Two years after the Texas Legislature failed to pass bills to reform the state’s property tax system, lawmakers have proposed two similar bills in the 86th session that would lower the cap on how much cities and counties can increase their revenue from property taxes over the previous year.
Under existing state law, cities and counties can receive an increase in property tax revenue of up to 8 percent from the prior year—called the rollback rate—without needing voter approval. However, the new legislation—Senate Bill 2 and House Bill 2—would lower that cap to 2.5 percent. The Senate Property Tax Committee passed SB 2 Feb. 11, and the measure is now heading to the full Senate.
Sen. Brandon Creighton, R-Conroe—a joint author of SB 2—said in addition to addressing property tax reform, the Legislature is also focused on making changes to the home appraisal process and how the state funds public education.
He said all three of these topics are related and need to be solved to decrease how much homeowners pay in property taxes.
However, officials in the Conroe and Montgomery areas are pushing back on the idea that the state needs to reduce the rollback rate.
Conroe Mayor Toby Powell wrote a letter to the Legislature in mid-February, stating SB 2 imposes on the city’s flexibility with its fire and police department funds.
“It looks to me in so many ways to be another ploy for the state not giving us, the elected officials of the city, the right to manage our business the way that we see fit,” Powell said. “They want to do it for us and tell us what we can do and can’t do, and I don’t think that’s fair.”
Property tax, appraisal reform
Sen. Paul Bettencourt, R-Houston—who authored SB 2—said the bill is necessary because homeowners have seen home appraisal values steadily increase over the past few years, leading to paying more property taxes even when a city’s or county’s property tax rate has not changed.
According to Texas comptroller data, the amount of property tax revenue collected by Montgomery County increased 24.8 percent between 2013-17.
Mike Gorman, resident of The Ranches at South Shore Estates in Montgomery on the south side of Lake Conroe, said his 2,700-square-foot house was appraised at $230,000 in 2013, the year after he moved in, and is now worth $342,000.
“Right now, I pay about $2,500 more a year than when I first moved here in 2012,” said Gorman, who retired in January 2014. “If this doesn’t stop, in 10-15 years I might have a problem paying those taxes—at the rate it’s going, it’ll be about $14,000 a year [in 10-15 years].”
Bettencourt said a significant tax revenue increase is unnecessary for cities to operate, and any revenue generated from new properties this fiscal year would be exempt from the 2.5 percent cap.
“[Taxing entities] get new growth in the current tax year and a few other exemptions,” Bettencourt said. “We’re cranking down the rollback rate, which has been the same [since 1981], to reflect a much lower inflationary time.”
In addition to coauthoring SB 2, Creighton filed SB 657, which would lower the limit of how much a home’s appraisal value can increase each year.
Under existing state law, the appraisal value of a home can increase up to 10 percent each year, but under SB 657 the cap would be lowered to 3 or 5 percent, depending on whether the value of the home is above or below $1 million.
Additionally, Creighton filed SB 1986 and SB 1987, which would require appraisal review board members to be elected by the public rather than appointed by taxing authorities such as cities and counties.
“Right now the appointed appraisal review board member just represents the taxing entity that sent them there, and we need some more accountability to the public,” Creighton said.
Also, Rep. Will Metcalf’s, R-Conroe, HB 945 would offer a 5 percent annual home appraisal increase cap and a 10 percent cap on commercial properties.
City, county officials push back
Conroe City Council named the property tax bills as one of the city’s top priorities for legislature in February, along with hotel occupancy taxes for the upcoming convention center project in Grand Central Park. Feb. 14, council members unanimously voted on a resolution advocating opposition to the property tax bills.
Montgomery County’s property tax rate was $0.4838 per $100 valuation in 2013, but decreased to $0.4767 in 2014 and again to $0.4667 in 2016. Conroe’s property tax rate was $0.42 in 2013, which decreased to $0.4175 in 2016, according to the comptroller.
However, census data shows the property tax revenue collected by local municipalities is growing year over year due to home appraisal value increases.
