Property taxes add risk to investments
We have heard a lot of comment about last week’s front-page story involving property taxes and a quick rise that is seeming to price some out of this market.
Property taxes, either absorbed or passed through what tenants pay in rents, are becoming a burden on local small business owners. Whether employers own or lease their properties, the tax bill — just like insurance, employee costs and practically everything else — has been nicking at their bottom line.
Commercial rent payments are currently about $2 to $2.50 per square foot, per month, and some rents in the “golden blocks” on Main Street go even higher. That means businesses must sell a lot of merchandise, food and beverages or services before they even begin to pay employees, inventory, utilities and more.
The quick purchase of property is great for the community on one hand. Older properties get a fresh makeover with these investments, and the town benefits from having fewer dilapidated homes and buildings. One of Fredericksburg’s attractions is its pride of ownership. We certainly don’t fault investors for fixing up properties.
But the purchases in this hot real estate market, at or above market value, affect other property owners due to current state laws on how properties must be appraised. That is, other properties where owners may have no plan for selling are valued on the tax rolls at 100 percent of market value.
The discussion in last week’s story stated that an income formula might be used, or capping market appraisals at just 80 percent, or even 60 percent, of market values. The former appraisers in the discussion noted that if that were to happen, taxing entities may adjust upward. We appreciate their voices in this topic, and they, more than most, realize the problems with the current system. An income formula to base appraisal values could also be part of the solution for commercial properties.
Schools need to be in on the discussion, as well. Property taxes are currently the only way Texas funds its school districts. So in a place like Fredericksburg which has slow growth, but rapidly rising prices due to low supply, property owners end up paying substantially more each year. Again, the legislature’s failure to address this is hurting every citizen in the state.
We must also acknowledge that we don’t believe the city, school or county — our taxing entities — spend money foolishly or without consideration for taxpayers. This has traditionally been a conservative, “pay as you go” community, and those roots still appear to run deep.
The meeting, spurred by complaints to State Rep. Kyle Biedermann, was a good start in what needs to be a continuing dialogue at the local and state levels. Biedermann also needs to understand that the state’s lessening share of public education funding — which his caucus advocates — is a big part of why schools haven’t been able to cut tax rates, even as values increase. Add in a hefty increase in state population and public school children, and the state can’t continue to go backward on its spending formula.
We don’t want this market or its Main Street to be considered unattainable for small businesses, but rents and mortgages are rapidly careening that way. Add your voice to how you believe it should be fixed.