Austin City Council has instructed city staff to draft a resolution by Dec. 1 for a percentage-based general homestead exemption.

The ordinance would have to provide a minimum $5,000 tax exemption for all residential properties, per City Council's instructions in a resolution approved Aug. 28.

Council has been reviewing the addition of a general homestead property tax exemption since May as a possible relief measure for city homeowners. But relief would cost the city millions, according to a financial analysis given 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 resolution. "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 initially proposed a 20 percent exemption that 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."

However, the homestead exemption City Manager Marc Ott has been instructed to create per the Aug. 28 vote will not affect FY 2014–15 budget.

The city of Austin already offers homestead property tax exemptions for residents who are age 65 or older or disabled. These exemptions increased March 20 from $51,000 to $70,000.

The city currently does not have a general homestead property tax exemption in place.

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.

Tovo 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. However, this option is not available in Texas.

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."

The maximum allowable homestead exemption under Texas law is 20 percent.