How Stuff Works: Property Tax Paradox

Today in our occasional series on “How Stuff Works” we have a tragic example, brought to us by a genuine tragedy: the fertilizer factory explosion in West, Texas. In light of the injuries, loss of life and all of the associated pain and suffering it seems heartless, if not downright cruel, for the City, County and State to go on taxing the residents affected by the explosion, and in particular to demand property taxes be paid on homes that were damaged or destroyed by the blast. And it sounds completely outrageous that those property taxes are based on the valuations of the corresponding properties as of January 1, months before the blast occurred. Until you realize that property taxes in West are paid on the previous tax year, just the way income taxes are – and without those tax payments the town itself may not be able to recover…

You can pick up the news story from the Waco Tribune site if you want to, but the concept is ultimately very simple. Like many places in the U.S. West (and the county in which it is located) run on property tax revenue, and those taxes are charged for the previous year at the values assessed on January 1 of the next year. Unfortunate as it may be, the people of West are being billed for the full year (2012) during which their homes were not damaged by chemical explosions or anything else, but during which they received all of the services the city and county provide. And however much the city or county governments might like to release the residents from those obligations, doing so would eliminate 20% of the property tax revenue at a time when the community needs all of the help it can get…

Estimates of the damage put the losses in West at about $29 million, or roughly 20% of the taxable property in the area. Without those funds the city has no hope of building the infrastructure improvements (such as an expanded sewer system) slated for this year, but they also will not have the funds they need to repair non-taxable property such as schools, water systems, roads and so on. The city and county governments can apply for state and Federal disaster relief assistance – and already have – but even if such funds are granted and repairs can be made, the local governments will still not be able to provide the necessary public services with 80% or less of a budget that was barely adequate in the first place…

I called this a paradox because in this case there is nothing the local governments would like better than to give their constituents the funds needed to repair all of the homes and businesses damaged in the blast, cover everyone’s medical bills, replace everything that was destroyed, and bring the community back to normal – or, at least, as close to normal as it will ever be again. But to do that these governments will need money, and their primary source of funding is the people who are at this moment demanding money from the governments…

Let’s just hope that there is state, Federal or private disaster relief funding available for the folks out in West, because this probably isn’t something they’re going to be able to solve on their own…