State lawmakers set sights on local property tax reform

The 85th Texas Legislature is in session until May 29.

The 85th Texas Legislature is in session until May 29.

Some Texas lawmakers are prioritizing taxpayer relief this legislative session, which began in January, but some local  officials in Colleyville and Southlake are worried about what it could mean for their budgets and long-term projects.


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 commonsense property tax reform legislation is long overdue,” Patrick said. “Property taxes are driving people out of their homes and hampering business expansion and growth.”


State lawmakers set sights on local property tax reform


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.


If the bill is passed, elections in Colleyville and Southlake would be likely in future years because both cities have come close to the 4 percent increase in recent years.


Southlake’s property tax revenue, minus tax increment financing revenue, increased 3.45 percent from fiscal year 2014-15 to FY 2015-16. Colleyville saw a 3.77 percent increase from FY 2013-14 to FY 2014-15, also discounting TIF revenue.


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.”


“The largest budget item for every city in Texas is public safety—police, firefighting and emergency medical services,” said Bennett Sandlin, executive director of the 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 the[ir] salaries, equipment, vehicles, health insurance and pensions.”


SB 2 effect on Southlake


Southlake Mayor Laura Hill said if the bill is passed, there would not be any immediate implications to the city’s services, but long-term projects could be put on hold.


“I think there will be a major change of plans,” she said. “We are still developing; we are not built out yet and I think a lot of the plans we had for the future wouldn’t happen, such as the library. I would not be willing, as a mayor, to risk [beginning a long-term project] because I would not be able to finish paying for it because I firmly believe that if you ask the citizens, ‘Do you want to vote for higher taxes?’ they are going to say no.”


Hill said the bill could hurt cities like Southlake that pay for projects with cash.


“What SB 2 doesn’t think about is what happens to the cities that pay cash?” she said. “They have to go float bonds like our school district does. [We] are talking about building a new library, [but] how do you build a new library when the state is telling you that you are limited in how many tax dollars you bring into the city?”


SB 2 effect on Colleyville


In Colleyville, where the city’s sales tax revenue does not contribute much when compared to property tax revenue, the bill would have several implications, according to Colleyville Mayor Richard Newton.


Newton said if the bill passed, the city would have to be more restrictive and more fiscally conservative than in years past.


However, Newton said he does agree with the philosophy with having voters decide if they want property taxes to increase.


“I think, as officials, we should be held accountable,” he said. “We should have to go before the citizens and let them decide if our reason for wanting more money is justifiable. I know many elected officials won’t agree with what I’m saying, but in the end we all work for the citizens.”


Newton said the city already has a policy that sets the property tax revenue cap at 7 percent.


State lawmakers set sights on local property tax reform


SB 2 effect on Grapevine


Home to several large tourist attractions, such as Great Wolf Lodge, Gaylord Texan Resort & Convention Center and Grapevine Mills, the city of Grapevine brings in millions of dollars in sales tax and hotel occupancy tax revenue. Since more money comes from those sources as opposed to property taxes, Grapevine Mayor William D. Tate said he doubts the bill would have a large effect on the city’s budget.


“It is hard to say what the bill will look like in the end,” he said. “However, I prefer local control. I do not like mandatory caps. I think the problem is the computer programs used by the taxing authorities to value property are inaccurate and unfair.”


The call for reform


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.


State lawmakers set sights on local property tax reform


“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 [re]locating and taking jobs out of Texas due to high property taxes, they are all saying 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 like Bettencourt claim the system still produces assessed values that often do not correlate with what is actually happening in the market.


In areas with rapid population growth, such as Houston and Dallas, values have been increasing at an especially fast pace, said Sen. Jeff Leach, R-Plano.


“The rate of growth [of property values] from year to year is not sustainable,” said Leach, who also works as an attorney with Gray Reed, a full-service law firm with offices in Houston and Dallas. “This is not a Democrat/Republican issue. We want [property values] to increase, but [they] need to increase at a sustainable rate.”


Relief for residents?


Currently, the bill would affect cities and counties but not municipal utility districts, emergency services districts or school districts.


Mayor Hill said what residents do not realize is SB 2 would not be as big of a tax break as they think because a majority of their property taxes go to school districts.


State lawmakers set sights on local property tax reform


“Citizens think this is going to be a significant tax break. Well, 58 percent of my tax bill goes to Carroll ISD,” she said. “Only 16 cents on every dollar is going to the city.”


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.


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.


Sandlin questioned how much lowering the rollback rate would actually affect tax bills.


“Elderly and disabled homeowners would have the smallest hypothetical tax savings because of the exemptions they currently receive,” he said.


Hill said to help with rising property tax bills, Southlake continues to increase its homestead exemption. Homestead exemptions remove part of a home’s value from taxation, thereby lowering taxes.


“I’m not saying we shouldn’t look at tax reform—we absolutely need to—that’s why the city of Southlake went from a 12 percent homestead exemption to a 16 percent [homestead exemption] this year, and we already publicly committed that we are going to 20 [percent] next year,” she said.

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