Several Cy-Fair-area lawmakers have made property tax relief one of their biggest priorities this legislative session in response to rising home appraisal values across the state and in Harris County.

The Texas Senate proposed Senate Bill 1 in February calling for property tax relief, which on average would provide homeowners with $232 in savings in 2016 and $263 in 2017.

"I'm glad I showed up with this shift of leadership because we are going to get conservative solutions to Texas challenges done," said state Sen. Paul Bettencourt, R-Houston. "There is no other bigger priority from my view, besides passing the budget, to passing tax relief. There's no question [Lt. Gov. Dan Patrick] was serious about that, and he made it very clear by signing this as the No. 1 bill this session."

As it stands now, SB 1 calls for an increase in the state's homestead exemption for school district taxes from $15,000 to 25 percent of the Texas home median market value, or $33,625. The Texas tax code requires school districts to offer a $15,000 homestead exemption to all qualified residents, meaning a home worth $100,000 would be taxed at a value of $85,000 instead.

Although Cy-Fair ISD trustees vote annually to provide an optional 20 percent homestead exemption for qualified homeowners in addition to other tax exemptions, district officials have some concerns regarding SB 1.

"Even though we support property tax relief and have done it for many years, there needs to be a focus by the Legislature to provide additional funding to school districts and improve the funding formulas in the current system," said Stuart Snow, Cy-Fair ISD chief financial officer. "Otherwise some school districts, and possibly Cy-Fair, will experience real budget challenges."

Rising property values

Every Jan. 1, the Harris County Appraisal District begins determining the value of the roughly 1.7 million parcels of land in the county. All property owners are mailed a letter in late March or early April with updated value information.

"In 2014, all property tax revenue in the state grew at 8.7 percent and in Harris, Dallas, Travis and many other counties, the increase was double digits," Bettencourt said. "That means property taxes are growing twice as fast as Texans' paychecks, and that's bad public policy long term."

Residential values in Harris County rose 16 percent overall in 2014 and by 13 percent on average in CFISD. Appraisal values are determined by a number of factors, most notably home sales in a neighborhood, HCAD spokesman Jack Barnett said.

"If someone fixes up a home and has a nice front yard and keeps the interior in good shape, chances are it will sell for a higher price in a shorter period of time than a house that hasn't been kept up," he said. "The Houston economy has really been driving a lot of the sales as well."

After 90 percent of protests are resolved, the county's chief appraiser certifies the appraisal roles in mid-August. The data then goes out to various jurisdictions—cities, counties, school districts and municipal utility districts—so budgets and tax rates can be determined based on the amount of revenue each governmental entity will receive.

Although property values have risen in the Cy-Fair area, the district does not receive the extra revenue.

"Under the current finance system, as the home values rise in the district we get the tax money, but our state revenue is reduced by that amount," Snow said.

"Property taxes are growing twice as fast as Texans' paychecks, and that's bad public policy long term."
-Sen. Paul Bettencourt

Tax relief

Property tax relief has been a major issue in the Texas House as well. In late January, state Rep. Dwayne Bohac, R-Houston, filed House Bill 957 to reduce the appraisal cap from 10 to 5 percent.

"This means the appraisal on your home cannot go up by more than 5 percent from the previous year," Bohac said. "Right now it can go up by 10 percent, and that's too expensive. If the value goes up 10 percent for seven years a in a row, your home's value will double which means the appraisal creeps up and your tax bill goes up correspondingly."

Similar to the Senate's proposal, Bohac's HB 958 also increases the homestead exemption for school district taxes from $15,000 to $30,000.

"Tax bills are rising exponentially as appraisals are rising," Bohac said. "Even if the tax rate for cities, counties or municipal utility districts stays the same, if the appraisal goes up, the tax bill goes up accordingly. People's tax bills are running away with them and that's not fair or right and the Legislature needs to do something about it."

If the Legislature increases the homestead exemption, it would result in less property tax revenue for school districts unless a provision is made in the bill.

"[Legislators] are making an effort to ensure districts aren't harmed by this and that the impact is offset by this and is offset by additional state aid," said Dan Casey, partner with the Austin-based consulting firm Moak, Casey and Associates. "We'll see if they come up with a satisfactory solution."

In regard to SB 1, the exemption increase means the taxpayer will get a break and the state will up its share of the education pot to make sure districts do not lose money, Bettencourt said.

"In this case, the state will hold districts harmless on this change," he said.

Snow said there are some concerns regarding whether the hold harmless—the state making up for the lost revenue—is sustainable and long lasting since it is based on 2014 property values for the maintenance and operations tax rate. The interest and sinking tax rate is based on the amount of principal and interest a district paid for the 2014–15 school year.

"My concern is that for fast-growth districts like Cy-Fair ISD, as we continue to grow and sell bonds and incur more debt for building schools, our hold harmless will not follow that additional debt," Snow said. "If we sell bonds in the future and incur more debt and our principal and interest payments go up, the state—as it's written in SB 1—won't make up the difference. In other words, we would have to raise our tax rate with any future debt."

SB 1 is also based on the existing school finance system and funding formulas and does not take into account any needed improvements or changes to the system in the future, Snow said.

"There is also a provision that places a prohibition on any reduction or elimination of an optional homestead exemption for a period of 10 years," he said. "That seems to me to be a constitutional issue because those optional homestead exemptions were approved at the local level by a board of trustees. If SB 1 passes in that language, it will actually take local control out of the hands of school boards."

Since there are still more than two months left in the 84th session, it is still unclear in what form property tax relief will be approved. It is still sure to be one of the biggest issues this legislative session, Bettencourt said.

"We've got $4.6 billion budgeted for tax relief," he said. "That's definitely putting substantial numbers up for tax relief."