Conroe City Council approved a 2.5% homestead exemption at its May 28 meeting.

A homestead exemption removes part of the value of a property from taxation and lowers taxes. For example, a $100,000 home in Conroe, under the city’s current tax rate of $0.4375 per $100 valuation, owes $437.50 per year on taxes. Under the 2.5% exemption, the value of the home would be lowered by 2.5% for tax calculations, and the homeowner would pay $426.56.

That represents savings of $10.93 per year.

The item was brought forth by Mayor Toby Powell, who is running for re-election against Council Member Jody Czajkoski in November. Powell also directed city staff to explore cost-saving options for the city to make up for the dip in property tax revenue, such as refinancing of bonds, using funds from the city’s land sales and making adjustments to the budget.

“We’re going to have to be conservative on the things that we do, but we’re going to have to make sure we take care of our citizens,” he said.

Powell has also sued county tax officials on the grounds that they were placing excessive home valuations on citizens. County commissioners deemed it a political stunt.

Council Member Raymond McDonald suggested a 20% increase instead; he said that although he understands the city’s finances have been hit hard because of the coronavirus, citizens would be more appreciative of a larger exemption.

But under a 20% homestead exemption, the city could lose a little over $3 million per year, City Administrator Steve Williams said. Under a 2.5% exemption, the city could see a loss of $437,000 per year.

Property taxes make up about 30% of the city’s general fund balance, Williams said. The city largely relies on sales tax as a revenue source, and Williams said he expects that to be drastically hurt by the coronavirus restrictions.

Any homestead exemption would place further strain on the city’s budget and could potentially result in city workers, such as fire department personnel, not getting salary raises or having to cut back on city services, he said.

“Whatever relief you give, it comes in the way of additional adjustments or possible service reductions,” Williams said.

Williams added that for the past 15 years, he has urged the city to broaden its sources of revenue.

Powell said he does not believe the city can afford a 20% homestead exemption.

“I think citizens understand we still have to run City Hall and function as a city for their own personal good,” he said.

Council members were mostly supportive of the 2.5% exemption and said it was a step in the right direction, although they recognized it may not provide much relief.

“Our citizens ... are just taking a beating this year. Lots of people's jobs have been lost. ... Anything we can do, I wholeheartedly support,” Council Member Duane Ham said. “You’re right, Mr. Mayor. We’re going to have to tighten our belts this year and make sure we watch our spending.”

Council voted 4-0 in favor of a 2.5% homestead exemption, with one abstaining.