Cedar Park City Council approved an ordinance April 26 for a $10,000 local homestead exemption, which would remove a portion of a homeowner’s residential property value from taxation. Per state tax code, the exemption only applies to a homeowner’s primary residence, so a property owner would have to own and live in his or her home in Cedar Park to qualify.
According to city documents, the average homestead taxpayer could see a decrease in his or her city property taxes of around $46 due to the exemption. However, the average number is calculated with property values and the city tax rate from the current year.
In part due to rising revenue from sales taxes, Cedar Park Mayor Matt Powell said this was good time to provide property tax relief for those with a home in the city.
“This helps our residents whose primary home is here,” he said. “In a way, it allows their home to appreciate [in value] without them necessarily having to get hit in the pocketbook for that.”
A tool for taxing entities
According to the state comptroller's office, Texas law requires school districts to offer homeowners a $25,000 homestead exemption. All taxing units, including a school district, city, county or special district, have the option to offer a separate resident homestead exemption. The entities can choose to remove up to 20 percent of the total value of a home from taxation, though no matter the percentage, the optional exemption cannot remove less than $5,000 from the value.
The Texas Municipal League, a state organization that represents city interests, does not track which cities have adopted a local homestead ordinance. Legislative Counsel Bill Longley said that means the organization cannot say whether there is a trend in more entities adopting the optional exemption, though he said the exemption is a tool city councils can consider given increases in valuations that certain areas of the state have been seeing.
“I think when citizens come to city hall and talk about property taxes and their increasing tax burden, this is one of the best options that a city council has to address that, at least as it pertains to residential property owners,” Longley said. “In terms of tax relief, this is a really a key tool for city councils to provide some measurable property tax relief to their residents.”
Starting in 2017 Cedar Park City Council began discussing implementing a 1 percent optional homestead exemption with either a $5,000 or $10,000 minimum being removed from a home's value.
The $5,000 minimum exemption would have saved the average homestead taxpayer about $23, according to numbers from the FY 2017-18 budget cycle. During an April meeting, Council Member Cobby Caputo said he did not feel the $5,000 exemption would provide homeowners with enough of a tax reduction, especially with property values continuing to rise.
According to numbers from the city, the average home in Cedar Park has increased in value by 61.44 percent over the last decade from $189,936 in fiscal year 2008-09 to $306,637 in FY 2017-18.
City Council ultimately approved a $10,000 minimum exemption, which would remove either 1 percent or $10,000, whichever is higher, off the appraised value of a property from the city’s ad valorem, or property, taxes. For example, if a local resident owned a property valued at $300,000, the new taxable value of the house for Cedar Park's tax rolls would be $290,000.
Cedar Park also offers a $30,000 exemption for those over 65 years of age, a $20,000 exemption for those who are disabled, and exemptions for disabled veterans and a local freeze, or a tax ceiling for those that qualify, that both vary in amounts.
The new homestead exemption also only applies to the city’s portion of tax bill, which makes up about 19 percent of a Cedar Park homeowner’s bill. Residents will see other taxing entities, such as Leander ISD, Travis or Williamson Counties, Austin Community College, and the Upper Brushy Creek Water Control and Improvement District, on the total bill, and some of those entities also offer optional exemptions.
According to city documents, there are 15,548 properties that could receive a homestead exemption in Cedar Park. Assistant Finance Director Chad Tustison said the $10,000 minimum exemption should be awarded to 99.9 percent of those properties, since the majority of homes in Cedar Park are valued under $1 million.
Although Caputo made the motion to approve the exemption, he said he does not believe the homestead exemption is the best way to achieve tax relief and to improve affordability in the city.
“It doesn’t do anything for the business community; it doesn’t do anything for people who rent; it doesn’t do anything for people who are in apartments,” he said. “But it’s the only [option] that’s moving at this point, so I’m going to support it.”
The time is now
Scott Smith, the president of the Ranch at Brushy Creek Homeowners Association, said homeowners in his neighborhood have seen their property values significantly increase since the subdivision first opened around 2005 or 2006. He said he had been pushing council members to take action on rising property tax bills and supported the adoption of the optional homestead exemption.
Smith estimated the average home value in the Ranch at Brushy Creek to be about $375,000.
“I don’t think we’re going to see significant cost savings; it’s more just keeping it level as the value increases,” he said. “It’s setting the incentive that as the [appraisal] value increases, [the homestead exemption is] a check for the working families and retired couples that haven’t seen their income values increase.”
Powell said Cedar Park began looking into a homestead exemption last year because of the city’s financial position. He said for years the council has been working to diversify where the city’s revenue comes from.
“When I started on the council a while back, it was dominated by the residential property tax,” he said. “And over time we’ve been able to build up other revenue streams, the largest of which being sales tax.”
According to city data, 30 percent of Cedar Park’s revenue came from property taxes in FY 2007-08, while 25 percent came from sales taxes. In FY 2016-17, the amount of sales taxes grew to make up 28 percent of the city’s revenue streams, though property taxes also rose to comprise 39 percent of the city’s revenue.
In budget projections for the current fiscal year, city staff estimated property taxes would make up 38 percent of the city’s revenue, while sales taxes would make up 28 percent.
The shift to having more of the city’s revenue made up from sales taxes is able to take some of the property tax burden away from homeowners, Powell said.
“That’s what we’ve been doing here for the past decade; it hasn’t just been about bringing fun things to town and bringing jobs to town—that’s all beneficial,” he said. “But it’s also been about making sure that this city is as financially secure as possible through much stronger diversification.”
The impact to the city
Since the homestead exemption will remove $10,000 from valuations in the next fiscal year, Cedar Park could collect less money in property tax revenue in FY 2018-19. Using current budget year calculations, the city estimated that the homestead exemption would lower Cedar Park’s revenue by about $711,000.
However, the city is estimating its budget impact using home valuations from last year and numbers from the current fiscal year. Tustison said final certified tax rolls will be due from the county appraisal districts at the end of July, and City Council will begin budget discussions in the summer.
The new homestead exemption will affect the fiscal year 2018-19 budget, which goes into effect in October. If the city does face a budget shortfall due to the exemption, city staff said there are a few options to help minimize the impact.
One option would be to "shift" the makeup of Cedar Park's tax rate. The overall city tax rate is made up of the maintenance and operation rate, which funds the day-to-day operations of the city, and the debt service tax rate, which funds the city’s debts. Tustison said City Council could choose to shift some of the burden of the funding gap to more greatly impact the city’s debts so that the day-to-day operations would take less of a funding hit.
Another option is to reduce and prioritize spending on the city’s day-to-day operations, and Tustison said a third possibility is to combine the two options.
With a new mayor and three new City Council members elected May 5, Powell said he hopes that future councils will be able to consider raising the homestead exemption amount to offer homeowners more savings. According to the U.S. Census Bureau, Cedar Park is one of the fastest-growing cities in the U.S., and Powell said cities should reward its residents who have lived here and been patient with the growth.
“This city has transformed. This city over the past decade has experienced a renaissance,” he said. “We have gone from a bedroom community to a full-service city. We are finically stable and secure and diversified. At some point, I think there should be some rewards for the residents, and I think now’s the time.”