Appraisal cap on repaired houses shifts tax burden

Officials in Galveston County have asked for a clarification on how the state law capping increases in homestead values will work after Hurricane Ike.

Here’s a point to remember: A break for the relative few would mean a shift in the tax burden toward those whose property values didn’t drop catastrophically after the storm. The very idea of that shift doesn’t seem fair.

If you want to understand what the debate is about, take a hypothetical example. Suppose a $1 million house on the beach was destroyed by the storm. After the storm, the property — what’s left of the land — is valued at $20,000. The property is rightly assessed and taxed at $20,000.

But a year later, the house has been rebuilt. It’s a $1 million property.

The question is whether the house can now be taxed at $1 million — or whether the 10 percent cap on increases in homestead values means that $1 million property must be taxed as if it were worth only $22,000.

Of course, if you cap the increase on the appraised value at 10 percent a year, it’s going to take awhile for this property to get on the rolls at full market value.

The counter argument is that this kind of thing happens all the time. Houses are lost to fires, for example. When a $1 million house that was lost in a fire is rebuilt, for example, it goes on the tax rolls at $1 million, not some fraction of market value.

Cheryl Johnson, the county tax assessor-collector, pitched the idea of asking the attorney general for a view on what the law requires. Getting a definitive answer is a good idea. Local governments with taxing authority shouldn’t be guessing about this when they set their budgets.

Here’s one practical point to keep in mind: If the increases in values of heavily damaged homesteads is capped at 10 percent a year, it will be a great thing for the owners of those properties. It will be a correspondingly bad thing for all the other property owners of the county, who will feel the tax burden shift a little more heavily on their shoulders.