Many El Pasoans have been shocked as they’ve opened their new property tax valuation notices and found that their home values have gone up by tens of thousands of dollars in a year.
But their fears of a looming huge property tax increase are likely unfounded, according to an El Paso Matters analysis of the impact of rising valuations.
Instead, the people who should be most concerned about the tax impact of rising property valuations aren’t even getting notices in the mail — the one-third of El Paso households who live in rental properties. The valuation notices for those properties are going to their landlords, but any tax increase for rental properties likely will show up in tenants’ rent.
An El Paso Matters analysis indicates that most of the tax increase from rising valuations is likely to be passed on to renters, creating a regressive tax — one which impacts lower-income people more heavily than people with higher incomes.
Beatriz Vera, who rents a one-bedroom apartment near her job as an international student advisor at the University of Texas at El Paso, said local governments need to think of the impact on renters and the working poor when setting property tax rates in the coming months.
“It’s going to impact the rate of homelessness, it’s going to impact the default on different kinds of things,” Vera said of rising property taxes. “More people are going to be evicted. That’s what they need to look at, not just that the city needs more income or whatever it is they’re looking at.”
The median income for an El Paso household renting their home or apartment is about half of the income level for households in owner-occupied homes, according to the U.S. Census Bureau.
Many renters don’t understand how they’re impacted by property taxes, which are controlled by elected officials, said Scott Lynch, executive director of the El Paso Apartment Association.
“We don’t have a lot of political participation in El Paso, very low turnout. And when people are renting apartments or renting a house, they don’t always think that they pay property taxes, but they do. It’s passed through to them (in their rent). And I think if they would really keep that in the back of their mind that they would maybe be more vocal in the political process,” said Lynch, whose organization represents the owners of about 52,000 apartments in El Paso.
Renters across Texas will see rising tax bills adding to their rents because of sudden rises in home prices during the pandemic. While state laws protect homeowners from higher taxes due to sharp increases in property valuations, rental property doesn’t have similar protections.
Tax protections for homeowners
El Pasoans won’t know for sure what property tax bills will look like until this summer, when local governments — city council, school boards, El Paso County Commissioners Court and the El Paso Community College board — adopt tax rates. But the new appraisals from the Central Appraisal District, and state laws on tax rates and valuations, allow for pretty safe projections.
If you occupy the home you own and have a homestead exemption, your tax bill this year likely will be flat when compared to last year, and maybe down a bit. Here’s why:
State law says the taxable value of property with a homestead exemption (which is separate from the total valuation) can only go up by 10% in a given year.
City and county governments generally can only set tax rates that are 3.5% higher than what is known as the “no-new-revenue” rate without sending the tax rate to voters. When total taxable valuation rises, the “no-new-revenue” rate is lower than the prior year rate.
The total taxable value of property in the county is currently 17% higher than last year, said David Stone, the assistant chief appraiser for the El Paso Central Appraisal District. That increase will go down a bit as some property owners win protests of their valuation.
If the total taxable property value winds up 15% above 2021 levels, state law requires that the city and county governments would have to set a tax rate 10-12% lower than last year to avoid having to ask voters for even more money.
The reduction in tax rates for the city and county would offset the maximum 10% increase in taxable valuation that taxpayers with homestead exemptions would face. That means that properties with homestead exemptions will see their city and county property taxes hold steady, or perhaps decline a bit.
The biggest part of the property tax bill goes to school districts. The Legislature in 2019 passed a law requiring school districts to reduce property tax rates when total valuations increase by more than 2.5%. And next month, Texas voters will have the chance to raise the homestead exemption for school property taxes from $25,000 to $40,000. That change would lower property taxes on owner-occupied homes.
The tax impact on rental properties — and renters
Owners of rental property don’t benefit from any cap on valuation increase, or any added exemption for school taxes. That means renters don’t have the same protection as homeowners against rapidly rising valuations.
Many El Paso rental homes are seeing increases of 20% or more in taxable value in the past year. So even with tax rates 10-12% lower than last year, owners of many — if not most — El Paso rental homes will face higher property taxes, which likely will be passed on to renters.
But the big impact will be in apartments, where the average valuation is up by 41%. That means the property tax bill for typical apartment buildings could go up 20-25% even after tax rates are lowered. That added cost most likely will be passed on to renters.
Rising property taxes will add to the challenges of finding affordable rental housing for many El Pasoans. The average rent for an El Paso apartment rose from about $800 a month in March 2020, when the COVID-19 pandemic hit, to $950 in March 2022, according to ALN Apartment Data.
The rise in rent is tied to many factors, Lynch of the El Paso Apartment Assocation said. Almost 96% of units are occupied, and inflation and supply chain issues are pushing up maintenance costs. And renters pay rising utility and property taxes, he said.
Vera’s rent on her one-bedroom apartment near UTEP rose from $595 to $640 a month in December 2021. When combined with the rising costs of food, gasoline and other goods, she faced a crisis. For the first time in her life, she couldn’t make her rent.
“So I started asking people to help me with my rent. And a lot of people came through for me. And after three months of having difficulty paying, I’m finally up to date,” she said. “Of course, I’m dreading the first of the month.”
