Two changes to the city of Austin's residence homestead property tax exemptions could be approved by City Council on June 3, likely alleviating some area homeowners' tax bills as local property values continue to soar.

Council will consider one item that would double the city's resident homestead exemption across the board from 10% to 20% and another that would increase the homestead exemption for seniors and those with disabilities by up to 28% from $88,000 to $113,000. Both items were sponsored by Mayor Steve Adler and initially co-sponsored by Council Members Alison Alter, Ann Kitchen, Paige Ellis and Pio Renteria, with District 6 Council Member Mackenzie Kelly and District 7 Council Member Leslie Pool also joining in support during council's June 1 work session.

Homestead exemptions lower the appraised value of a property for residents who use the property as a primary residence. For all residents, the exemption reduces the appraised value—and therefore the tax bill—by a percentage. Seniors age 65 and over also receive the flat-rate reduction.

All residential homeowners statewide receive a blanket $25,000 reduction to an eligible home's taxable value, and the policy varies for other local taxing entities.

“I believe that we should welcome every tool at our disposal to make it easier for people, particularly older individuals and those with disabilities, to stay in their homes. The people who live in Austin are what makes our city wonderful, and they’re our most precious resource," Kelly said.

In laying out both homestead exemptions, Adler said the city is now pursuing the updates due to a recent shift in calculations by the state comptroller of public accounts allowing the city to provide some new tax relief without sacrificing its spending power.

Interim Budget Officer Kerri Lang told city officials in an April memo that the comptroller's change fixed a "longstanding misinterpretation of state law" after a "multiyear push" by city budget and legal staff to end the practice of reducing a city's capacity to raise tax revenue if it also increased its homestead exemptions.

Deputy Budget Officer Erik Nelson told Adler on June 1 that the typical eligible city homeowner could expect to save around $141 on their tax bill in fiscal year 2021-22 if the new percentage exemption is approved and the city tax revenue rises 3.5%. The average senior or disabled resident could see around $150 in savings under the same scenario, Nelson said, in addition to a possible additional $121 in savings if the city ups its senior-specific exemption to $113,000.

District 4 Council Member Greg Casar said he believes the changes would represent a positive step for local taxation while also expressing disappointment with the limits of the required percentage-based exemption system as compared to a flat-rate scale. Casar said the percentage basis remained "troublesome" to him due both to the more limited financial relief for residents of lower-value homes and the potential of adding on costs for other types of city property owners.

"Ultimately as far as I can tell, this is a shift from higher-value homes to higher-value commercial properties ... while unfortunately providing probably too little reduction for lower-value homes compared to what we want. And potentially some impact on smaller landlords and small businesses," Casar said.

Adler also spoke to the exemption's lesser effect on taxes on lower-value homes and said the proposal is "not perfect" but appears to be the city's best option at present for providing some relief to residents across town as home valuations rise.

Job Hammond, a Realtor and adjunct professor of real estate and finance at Austin Community College, said any easing of local tax bills is a positive for area homeowners—and indirectly, renters—regardless of the precise level of relief. Hammond noted the effects of the pandemic coupled with the market's rapidly rising valuations continue to leave some residents with few options as the local tax burden shifts more to the residential space and housing budgets balloon each year.

"Many of my clients are elderly; they’re veterans; they’re people that have immigrated here; they’re single parents; they’re hard-working people, and they all really care about this. We’re kind of in unprecedented times right now," he said. "I think anything that helps promote fair property taxes is something that I’m into."

Jeni Williams, deputy director of government affairs at the Austin Board of Realtors, said the association is supportive of both proposed exemption updates. Despite the lack of a "silver bullet" to target those at greater need, Williams also said the measures, if passed, would provide some support as homes values at all levels appreciate.

"Even those in the lower- to middle-income brackets are seeing property value increases that are just incredible because of the supply and demand disconnects that we currently have, so any kind of relief will go a long way for any homeowner who is able to tap into these exemptions," she said.

Tax rate planning

Council's decision on the two homestead exemption measures will come alongside a vote June 3 to broaden the range of the city's possible property tax revenue increase for the coming fiscal year.

The 86th Texas Legislature's passage of Senate Bill 2 in 2019 limited cities to setting a tax rate that would raise its revenues for operations and maintenance by a maximum of 3.5% before voter approval is required. However, statewide emergency rules now allow cities to set a final rate that could see revenues raised by as much as 8% before triggering an election.

Officials noted June 1 that a vote directing Austin's chief financial officer to calculate a rate with a revenue increase of 8% would not lock in any tax hike for city taxpayers as of this spring; rather, the vote would allow council members to eventually consider rate options raising revenues by more than 3.5% if they desire.

"We’re just asking for a calculation. We’re not setting a rate; we’re not predicting a rate, any of those things. All we’re asking for is the calculation as required by the law in order to maintain some measure of flexibility as we move forward," Adler said.

Austin's property tax rate and budget for the coming fiscal year will be discussed throughout the summer with final adoption of those items set to occur in mid-August.

Williams said the ABoR is also focused on the overall tax figure the city sets this year as a larger piece of the affordability question given council's consideration of an increased taxing limit and homestead exemption changes that may not result in even relief across the board.

“Of course when you give some relief to some, some others may have to take a different level of burden or you may have to increase the rate for all," she said. "That’s why we’re also really strongly advocating for City Council to adopt a property tax rate that has the smallest financial impact because that is going to be what is going to be the biggest property tax relief for all Austinites."