Entities set tax rates ahead of new state law

Harris County was among the taxing entities facing a debate over how to set its tax rate in advance of new state laws.

Harris County was among the taxing entities facing a debate over how to set its tax rate in advance of new state laws.

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Entities set tax rates ahead of new state law
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Entities set tax rates ahead of new state law

Every fall, taxing entities across Texas plan their budgets for the coming fiscal year, a process that involves setting the tax rate based on how much money staff thinks the entity will need. A new state law going into effect Jan. 1 has complicated the process for cities, counties and taxing districts this year.


The law—Senate Bill 2, which passed through the 86th Texas Legislature this spring—will limit how much a city or county can increase property tax revenue to 3.5% from the previous year before voter approval is required.


In Harris County, commissioners debated whether to enact the first across-the-board tax rate increase since 1996. The county was ultimately forced to adopt a tax rate cut after the two Republican commissioners—Precinct 3 Commissioner Steve Radack and Precinct 4 Commissioner Jack Cagle—did not show up for the vote in protest.


The cut could come with steep consequences for the county, said Harris County Judge Lina Hidalgo, who supported the tax rate increase.


“The truth of the situation is that our county continues to grow and with that, the costs grow; the needs grow,” Hidalgo said.


Reactions to SB 2 varied across different taxing entities in Cy-Fair. In Jersey Village, city officials pushed for taxpayer relief in the upcoming fiscal year. Not only did the Jersey Village City Council adopt the same tax rate as last year, but council also voted to raise the city’s homestead exemptions in June.


Unlike Harris County, which relies on property taxes to make up roughly 80% of its revenue, the city of Jersey Village is able to collect sales tax revenue. Optimism about future increases in sales tax revenue has city officials speculating that even with SB 2 on the horizon, another homestead exemption increase could be coming soon.


“I have no concerns whatsoever about our finances in Jersey Village in light of the changes resulting from SB 2,” Council Member Bobby Warren said. “Our economic development efforts in Jersey Village are already generating increased sales tax revenue.”



A showdown in Harris County


Perhaps the most contentious conversation about how to handle tax rates took place within Harris County Commissioners Court after the court’s three Democrats called for a tax rate increase from $0.62998 per $100 valuation to $0.6526 per $100 valuation, the maximum rate allowed by law without giving voters a chance to ask for an election.


Concerns about SB 2 and how it could restrict the county’s ability to deal with growth were at the center of the argument for proponents of the increase.


“The state has passed this law that is really taking advantage of folks saying that it does one thing when ultimately, what it does is keeps us from being able to provide the services folks have come to expect,” Hidalgo said at an Oct. 8 meeting.


Cagle and Radack, the court’s Republicans, both opposed the increase, instead calling for the county to adopt the effective tax rate, or the rate that imposes the same taxes as last year when comparing property on the tax roll in both years. Cagle said he believes property tax relief should have been provided to taxpayers following Hurricane Harvey in 2017 and is even more needed in the wake of Tropical Depression Imelda, which flooded about 2,500 homes in Harris County in September.


The argument came to a climax when Radack and Cagle skipped the Oct. 8 meeting where the tax rate was to be adopted. Although the duo were in the minority on the court, they were able to take advantage of a state law that requires at least four members of a commissioners court to be present for a vote on a tax rate to take place.


As a result, the court was forced to adopt the effective tax rate of $0.6117 per $100 of valuation. County Budget Officer Bill Jackson projects the county to raise about $186 million less in property tax revenue using the effective rate compared to the rate the Democrats supported, including roughly $9 million less for the flood control district, $59 million less for the hospital district and $117 million less for the general fund.


The adoption of the effective tax rate instead of the rollback rate will save the owners of a $200,000 home an estimated $65 on their annual property tax bill.



Reactions vary


The need to keep up with growth was also at the center of concerns for Harris County Emergency Services District No. 9.


The ESD’s five commissioners, who manage the budget of the Cy-Fair Volunteer Fire Department, voted to increase the district’s tax rate from $0.05271 per $100 of valuation to $0.0598 per $100 of valuation at a Sept. 25 meeting. The move will increase revenue by about $4.6 million overall from the previous year. Because the ESD’s tax rate is relatively small compared to other entities, the owner of a $200,000 home within the service area would expect to pay an additional $13 in property taxes compared to last year.


Despite raising the tax rate, ESD officials still adopted a deficit budget for fiscal year 2019-20 as they prepare to make land purchases for two new stations, advance construction on two other new stations and embark on a hiring spree, Commissioner Tommy Balez said. ESD No. 9 and the CFVFD will merge into one governmental entity called the Cy-Fair Fire Department at the end of 2019, and the new entity plans to start hiring staff at a rapid rate, he said.


“We have to guess what the future looks like in 10 years at a minimum,” he said. “Before [SB 2], we would keep lowering taxes until we need to raise them. Once they took the control out of our hands, that puts us in a hard spot moving forward.”


Concerns about SB 2 were more muted in Jersey Village, where city officials acknowledged the potential future effects of the bill but said the city’s strong financial position makes it less of a concern in the present.


In June, the city increased its homestead exemption from 8% of a home’s value to 14% of a home’s value. The exemptions for the disabled and homeowners over the age of 65 were raised from $25,000 to $75,000 and from $50,000 to $75,000, respectively. As a result, the city projects it will bring in about $290,000 less in property tax revenue compared to the previous year.


Warren and other council members have expressed a desire to bring in more sales tax revenue to offset the city’s reliance on property taxes. He and Jersey Village Mayor Andrew Mitcham said they want to raise homestead exemptions further in the future, even after SB 2 goes into effect.


“A cap on property tax increases is irrelevant when all signs point to future property tax decreases,” Warren said.



The next steps


State Sen. Paul Bettencourt, R-Houston, who authored SB 2, weighed in throughout the debate in Harris County, lending support to Cagle and Radack and claiming the court’s Democrats were seeking to undermine the will of voters.


In a statement, Bettencourt said SB 2’s 3.5% limit does not apply to any revenue made from new property, allowing Harris County to theoretically increase its revenue by more than the 3.5% threshold. He also clarified the county can still raise taxes even higher with voter approval.


“Going forward, Harris County taxpayers will be able to vote on these type of tax increase proposals due to the bipartisan passage of Senate Bill 2,” Bettencourt said. “The bottom line is what I have been saying for 20 plus years, that as appraised values go up, property tax rates should come down.”


In a statement, Cagle called the result a win for taxpayers. However, Precinct 2 Commissioner Adrian Garcia said he believes the county will find itself hamstrung to deal with growth moving forward, which could lead to longer-term issues that will eventually stunt growth.


“You hear these conversations about the state of health, pollution, mobility, drainage—all of these things cost money,” he said at the Oct. 8 meeting. “I’ve always been concerned that if we are unable to manage for our growth, we may not get it—and that’s not a good thing.”


Hannah Zedaker contributed to this report.

By Shawn Arrajj
Shawn Arrajj serves as the editor of the Cy-Fair edition of Community Impact Newspaper where he covers the Cy-Fair and Jersey Village communities. He mainly writes about development, transportation and issues in Harris County.


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