SB 1275 By Taylor, Van. Relating to the appraisal for ad valorem tax purposes of certain nonexempt property used for low-income or moderate-income housing. – Pending
(11:00) Sen. V. Taylor said that low income tax credits had come up as a problem during the hearings by the Select Committee on Property Tax Relief and Reform. Sen. V. Taylor said the grants were allocated by TDHCA and tax-credit developments, under HUD, could not reflect market conditions. Sen. V. Taylor said that because those developments could not be adjusted for property taxes and they did not qualify for homestead taxes, there had been inconsistency in the appraisals across CADs. Sen. V. Taylor said the low number of these developments took a disproportionate amount of time for CADs and he had brought together tax -credit developments and CADs to create legislation to create clarity in appraisal and levies to tax-credit developments. Sen. V. Taylor reviewed provisions in the bill and said it did not seek to expand or limit affordable housing, but to clarify the process to provide consistency.
Sen. Nichols said that the fiscal note did not show much fiscal impact immediately, but by 2020 there was $50 million in total losses to FSP, ISDs, counties, municipalities and political subdivisions. Sen. V. Taylor said he understood, but that the properties often had to close because they could not maintain low rents and afford their property taxes. Sen. V. Taylor said they were working to reduce the fiscal note.
Sen. West said he appreciated the bill and asked what other state were doing to accommodate affordable housing in their tax codes. Sen. V. Taylor said his process was to allow the CADs and tax-credit development owners to work on a solution together rather than to look at other states, but that those entities may have used that information. Sen. V. Taylor said that many people were under the impression that affordable housing complexes could raise their rates at any time like other complexes, but HUD restrictions prevented them from doing so. Sen. V. Taylor said the solution had been to set an appraisal and maintain a certain rate of growth pegged to inflation and median household income. Sen. West said he would like to see what other states had done.
Sen. Nelson asked if they were looking to reduce the impact of the fiscal note. Sen. V. Taylor said they were and he would allow their resource witness to speak to that. Sen. Nelson said, “Good,” adding that she liked the idea, but that she did not support large losses of funding.
Cynthia Bast, TAAHP, testified for the bill. Ms. Bast said they had worked closely with the TAAD to come up with the solution. Ms. Bast said tax-credit developments were not only restricted in the amount they could raise rental income, but also in when they could sell a property. Ms. Bast said the rising property taxes “far outstrip” the amount they could increase rents by per year and the bill would create consistency between the net increases allowed for rents and property appraisals. Ms. Bast said they could not be limited to a 1% increase on rental income while the property values were increasing in the double digits per year. Ms. Bast discussed the 3 year rollback which would provide recovery of taxes for the local entities should the property be sold as a claw-back provision.
(11:12) Sen. Nelson asked how much the fiscal note would be reduced. Ms. Bast said she did not know, they were still working on it.
Emily Protine, Bonner Carrington, testified for the bill. Ms. Protine said the property taxes for services were often at odds with low-income housing availability and discussed protests her firm had represented tax -credit developments. Ms. Protine said the bill would create consistency and save both time and money at the local level by avoiding litigation.
Bobby Bowling, TAAHP and TAA, testified for the bill. Mr. Bowling said the property code designated tax-credit developments separately, but did not codify how they were to be appraised. Mr. Bowling said the bill was simple and they had encouraged the CADs to utilize underwriting assumptions from TDHCA as the developers used when making investments in constructions. Mr. Bowling said the properties were “almost never sold” which created a misunderstanding in the analysis which led to the large fiscal note. Mr. Bowling said he had 28 of the properties in his portfolio and felt the fiscal note did not account for the amount of savings from the prohibition of lawsuits contained in the bill. Mr. Bowling said if each county in the state avoided one $40 thousand lawsuit, they stood to save $10 million.
Sen. West asked about what other states were doing. Mr. Bowling said because other states used income taxes and other funds, they could not adequately account for what other states were doing and it required the state to “pioneer its own trail”. Sen. West suggested they contact the National Conference of State Legislatures to find out what other states without income taxes did.
Sen. Bettencourt asked them to look at IL and NY as well because they had higher taxes. Sen. Bettencourt and Ms. Protine discussed properties which had increased 25-86% over time on their values. Sen. V. Taylor said that they could not match an 86% increase in appraisals with a 1% increase in rents. Sen. Bettencourt said they were being “swept up” with general land value increases.
Jeff Law, TAAD, testified for the bill. Mr. Law thanked Sen. V. Taylor for “bringing the two sides together to work on this bill”. Mr. Law said he believed the bill would resolve inconsistencies in how the properties in question were appraised and would have better audited and more reliable data. Mr. Law said he did not believe the bill prohibited property owners from filing lawsuits, but it would reduce the potential for litigation which would benefit the appraisal districts by reducing litigation costs.
Barry Kahn, Texas Association of Builders and Texas Apartment Association, testified for the bill. Mr. Kahn said they had always faced challenges with the ARBs and understood if those who had not worked in the area were “having difficulty grasping the concepts”. Mr. Kahn said the limited time for training ARB members led to those members not fully understanding the issues they were ruling on with the properties in question. Mr. Kahn discussed the causes for litigation on his properties. Mr. Kahn said as a board member of the National Association of Home Builders they had created a panel to discuss the matter and found no consistency between states due to the variations in tax revenue sources across states.
(11:27) Sen. Bettencourt recalled testimony Mr. Kahn had provided at the Arlington hearing and asked what happened after the hearing. Mr. Kahn said he was not sure what the differential was, but the properties were not classified as apartments. Sen. Bettencourt and Mr. Kahn discussed the matter further.