Published: September 08, 2008 08:35 am      

A penny here, a penny there

Setting ad valorem rates to meet revenue needs a taxing problem for area entities

By Libby Cluett
lcluett@mineralwellsindex.com

PALO PINTO COUNTY – Taxing entities have refined and honed their 2009 budgets as they head toward final adoption.

The budgets are figured hand-in-hand with the taxing entity’s ad valorem, or property, tax. Few within the county will see a decrease in overall taxes, unless other circumstances, like exemptions, exist.

Each property owner in Palo Pinto County pays taxes to Palo Pinto County, the Palo Pinto Hospital District, the county’s Emergency Service District (EMS) and a local school district. Those with property within a municipality, also pay city taxes.

Palo Pinto Tax Assessor Collector Linda Tuggle called this a pretty easy tax year. “There were no new changes resulting from legislation that I’ve had to deal with,” she said. Last year, she had two changes resulting from legislation and local options on the tax freeze for residents over the age of 65.

Up and down tax rates

While one went down on its rate, most taxing entities have proposed tax rates over the effective rate.

Palo Pinto General Hospital is going up to the maximum amount allowed – 19.38 cents per $100 of property valuation – without triggering the possibility of a rollback election, according to CEO Harris Brooks. It’s up over last year’s rate of 19 cents and 7.99 percent over the effective rate of 17.94 cents he added.

Brooks said many things contribute to the decision to raise the tax rate based on the hospital’s current situation.

“Hospital districts, when originally established as separate taxing entities, were intended to keep the hospitals technologically advanced,” he explained. “As years have progressed and the U.S. health-care system has evolved – or dissolved – tax revenues have been used to offset indigent care and bad debt write-offs.”

“Forty to 50 years ago there was a lot of ‘fee for service’ care, but now with third party payers (both federal and private insurance) healthcare has changed,” he added.

Along with cuts in Medicare, Medicaid and private insurance reimbursements, indigent care is a major reason the hospital opted to increase taxes.

“On any given year, operationally, PPGH has to cover between one-half and two-thirds of indigent care and bad debt write-offs. All the tax revenue we receive goes into one third to one half of indigent and bad debt costs.

“Our bottom line has to pick up that other one-half or two-thirds while still facing cuts in reimbursement and struggling to remain technologically competitive. Unlike for-profit hospitals, we reinvest everything we make back into the physical plant, salaries and equipment,” said Brooks.

“As long as health care goes in the current direction, we have to continually increase taxes up to the full 7.99 percent allowed,” he said. “It’s a balancing act and contributes to whether we remain competitive or wither on the vine.”

The lone exception

The City of Mineral Wells is the county’s sole exception to rising tax rates; city council proposed a tax rate that is roughly 2 percent lower than the effective rate.

With a proposed rate of 19.38 cents per $100 of property valuation, the city will collect slightly less property tax than in the previous year. This should especially benefit property owners who saw huge increases in assessed property values.

Why? It’s their philosophy according to one city official, who said, “Don’t raise taxes because you can.” Plus the city has the additional bonus of sales tax revenue.

Historically the city hasn’t changed much from the effective rate, according to City Manager Lance Howerton.

“Property taxes are a volatile issue and we are keeping our tax levy on a level basis and bringing additional money into the city coffers,” Howerton said.

“The bottom line is, ‘What is the citizen required to pay?’ What we have required our taxpayers to pay has remained the same as 2003 – in actual dollars, not adjusted for inflation. For me, that’s very important,” he added.

“Over the past five years, that number [of revenue generated by ad valorem taxes] has remained constant. In 2003 it was $2.4 million, in 2005 it was $2.7 million and in 2009 we are projecting $2.4 million,” he said.

“The city is holding the line there and being judicious over what people pay.”

Sales tax revenues also play into a municipality’s and county’s ad valorem tax calculation process, which helps Mineral Wells offset revenue generated by a lower property tax rate.

“What we have attempted to do is expand programs, increase services and fund those on the sales tax side, so we are not creating an additional burden for our citizens, our taxpayers,” explained Howerton.

