Austin City Council has been reviewing the addition of a general homestead property tax exemption since May as a possible relief measure for city homeowners.
But the proposed relief would cost the city millions, according to a financial analysis revealed to the council at an Aug. 5 work session.
A homestead property tax exemption lowers the taxable value of a property, which in turn decreases the amount of taxes the homeowner pays—the higher the exemption, the lower the taxes.
In Texas, a homestead exemption is optional and determined by each city.
"Homeowners are struggling to pay their property taxes," said Councilwoman Kathie Tovo, who sponsored the council meeting agenda item. "We've received emails from members of the community who said they are afraid they won't be able to remain in their homes."
Tovo's proposed 20 percent exemption would cause a $35.6 million loss in revenue for the city while saving the average homeowner only $189 a year, Deputy Chief Financial Officer Ed Van Eenoo said.
"There is a lot of concern, questions and interest about [a homestead exemption]. Before we move forward, we need to better understand its impact on homeowners and the revenue loss to the city," Tovo said. "It makes sense for [a homestead exemption] to be part of a formal budget discussion."
The city of Austin offers homestead property tax exemptions for residents who are age 65 or older or disabled. These exemptions were increased March 20 from $51,000 to $70,000.
However, the city lacks a general homestead property tax exemption.
Under state law Texas cities can only offer a homestead exemption based on a percentage of the homestead property's value, a system which Tovo said most benefits owners of expensive properties. Instead, she said a flat-dollar exemption, calculated by exempting a fixed amount from the value of all homes before applying the city's tax rate, would have a greater effect on property owners who are in most need of help.
Tovo said the option to offer a flat tax rate exemption—available in other states—will be a high priority item for Texas cities during the next state legislative session.
"Offering a flat rate homestead exemption would give municipalities more options on how they approach [these] exemptions," she said. "It would offer [Austin] an option we currently don't have."
Van Eenoo is set to bring back more information to City Council in early or mid-September regarding the possibility of reducing tax appraisals to better assist homeowners and not hit the city's budget as hard.
He is also expected to discuss how lowering property taxes could put more financial burden on housing suppliers, which in turn may pass that burden onto renters and buyers.
The maximum allowable homestead exemption under Texas law is 20 percent.
Additional reporting by Jennifer Curington