Texas lawmakers are prioritizing taxpayer relief this legislative session, which began in January, but local government officials are 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.
“Property taxes are driving people out of their homes and hampering business expansion and growth,” Patrick said. “It’s time for this to stop.”
Among other goals, SB 2 seeks to lower the property tax rollback rate 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 across the state have expressed concerns about how SB 2 could restrict future municipal budgets.
Montgomery County officials offered various perspectives on the effect of the property tax rollback. Judge Craig Doyal said the county is evaluating ways to provide some property tax relief at the local level, but striking a balance is difficult because the county does not levy a sales tax. On Feb. 13, county commissioners approved a 10 percent homestead exemption for all homeowners.
“We want to give people some relief but at the same time not put ourselves in a position where we cripple the county operations and we have to cut back on law enforcement, and we are way behind on road construction,” he said. “It is a tough balance.”
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.
“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,” Bettencourt said.
The appraisal system in Montgomery County is designed to allocate the tax burden fairly among all owners of taxable property, said Tony Belinoski, a deputy chief appraiser for the Montgomery County Appraisal District.
“We appraise property according to the laws set forth in the Texas property tax code using mass appraisal,” Belinoski said. “We break properties down into market areas and based on their individual characteristics. We then use similar properties and—collecting sales information—we make adjustments to those properties.”
Critics claim property appraisal systems produce assessed values that often do not correlate with what is actually happening in the market.
In Montgomery County, average assessed values increased by 12.5 percent between 2015 and 2016, according to MCAD.
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 House Bill 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 that was 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 SB 2 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 increase. Under SB 2, the election would be triggered automatically whenever a 4 percent increase in property tax revenue from the previous year is reached.
The bill would affect cities and counties but not municipal utility districts, emergency services districts or school district. Bettencourt said it is difficult to project how much the average homeowner would save under SB 2, but he said the savings would add up each year to produce tangible relief over time.
Montgomery County Precinct 1 Commissioner Mike Meador said he does not support efforts to put a cap on municipalities. He said the legislation would take away the decision-making ability of local elected officials—who could instead put excess tax revenue into capital improvement funds to pay for future projects.
“There are things that we need to do, and if you don’t have those funds available then you have to sell bonds and you have to service that debt,” Meador said. “I am kind of a cash-and-carry type of guy. I would rather do things in cash than borrow money.”
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 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.
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.
Budget concerns
In Montgomery County—where 83 percent of the county is unincorporated—property tax revenue will be even more crucial to managing a rapidly growing population, Doyal said.
Total property tax revenue brought in by Montgomery County has increased from $175.3 million in 2013 to $186.6 million in 2014 and $203.2 million in 2015, increases of 6.45 and 8.90 percent, respectively.
“[In] most rapidly growing counties, a big footprint of the county is covered by cities,” Doyal said. “We are in a very unique situation in that respect.”
By approving a 10 percent optional homestead exemption for all homeowners, the county will lose about $13 million in annual revenue, Tax Assessor-Collector Tammy McRae said. However, Montgomery County expects to generate approximately $12.8 million in additional revenue this year over last year.
The exemption could result in an annual savings of $125.40 for homes valued at $268,685—the average value in Montgomery County, she said.
Doyal said he is also encouraging local municipalities to reduce their tax rates.
Conroe Mayor Toby Powell said he supports the idea of reducing tax rates, and he is not concerned about the effect any potential legislation will have on the city because sales tax accounts for 46 percent of the city budget. In August, the city dropped its tax rate from 42 cents per $100 valuation to 41.75 cents.
“That is what my attitude is—that we try to balance out this increase in appraised values with our ad valorem tax rate,” Powell said. “I want to see any kind of solution where we can put more money back in the citizen’s pocket. It is all about the citizens.”
Unlike Meador, Powell said he believes cities should sell bonds and pay for necessary projects over time to reduce the strain on taxpayers.
“We are one of the fastest-growing city in the nation,” Powell said. “Well, we need more money; we need $65 million just to build a new wastewater plant. We try to budget everything, and we try to use water and sewer bonds so we can pay over time rather than try to raise the tax rate to the level where people can’t stand it.”
Additional reporting by Jesse Mendoza and Marie Leonard
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.
“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,” Bettencourt said.
The appraisal system in Montgomery County is designed to allocate the tax burden fairly among all owners of taxable property, said Tony Belinoski, a deputy chief appraiser for the Montgomery County Appraisal District.
“We appraise property according to the laws set forth in the Texas property tax code using mass appraisal,” Belinoski said. “We break properties down into market areas and based on their individual characteristics. We then use similar properties and—collecting sales information—we make adjustments to those properties.”
Critics claim property appraisal systems produce assessed values that often do not correlate with what is actually happening in the market.
In Montgomery County, average assessed values increased by 12.5 percent between 2015 and 2016, according to MCAD.
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 House Bill 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 that was 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 SB 2 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 increase. Under SB 2, the election would be triggered automatically whenever a 4 percent increase in property tax revenue from the previous year is reached.
The bill would affect cities and counties but not municipal utility districts, emergency services districts or school district. Bettencourt said it is difficult to project how much the average homeowner would save under SB 2, but he said the savings would add up each year to produce tangible relief over time.
Montgomery County Precinct 1 Commissioner Mike Meador said he does not support efforts to put a cap on municipalities. He said the legislation would take away the decision-making ability of local elected officials—who could instead put excess tax revenue into capital improvement funds to pay for future projects.
“There are things that we need to do, and if you don’t have those funds available then you have to sell bonds and you have to service that debt,” Meador said. “I am kind of a cash-and-carry type of guy. I would rather do things in cash than borrow money.”
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 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.
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.
Budget concerns
In Montgomery County—where 83 percent of the county is unincorporated—property tax revenue will be even more crucial to managing a rapidly growing population, Doyal said.
Total property tax revenue brought in by Montgomery County has increased from $175.3 million in 2013 to $186.6 million in 2014 and $203.2 million in 2015, increases of 6.45 and 8.90 percent, respectively.
“[In] most rapidly growing counties, a big footprint of the county is covered by cities,” Doyal said. “We are in a very unique situation in that respect.”
By approving a 10 percent optional homestead exemption for all homeowners, the county will lose about $13 million in annual revenue, Tax Assessor-Collector Tammy McRae said. However, Montgomery County expects to generate approximately $12.8 million in additional revenue this year over last year.
The exemption could result in an annual savings of $125.40 for homes valued at $268,685—the average value in Montgomery County, she said.
Doyal said he is also encouraging local municipalities to reduce their tax rates.
Conroe Mayor Toby Powell said he supports the idea of reducing tax rates, and he is not concerned about the effect any potential legislation will have on the city because sales tax accounts for 46 percent of the city budget. In August, the city dropped its tax rate from 42 cents per $100 valuation to 41.75 cents.
“That is what my attitude is—that we try to balance out this increase in appraised values with our ad valorem tax rate,” Powell said. “I want to see any kind of solution where we can put more money back in the citizen’s pocket. It is all about the citizens.”
Unlike Meador, Powell said he believes cities should sell bonds and pay for necessary projects over time to reduce the strain on taxpayers.
“We are one of the fastest-growing city in the nation,” Powell said. “Well, we need more money; we need $65 million just to build a new wastewater plant. We try to budget everything, and we try to use water and sewer bonds so we can pay over time rather than try to raise the tax rate to the level where people can’t stand it.”
Additional reporting by Jesse Mendoza and Marie Leonard
