What Do Property Taxes Pay For? Where Your Property Taxes Go
Let’s face it; property taxes can be challenging. They can be difficult to understand and tough to swallow when you see your bill. The local government is responsible for setting property taxes in Texas, which can create a significant fluctuation in taxing between cities, counties, and taxing districts. On average, Texans have some of the highest property tax rates in the country—but this is because Texas has one of the lowest sales tax rates, coupled with having no state income tax. Homestead property tax exemptions can help homeowners lower their taxes, but that’s just the tip of the taxation iceberg.
Knowing what your property taxes are funding and how those taxes are divvied up might make your life a bit less stressful when you see that bill. Texas property taxes fund everything from public schools to police departments to road construction and maintenance.
Let’s dig deeper into how property taxes fund specific government initiatives and the many beneficiaries throughout your community.
Texas Property Taxes Fund Government Initiatives
There are three main revenue streams for state governments. These include income tax, sales tax, and property tax. Income tax, which Texas does not have, is a tax imposed on individuals or entities on the income or profits earned by them. The lack of income tax and a relatively low sales tax in Texas create higher property taxes than other states might see as a counterbalance.
Due to the number of residences that need to be valued by each tax assessor, it simply isn’t feasible for them to evaluate each property each year. The assessors rely on spot-averaging home values in any given area, which leaves many homeowners with overvalued properties and higher than necessary property tax payments. This is why so many Texas homeowners can save money by disputing their property tax bill.
However, these tax assessments are required to fund the beneficiaries of your property taxes. As funds vary from municipality to municipality, percentages of property taxes will vary as well. In any given year, revenue from property taxes makes up more than half of the state’s funds to pay for public schools. Property taxes also cover parks and greenspaces across your community; libraries; community education; road safety, repair, and maintenance; and services like fire departments, ambulance services, and police departments.
Property Taxes are Used for Your Community
Texas property taxes don’t go to some nebulous state-wide fund; your taxes are being used right in your community. Taxing entities in Texas are specifically broken down into county, city, and education, typically including school districts and community colleges as separate entities. The significant fluctuation in taxing between cities, counties, and taxing districts means that there could easily be two homeowners living in the same city and county, but with vastly different tax bills due to living in different school zones. A property tax calculator can be a good guide, but don’t rely on them for exact figures.
In selected Austin metro area communities in 2021, the property tax rate comparison clearly shows how differences in percentages exist between counties, even within the same city. For example, Austin is primarily located within Travis County, but it also extends into portions of Williamson County and Hays County. Austin residences located in Williamson County in 2021 were paying a 0.4408 percent tax rate, while residences in Travis County were at a 0.3574 percent tax rate, even though each resident of both counties was paying the city property tax rate of 0.5410 percent. This illustrates the importance of researching the property taxes of Austin suburbs—property tax rates are highly localized.
The discrepancy between these percentages carries over to the education system within each county as well. The percentages within Travis County school districts landed at 1.0617 percent, while Williamson County was slightly higher at 1.1336.
The cities of Georgetown and Hutto, both located in Williamson County, illustrate how county tax rates are the same, but city taxes differ. Homes in Georgetown carry a 0.4010 percent city tax rate, while residents of the city of Hutto paid 0.5364 in 2021. The school district rates for these two cities were significantly different as well, with Hutto at 1.4203 percent and Georgetown at 1.2310.
Looking at the tax percentage rates for these communities, you can see how the bulk of funds are used to maintain school districts first and foremost, as the percentage that goes to fund school districts is often nearly double that of the city and county percentages.
Revenue From Property Taxes is Used to Fund:
School Districts: Taxpayers generally place a high value on education. Having access to better schools means our future generations will have the best chance to succeed, supporting good economic growth for years to come.
Libraries and Community Education: Once again, this aligns with the value of education. Libraries and community education institutes offer free and useful resources anyone in the community can enjoy and benefit from.
Emergency Services: Fire departments, ambulance services, and law enforcement are all paid for in part by property taxes. Salaries, training, and infrastructure costs are all included in the earmarked funding.
Local Government and Administration: Salaries and associated costs of local government employees are paid in part by property taxes. This allocation goes toward necessities such as maintaining public buildings and managing city services, from water infrastructure to representing community issues at the government level.
Road Safety, Repair, and Maintenance: A large portion of property taxes goes toward road repair, maintenance, and construction. This includes work to keep roads in a safe condition and clean and free of debris. These funds also pay for road lighting, traffic signs, and other safety and traffic control measures.
MUD and PID Taxes are Used to Fund New Development
Property taxes are not always easy to understand, especially for first-time homebuyers seeking affordable metros. There are percentages, acronyms, and jargon aplenty. MUD and PID are two of those acronyms that might leave people confused. MUD and PID taxes differ from standard property taxes because they are one-time assessments paid out over decades for new developments.
MUD stands for Municipal Utility District and is a subdivision of the State of Texas that is created to build infrastructure and provide services like water, sewer, and stormwater drainage in areas where a city cannot offer them. This typically happens when a new residential development is built just outside a city’s water services. The MUD tax allows more neighborhoods to be built, enabling the increasingly popular trend of living in master-planned communities. It also creates more opportunities for builders and developers to create new construction housing for families and individuals at varying price points.
MUD taxes can be up to $1.40 per $100 of total assessed home value (roughly $4,200 per year for a $300,000 home); however, this is typically paid through escrow, so homeowners don’t have to send payments directly to the city. MUD taxes will always be higher in a brand-new development because new infrastructure must be built. Over time, the MUD tax decreases as the bonds are paid off. In 20–30 years, the MUD tax could be eliminated entirely.
PID stands for Public Improvement District, a special district created by a city or county that allows it to charge an assessment to properties within a particular area to build out additional infrastructure. As MUD taxes typically focus on water services, PID taxes pay for enhanced landscape, additional open space, lakes and fountains, improved city parks, shade structures, and various recreational and pedestrian improvements.
PID taxes end when tax levied against a property is paid in full. PID taxes, like MUD taxes, may be spread out over 20–40 years or be paid up-front and in full by the homeowner.
Understanding Where Your Property Taxes Go
Understanding taxes can be exhausting and frustrating, especially when you are not presented with the details of where your hard-earned money is going. Next time you drive down a well-paved road, visit a park, or pass a fire station, know that your property taxes are hard at work for you!