Finding Common Ground on Mandatory Sales Price Disclosure with State Rep. Diego Bernal

If you want to see the temperature rise in a roomful of Realtors, just say the words, “mandatory sales price disclosure.” The topic provides for heated discussion – as does any mention of property taxes, these days. But State Rep. Diego M. Bernal (D-San Antonio) introduced two pieces of mandatory disclosure legislation this session, which may, in the end, give us something to agree on.

One bill, HB 379, calls for mandatory sales price disclosure and outlines penalties. We’ve seen legislation like this before. It’s nothing new. The other, HB 182, relates to a detailed study of the effects that mandatory sales price disclosure would have on Texas’ economy. HB 182 winds up being the much more compelling of the two bills, and Bernal hopes it holds the power to bridge the aisle and bring our understanding of the issue into sharper focus.

We spoke with Rep. Bernal about the proposed legislation and the change he ultimately hopes to bring. It’s a bit of a long read, but in our opinion, worth your time.

You’ve proposed two pieces of legislation related to mandatory sales price disclosure. One is an economic study. What do you hope the study would accomplish?

Bernal: The study is really the one that I am most interested in. There are plenty of people advocating for and against sales disclosure, and they both make, I think, compelling arguments. The study really is to say, ‘Let’s see what we’re missing. Are there real benefits we’re missing out on or are there consequences that we can’t account for?’ I think that people want to know. I certainly want to know.

Texas is one of the few states without [mandatory disclosure]. It’s not necessarily a novel idea. We’re not the engine – we’re sort of the caboose – on this thing. I’m actually a fan of knowing where we stand. So the study helps get us there in a way that’s not so antagonistic.

Legislation calling for mandatory sales disclosure has been proposed – and failed – several times over the last 20 years. Why now? What’s different?

Bernal: I guess the question could be, ‘Why do you think it keeps coming up?’ It’s worth pointing out that these bills are often sponsored by both Republicans and Democrats. This is not a Democrat calling card. It very much is a populist issue that has been championed, at least on the Senate side, by Republicans many times over. Which I thought was really fascinating and it gave me comfort in pursuing it myself. There has to be something to it.

I think we live in a state where we believe in the rights of property owners, but we also believe in fairness and in people paying their share and carrying their weight. There’s disagreement about whether or not that’s happening. And I think it’s important to acknowledge that disagreement.

If your aim is for everyone to pay their fair share, and if you think it’s even likely that commercial properties are not being taxed fairly, how does mandatory disclosure address that?

Bernal: It would give the assessors more data to use. Because right now, they’re guessing. Without any comparators, you’re asking them to guess. The counties of Harris, Travis, Bexar, did a study themselves and came to the conclusion that they were under assessing non-residential properties by about, on average, 40 percent. So I think there’s something there that needs to be investigated.

Now, I want to be clear. Some people look at this as an untapped revenue source. That’s not necessarily my point of view. I think there might be a way to use this as a tool, as a form of tax relief, to where [the tax burden] gets spread around a little more. I’m not interested in squeezing commercial property owners the way I know residential property owners are squeezed. I’m wondering if there’s a way to use this to loosen the grip a little bit, generally. I think that sales disclosure might act as a release valve, allowing both tax rates to level off a bit.

The idea being that, if commercial property owners are paying their fair share, it should lessen the burden on residential property owners, in theory?

Bernal: Right. And theoretically, that would also allow cities and other taxing entities to lower their property taxes. Then people would have more money in their pockets, and they could use it as consumers and stimulate the economy. Again, I’m speculating about what my best case scenario is. That’s also why this study is important, to figure out what it means, what kind of money we’re talking about. If it’s negligible, that’s our answer. If it’s significant, then we have to ask ourselves whether or not it’s worth it. What are the consequences? It’s an important conversation to have.

I just don’t believe that in Texas, [property values] are a secret and should stay a secret – just because. Some folks are getting taxed out of houses they otherwise own outright. It’s hard to look those people in the eye and say, ‘I don’t have a good answer for you, but these folks want their sales prices to be secret and they’re most likely under-taxed more than a quarter, closer to half.’

I saw mention of a study done in 2006 (which, I’m certain means this number is much larger now), estimating that by allowing commercial properties  to be under-taxed, the state was losing out on about $4 billion a year in revenue.

Bernal: Robin Harvey, in my office, may be able to point you to a more recent study, but I believe that number has grown to over $5 billion.

I know that in the past, those in opposition to this type of legislation, including many Realtors, feared a transaction tax would result from mandatory disclosure. But Proposition One made that impossible, correct?

Bernal: Right. In the past the opposition was afraid that the state would take a cut of every sale. And you’re right – there was a constitutional amendment that makes that impossible at this point.  There are new arguments against it, but I don’t think that is one of them. Or it shouldn’t be.

Homeowners fear that disclosure would drive median home prices, the basis for real-estate taxation, and would drive property taxes up. Do you see that as a reasonable objection?

Bernal: I admit that I’m not an economist. That’s exactly why I’m a big proponent of the study, because you really shouldn’t leave it up to folks like me, necessarily. You should entrust this issue to people who know what they’re doing and what to look for. I’m totally comfortable saying that.

The study is something both sides should be able to agree on. Let’s also look at what happened to states that have done it. Because again, there’s only a handful of states that don’t have [mandatory disclosure]. Texas is one of the last hold-outs. You can’t tell me that the entire real estate economy of these other states collapsed because they have this feature.

Although, I don’t think there are many states like Texas, with a public school system that relies solely on property tax revenue.

Bernal: Sure, and that is an excellent point. It is a unique feature to Texas. And again – I’ll keep beating this drum – it is all the more reason why we should have a study. At a minimum, the issue requires it.

There is a whole group of taxpayers that are paying a fraction of what other people are paying, for no other reason than the availability of data. That doesn’t sound right.

Before we say we’re totally comfortable with some entities paying 40 percent or 50 percent less than the rest of us, shouldn’t we at least know why that’s a good idea? I am fully prepared, at the end of this exercise, to say, “You guys are right.” But I’d like to make that decision for myself. From where I’m sitting now, that doesn’t seem fair. But my mind is open.

Is there anything you’d like to add?

Bernal: This is not meant to be an antagonistic exercise. I’m trying to find a way for us all to coexist and take care of the things we all care about, whether it’s education, employment, infrastructure—all of those things are either funded by, or supported by, tax dollars. Are we doing things in a way that maximizes that effort? Are there still steps we could take that would move things along in a more fair, more effective way? That’s what I want to know.

Don’t you want to know, too?