The city initiated the process on Wednesday with a vote of 6-4—with District 3 Council Member Pio Renteria absent—to set a maximum tax rate of $0.4651. The proposed maximum rate is two cents higher than the $0.4451 rollback tax rate, or the maximum allowed without giving taxpayers the opportunity to petition for an election. It is a 13.6 percent increase over the effective tax rate—the tax rate that would secure the city raise the same property tax revenue as the prior year.
The action Wednesday does not lock council into approving the tax rate, but rather sets the ceiling for what they can pass in September.
The reason for setting a maximum tax rate two cents higher than the rollback rate is to give flexibility to the city in implementing a “tax swap” with Austin ISD, Mayor Steve Adler said. The tax swap would increase city taxes in the fiscal year 2017-18 budget to fund certain school services. In turn, the school district would decrease its rate in the FY 2018-19 budget.
The swap would alleviate some pressure felt by the school district through the state’s “recapture” school finance system. The system, which started in 1993, sends a portion of school taxes paid by taxpayers in property-wealthy municipalities to the state—rather than their own school district—which then redistributes that money to poorer school districts who struggle to fund their school systems. In 2018, the state will “recapture” $406 million from Austin ISD taxpayers and distribute it to poorer schools districts outside of Austin.
The tax swap would allow the school district to lower its tax rate—decreasing the amount of tax dollars subject to recapture—without sacrificing school services, funding for which would come from the city’s increased property revenue. According to a presentation from staff on Wednesday, the city is eligible to fund 19 AISD programs, in FY 2018-19, which include security officers and parent support specialists. The total cost for all eligible programs is $20.8 million.
According to Adler, the strategy poses challenges for senior taxpayers, whose city tax bills will rise and who won’t see the benefit from AISD’s decreased FY 2018-19 tax rate due to a tax freeze provided by school districts. The city is considering offsetting this effect by increasing the city’s senior tax exemption. However, according to staff, seniors with higher-value homes or who have been in their homes the longest will still pay more.
The strategy also poses a problem for the 25 percent of taxpayers who fall within the jurisdiction of a school district other than AISD, as they will bear the cost of increased city taxes and reap no benefit from the subsequent AISD tax rate decrease. To alleviate the increase, the city will look to spread some of the increased tax revenue to other bordering districts.
The proposal received strong pushback from some council members. District 6 Council Member Jimmy Flannigan called it a "massively problematic proposal," for the effect it would have on Austin taxpayers who fall within boundaries of a school district other than AISD. Flannigan and District 8 Council Member Ellen Troxclair said they would lead the charge in petitioning taxpayers to initiate a rollback election—which would allow the voters to decide whether or not to increase the tax rate over the 8 percent rollback rate. According to the city clerk's office, roughly 38,000 signatures would be needed to trigger the election.
The city would have to increase its tax rate the year before AISD does. Adler told reporters that if the city increased its tax rate and the school district later decided that it didn’t want hold up its end of the bargain and lower its rate the following year, city taxpayers would receive a refund.
City staff provided three scenarios of the tax swap:
SCENARIO A: The city contracts with AISD to provide $11.2 million of eligible services.
- Austin increases FY 2017-18 tax rate by $0.0084 above the rollback rate to $0.4535—monthly bump for typical city taxpayer from $94.41 in FY 2017 to $106.22 in FY 2018
- AISD gains $5.8 million in uncommitted budget—not designated to specific programs or subject to recapture.
- AISD reduces FY 2018-19 tax rate by $0.019.
- Net aggregate taxpayer savings is $11 million
- Typical homeowner in Austin and AISD saves $29.81
- Typical homeowner in Austin and non-AISD school district pays $23.48 more
- Typical senior pays $15.90 more
SCENARIO B – The city contracts with AISD for $11.2 million and with other bordering school districts for $2.8 million in services, increases senior homestead exemption by $7,000.
- Austin increases FY 2017-18 tax rate by $0.0113 above the rollback rate to $0.4535—monthly bump for typical city taxpayer from $94.41 in FY 2016-17 to $106.89 in FY 2017-18
- AISD gains $5.8 million in uncommitted budget—not designated to specific programs or subject to recapture
- AISD reduces FY 2018-19 tax rate by $0.019
- Net aggregate taxpayer savings is $8.1 million
- Typical homeowner in Austin and AISD saves $21.45
- Typical homeowner in Austin and non-AISD pays $31.85 more
- Typical senior saves $10.38
SCENARIO C – City contracts with AISD for $17.5 million and with bordering school districts for $4.4 million in services, increases senior homestead exemption by $10,000.
- Austin increases FY 2017-18 tax rate by $0.0176 above the rollback rate to $0.4626—monthly bump for typical city taxpayer from $94.41 in FY 2017 to $108.35 in FY 2018
- AISD gains $12.1 million in uncommitted budget—not designated to specific programs or subject to recapture
- AISD reduces FY 2018-19 tax rate by $0.019
- No aggregate savings to tax payers
- Typical homeowner in Austin and AISD saves $3.83
- Typical homeowner in Austin and non-AISD school district pays $49.47 more
- Typical senior saves $12.77