Howerton said a 15 percent to 20 percent increase in sales tax revenues over the last three years – a compounded number – has given Mineral Wells flexibility to do that. “The city made a conscious decision to keep property taxes as low as possible and work within increases in sale tax revenue.”

“This has been a difficult economy, with prices what they have been over the past months. It’s also a difficult environment with government entities,” noted Howerton. “We’ve been blessed by having growth in our tax base and significant growth in our sales tax. Over the years, we’ve had some great sales tax revenue increases.”

He shared that not every taxing authority has access to sales tax revenues. For instance he said the hospital, emergency services and schools do not have access to sales tax. But the county and cities do, with the county receiving 0.5 percent and the city receiving three times more at 1.5 percent. Palo Pinto County worked to bring this year’s rate below last year’s tax rate, but went 4.49 percent over the effective rate.

Before celebrating about the city tax rate, residents need to note they will see an increase in their upcoming water and sewer rates.

“Since water and sewer rates will increase, we need to be aware of our property tax rate,” he added, citing the Turkey Peak project as a major contributor to impending increased water rates.

New versus old property values

There’s another issue to consider with taxes according to Howerton – new and newly annexed property.

“New property allows you to have new income without increasing the values of existing properties,” said Tuggle.

“Property values are based on reappraisal, [which means there is] not so much new, added value,” said Howerton. “If that’s the case, you’re not really broadening the tax base, you’re just reallocating it among existing taxpayers.”

“What I think we’ll see is added new value coming onto the books. New taxpayers brought into mix and [they will] allow the tax burden to be allocated more evenly,” he added, comparing this to expanding or enlarging an overall pie, thus broadening the tax base, rather than reallocate among the existing smaller pie.

“We want to see the tax base expanded and broadened and new values [taxpayers] coming into the county; not just a reallocation of existing value. I have seen this [happening] in the last years, but hopefully it will accelerate with new residents and businesses coming into town,” he said.

Public hearings

Each public taxing entity is required by law to offer two public hearings for taxpayers if they propose a rate over the lower of the effective rate and the rollback rate, according to Tuggle. These hearings give taxpayers an opportunity to understand their tax rates and an entity’s budget for the upcoming year. The following is a list of remaining public hearings:

• Palo Pinto County – Palo Pinto County Courthouse at 9 a.m. on Monday, Friday and Sept. 16. Final action on the county budget and tax rate takes place at the regular meeting at 9 a.m. on Sept. 22.

• Palo Pinto County Hospital District/PPGH – hospital boardroom at 8 a.m. on Tuesday.

• Palo Pinto EMS – Palo Pinto County Courthouse at 3 p.m. on Thursday.

• City of Gordon – Monday at 7 p.m. at Gordon City Hall.

• City of Graford – Tuesday at 6:30 p.m. at Graford City Hall.

• City of Mingus – Sept. 17 at 7 p.m. at Mingus City Hall.

• City of Strawn – Sept. 15 at 7 p.m. at Strawn City Hall.




By Definition

The following are some definitions adapted from the Texas Comptroller for Public Accounts www.window.state.tx.us which might shed light on the taxing issue.

Effective tax rate

This rate enables the public to evaluate the relationship between taxes for the preceding year and for the current year. It is based on a tax rate that would produce the same amount of taxes if applied to the same properties taxed in both years.

Mid-summer, the chief appraiser delivers the certified appraisal roll and the estimated values of properties under protest. These values include:

• The total appraised and taxable value of property in the taxing entity.

• The total appraised and taxable value of new improvements.

• The total taxable property annexed since the preceding year.

Once these figures are in, the county tax assessor or taxing entities can calculate effective and rollback rates.

Rollback rate

This is the highest amount a taxing entity can adopt without holding an election – required for public schools – or without opening up the opportunity for citizens to petition an election to limit the rate. It is based on multiplying the effective rate by 1.08, however debt rates make this fluctuate according to Palo Pinto Tax Assessor Collector Linda Tuggle.

Although no local taxing entities have opted to exceed the 2008 rollback rate, several have proposed tax rates as close as possible to this rate. These include the cities of Gordon, Graford and Mingus.