The main attempt to reform the property tax system this session comes from Sen. Paul Bettencourt, R-Houston. Bettencourt filed Senate Bill 2, the Texas Property Tax Reform and Relief Act, on Nov. 29. It was given top priority by Lt. Gov. Dan Patrick.
“Texans have told us loud and clear that common-sense property tax reform legislation is long overdue,” Patrick said. “Property taxes are driving people out of their homes and hampering business expansion and growth. It’s time for this to stop.”
Among other goals, SB 2 seeks to lower the property tax revenue cap for cities and counties from an 8 percent increase over the previous year to a 4 percent increase. If a city or county were to exceed the revenue cap, a rollback election would be triggered, giving voters the chance to approve or reject the new tax rate.
Officials with the Texas Municipal League—a nonprofit that advocates for legislative issues on behalf of Texas cities—describe the proposed rollback rate reduction as an “assault on public safety, economic development and transportation.” Meanwhile, officials in cities and counties across the state, including the city of Frisco, have expressed concerns about how SB 2 could restrict future budgets.
“The largest budget item for every city in Texas is public safety—police, firefighting and emergency medical services,” said Bennett Sandlin, executive director of TML, in a statement. “Politicians can’t proclaim their support for first responders and then turn around and vote to restrict the funding that pays for [their] salaries, equipment, vehicles, health insurance and pensions.”
Frisco Mayor Maher Maso said public safety makes up 70 percent of the city’s budget. This past year, Frisco City Council approved hiring 36 new positions in the police and fire departments, all of which would have been eliminated if Frisco’s property tax revenue was capped at 4 percent, Maso said.
“[SB 2] has the potential to severely impact our ability to provide great public safety,” he said. “It would make Frisco less safe, it would make response times slower, and that’s what our citizens really depend on.”
Bettencourt, who serves as chairman of the Senate Select Committee on Property Tax Reform, hosted a series of town hall meetings across the state in 2016.
“In hearing after hearing, the committee heard the same message loud and clear: Texans are asking for and deserve property tax relief,” Bettencourt said. “Whether it was homeowners testifying that they are unable to keep up with their property tax bills, small-business owners seeing their hard-earned profits go out the window, or big businesses testifying that they are locating new plants and taking jobs out of Texas due to high property taxes, they are all saying that property taxes are rising too fast.”
The state tax code requires appraisal districts to adopt a written reappraisal plan every two years to make sure appraisals accurately reflect changes in the real estate market. However, critics such as Bettencourt claim the system still produces assessed values that often do not correlate with what is actually happening in the market.
In Frisco, the average market value of homes increased by 13 percent on the Collin County side of the city between 2015 and 2016, according to the Collin Central Appraisal District. On the Denton County side of the city, market values increased by 9 percent between 2015 and 2016, according to the Denton Central Appraisal District.
In addition to SB 2, several other bills related to property tax relief have been filed by lawmakers this session. Rep. Cecil Bell, R-Magnolia, filed HB 167, which would limit appraisal increases to 5 percent of the appraised value of the property for the previous year. Rep. Dwayne Bohac, R-Houston, filed HB 1473, which would exempt homeowners age 80 and older from property taxes entirely if they have owned their homes for at least 10 years.
Some legislation filed has been more extreme. Rep. Valerie Swanson, R-Tomball, filed HB 1050, which would abolish property taxes entirely by Jan. 1, 2022.
Changes if SB2 is passed
If passed, SB 2 would pressure a taxing entity to lower its tax rate to compensate for increases in assessed property values, Bettencourt said. As a result, the amount a homeowner’s property tax bill could go up each year would be limited.
Under existing rules, citizens must petition to bring about a rollback election in which voters can decide to reject a proposed tax rate. Under SB 2, the election would be triggered automatically whenever a 4 percent increase in property tax revenue from the previous year is reached or passed.
The election would be held during the uniform election date in November. The ballot language must include the adopted tax rate—the rate set for budgeting purposes—as well as the difference between that rate and the rollback tax rate—the rate that would need to be set to stay under the 4 percent revenue cap. The bill would affect cities and counties but not municipal utility districts, school districts or emergency services districts, which are separate from city emergency services.
Patrick O’Connor, president and owner of Houston-based property tax consulting business O’Connor & Associates, said the legislation is the most significant taxpayer relief bill filed in the state in 20 years. O’Connor, whose business has offices in Austin and Dallas, said the bill would have the greatest effect in cities and counties with high growth.
“It would definitely save homeowners money in years where property values go [up] quickly,” O’Connor said. “And we’ve seen a number of years in Harris County where appraisals have risen by 10 percent.”
O’Connor said in a best-case scenario with a 10 percent increase in appraised value year over year on a $280,000 home and a total combined property tax rate of $2.70 per $100 valuation—including all taxing entities—the bill could save homeowners as much as $454 that year if residents were to vote down the tax increase.
In addition to reducing the rollback rate, SB 2 would also install a series of appraisal reforms, including the creation of oversight boards, raising small-business exemptions and standardizing the date for property owners to protest their appraisals.
With a growing tax base and property values increasing every year, SB 2 would require the city of Frisco to hold an election every year, Maso said. The estimated tax revenue for fiscal year 2017 in Frisco is more than $67 million, a nearly 14 percent increase from fiscal year 2016. In 2016, the tax revenue increased 18 percent from 2015.
Maso said this bill, if it were to become law, would essentially require growing municipalities to create two budgets: one assuming that voters approve a revenue increase of more than 4 percent and one assuming they turn down the revenue increase.
“What’s really sad about this is historically we’ve had one of the lowest tax rates in North Texas,” Maso said. “Because we’ve been so diligent with taxpayer dollars and we’ve been so conservative with taxpayer dollars, our residents would be the most penalized because we run one of the most efficient cities in Texas.”
Maso said he agrees that residents are feeling the sting of rising tax bills, but he said what residents need is meaningful tax relief. Under this bill, Maso said the resident of an average home in Frisco would pay $62 less per year, which is less than $6 per month.
Instead of capping the tax revenue of cities, Maso said the Texas Legislature should focus on fixing the current finance systems for school districts and transportation. The state’s current school finance system recaptures funds from property-wealthy districts, such as Frisco ISD, and distributes those funds to property-poor districts in a process known as the “Robin Hood” plan. Toll roads are also in place to make up for the lack of funds for local transportation projects. Fixing these two systems would ease the burden on local taxpayers, Maso said.
“To me, the proposed revenue cap is misdirection by the state abdicating their responsibility,” he said.