usual stuff and just hasn’t been maintained, we just need photos of that. We can work with that. Beyond condition issues, we need sales data, so if there are things around you that have sold that we’re not aware of, we need that. East Waco is a different kind of market where things are typically owner-financed. They don’t always go through a mortgage, so it’s a different kind of market. If all we see are the five houses that did go through a mortgage but we don’t see the 30 that didn’t, then we’re going to base it on the five we have. And those may be completely different than what’s typically the case.

Q: It’s funny. There was one guy going through the line here to drop off a protest filing and I asked him what his excuse was. Real nice fellow. And he said, “Well, I’m actually just trying to get an agricultural exemption,” and I said, “Sure, and what are you growing on your property?” And he laughed and said, “Butterfly plants!” And your staff assured me he might have a point. If he’s got a sufficient number of honeybees on his spread, he can qualify.

Bobbitt: Sure, between five and 20 acres if you have bees, you can qualify for an exemption after five years.

Q: In our conversation you mentioned your office getting “dinged” in 2020 because your appraisers undervalued property in the McGregor area, at least according to the state of Texas. Now periodically property owners in West Waco, Woodway, Hewitt and elsewhere explode on Neighbor apps about shaken foundations and broken windows supposedly resulting from Elon Musk’s SpaceX rocket-testing plant in McGregor.

Bobbitt: Oh, I know all about it. I live in McGregor.

Q: Well, is that a viable excuse in terms of devaluing your property — the SpaceX rocket-testing facility shaking the heck out of houses? I mean, one of these days I need to consult a geologist out at Baylor University to see if those tremors really compare to the natural ones felt in other areas of the country.

Bobbitt: At our home we’ve had things fall off shelves, pictures fall off, so I know it definitely had an effect. When we first bought our house in 2008, we didn’t know SpaceX was out there. And two weeks later, it was like, “What the heck is that?” Our neighbors finally told us. I was still at Fort Hood at the time.

Q: I imagine you thought you’d heard everything out at Fort Hood with the artillery practice.

Bobbitt: Well, yes, it is just like artillery. The first time the sky lit up and everything was shaking and I thought to myself, “Fort Hood just got nuked. I don’t have to go to work tomorrow.” And, yes, it’s weird for us as appraisers to account for it. I mean, we want to see it has an effect on the actual market value (of properties sold), so that we’d be able to see that these homes are affected in showing, say, a 15 percent lower value than houses that are farther away.

Bobbitt: We’d have to be able to [deduce] that from market-based data on sales prices, but so far we haven’t been able to. The state in 2020 said we were 10 percent low in McGregor. I mean, these homeowners out there could be ignorant like me. They could have moved out there and then said, “Whoa, what did I just get into?” So such a realization may well be something after the fact unless SpaceX just happens to kick off a rocket while you’re standing there looking at the house and considering buying it. You know, you can’t describe it to somebody. But we can hear it here at the office in Waco.