In McKinney, the average market value of homes increased by nearly $60,000 between 2014 and 2016, from $240,147 to $299,925, according to the Collin Central Appraisal District. This increase is causing homeowners to pay more in property taxes despite cities’ efforts to lower property tax rates.
As a result, some Texas lawmakers are prioritizing taxpayer relief this legislative session, which began in January. This call to action has some local government officials worried about what it could mean for their budgets.
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. On March 21, the bill was approved by the state Senate and sent to the House of Representatives for a vote.
“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.”
In its initial form, SB 2 would have lowered the revenue increase cap from its current cap of 8 percent to 4 percent. This would have allowed property tax revenue to increase by no more than 4 percent from year to year—unless voters approved a larger increase in a special rollback election.
As it stands now, a rollback election would only be triggered when revenue increases exceed 8 percent and a signed petition must be submitted before an election would be held.
However, during the March 14 Senate hearing, an amendment was made that changed the proposed 4 percent threshold to 5 percent with the hope that the extra 1 percent would still enable cities and political jurisdictions to carry out services for citizens.
During the hearing, Bettencourt noted the rollback rate was capped at 5 percent in 1979 during a period of high inflation, but with a changing economy, the rate was raised to 8 percent.
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.” And officials in cities and counties across the state, including McKinney, 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,” TML Executive Director Bennett Sandlin said 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.”
McKinney City Manager Paul Grimes said the change in the amendment does little to help growing cities.
“The amendment barely has an impact [for the city], and the concept of taking away local control of taxing and spending decisions—and away from the people, I might add—is unacceptable,” Grimes said. “We will continue to oppose this ruse to take local authority away from the highly successful communities of Texas and give it to the state.”
Grimes said public safety makes up 40 percent of the city’s budget and 60 percent of the city’s personnel costs. Should SB 2 pass, Grimes said the city would likely continue to fund these salaries. However, vacant positions, new or expanded personnel, programs and capital expenditures would probably be affected.
“That would result in the city not being able to keep up with service demands in a rapidly growing community,” he said. “For example, requests for new personnel, including needed fire and police staffing, [would] likely not be met.”
Grimes said meeting the lowered revenue rate may also require reductions to the city’s street maintenance program. Other impacts include fewer contributions to the city’s equipment and facilities replacement fund, which is used to cash fund equipment replacement purchases and facility renovations. In order to replace equipment, the city would have to forego the purchases or borrow the funds.
Changes if SB 2 is passed
If the bill passes, 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 the newly amended SB 2, the election would be triggered automatically whenever a 5 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 5 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.
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.
Local impact
McKinney Mayor Brian Loughmiller said it is important all McKinney residents and state legislators understand what a reduced rollback rate could mean for the city and its growth during the next 25 years as the city inches toward build-out.
The city estimates on an average McKinney home, lowering the rollback rate from 8 percent to 5 percent for fiscal year 2017-18 would equate to about $36 per year—or $3 a month—of savings. However, Loughmiller said this equates to millions in lost revenue to the city.
Cities are also looking at how they would budget given a mandatory rollback election. Frisco officials said they would have to prepare two budgets: one if residents passed their rollback rate and one if they did not. For McKinney, Grimes said city staff would create one budget but prepare recommended cuts to that budget in the event SB2 is passed. Grimes said that process will require significant staff time to prepare those assumptions.
Loughmiller said the city of McKinney’s portion of the average property tax bill is only 23 percent of the entire property tax levy, leaving 9 percent to Collin County, 3 percent to Collin
College and 65 percent to the appropriate school district.
“In evaluating the various pools of money that make up our tax bill at the local level,” he said, “the effort to look exclusively to cities as opposed to reforming other areas, including school finance and appraisal issues, seems to be misplaced given the bulk of an person’s tax bill is school district tax as opposed to the city tax rate.”
Under SB 2, the city of McKinney would have been required to hold a rollback election each year beginning in FY 2015-16.
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.
“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 ensure appraisals accurately reflect changes in the real estate market.
However, critics such as Bettencourt claim the system still produces assessed values that do not correlate with what is actually happening in the market.
McKinney City Manager Paul Grimes said the change in the amendment does little to help growing cities.
“The amendment barely has an impact [for the city], and the concept of taking away local control of taxing and spending decisions—and away from the people, I might add—is unacceptable,” Grimes said. “We will continue to oppose this ruse to take local authority away from the highly successful communities of Texas and give it to the state.”
Grimes said public safety makes up 40 percent of the city’s budget and 60 percent of the city’s personnel costs. Should SB 2 pass, Grimes said the city would likely continue to fund these salaries. However, vacant positions, new or expanded personnel, programs and capital expenditures would probably be affected.
“That would result in the city not being able to keep up with service demands in a rapidly growing community,” he said. “For example, requests for new personnel, including needed fire and police staffing, [would] likely not be met.”
Grimes said meeting the lowered revenue rate may also require reductions to the city’s street maintenance program. Other impacts include fewer contributions to the city’s equipment and facilities replacement fund, which is used to cash fund equipment replacement purchases and facility renovations. In order to replace equipment, the city would have to forego the purchases or borrow the funds.
Under the newly amended SB 2, the election would be triggered automatically whenever a 5 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 5 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.
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.
“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 ensure appraisals accurately reflect changes in the real estate market.
However, critics such as Bettencourt claim the system still produces assessed values that do not correlate with what is actually happening in the market.