“We are positive about the reduction concept, however we believe SB 2 does little to provide true property tax relief and imposes on the city’s ability to provide central services,” Powell said. “We respectfully request the community be allowed to exclude public safety expenditures from the 2.5 [percent]rollback while capping non-public safety expenditures at 6 percent with a petitioned election process.”
Montgomery County Judge Mark Keough delivered a statement Feb. 8 criticizing the bill as it stands, asserting if the bill does not address property appraisals, it will not affect Montgomery County.
Keough said he supports both Creighton’s and Metcalf’s proposals to lower the appraisal increases and rate caps year over year.
“They both move us in the right direction, and it is my goal if we can get SB 2 and HB 2 with amendments that will go here, these could be really awesome bills,” Keough said.
Public school funding
Creighton said he believes changing the state’s public school finance formula is also an important part of property tax reform.
On March 5, Rep. Dan Huberty, R-Houston, filed HB 3, which would add $9 billion in funding above enrollment growth and current law entitlement over the next two years, and lower school districts’ property tax rates by $0.04 per $100 valuation, according to a news release.
The bill would raise the basic allotment each school district is guaranteed in state and local funds for each student from $5,140 to $6,030—an $890 increase per student. HB 3 would also reduce reliance on the “Robin Hood” Fund—the state’s property tax recapture system intended to make school funding more equitable by sharing money from property-wealthy districts—from $7.7 billion to $4.7 billion for the biennium by lowering school property tax rates, according to the news release.
The bill would also raise the minimum teacher salary and allocate an additional $140 million for a teacher quality program as well as establish an early reading program that funds pre-K for low-income students.
Over the past few years, the state’s share of public school funding has decreased in many school districts—although districts including Montgomery ISD have been paying more in recapture funds—while the local share consisting of property taxes has increased.
MISD’s 2018-19 budget is at a $6.9 million deficit—partly due to enrollment growth and need for new schools and facilities, but largely thanks to a $4 million recapture payment owed back to the state.
MISD Superintendent Beau Rees declined to comment, stating the bills will have zero impact on the MISD budget or on recapture funds this year.
The school district collected about $7 million in market value property taxes during 2018, according to the Texas comptroller.
David Clark, committee director of property tax and senior policy adviser of budget and tax for Bettencourt’s office, said amendments filed only affect entities that collect more than $15 million.
“Any taxing entity—other than a school district—that collects more than $15 million in combined property tax and sales tax, if they collect one, will be covered under the provision of SB 2 as amended,” Clark said. “Additionally, the Property Tax Committee adopted an amendment [Feb. 11] that will give voters in districts that collect less than $15 million in combined revenue a one-time option to opt-in to the lower rollback rate provided by SB 2.”
Conroe ISD Chief Financial Officer Darrin Rice said until the new language of the public school funding formula is approved, effects on CISD are unknown.
“As the [property]values have increased, the state’s share [and its]liability to school districts have decreased, and that’s how we’ve gone from a 50-50 split to 70-30,” Rice said. “So the state has benefited from the value increases, not the school district.”
Rice said the most important thing the state can do while it puts a cap on local property tax increases is increase its share of the foundation school program, the primary mechanism for public school funding.
“They provide the taxpayers property tax relief, they need to subsequently increase their share of the state funding program,” Rice said.
In 2018-19, local revenue comprised 74 percent of CISD’s total revenue, with the state covering 26 percent. MISD’s revenue came from 83 percent local and 11 percent state resources this year, according to the Texas Education Agency.
According to each school district’s comprehensive annual financial reports, this fiscal year’s revenue from the state is down from its 2012-2013 numbers that funded 17 percent of MISD’s budget and 36 percent of CISD’s budget.
“[School finance] is an important and integral part of the discussion,” Bettencourt said. “Tax rates for the [school districts]must come down too. The only way you can do that is through school finance reform where the state picks up a bigger share.”
Additional reporting by Zac Ezzone, Ben Thompson and Eva Vigh