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. It’s time for this to stop.”
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.
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 with cities and counties across the state, including Harris County and Jersey Village, 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,” 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.”
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.
“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 system in Harris County is designed to allocate the tax burden fairly among all owners of taxable property, according to officials with the Harris County Appraisal District.
HCAD appraisers determine the assessed value of a property using a formula referred to as mass appraisal. Using computer algorithms, HCAD analyzes property sales in each zone and performs a calculation to determine changes in value that apply to all properties in that zone.
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 such as 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.”
In Cy-Fair, average assessed values increased by 20.78 percent between 2014 and 2016, from $168,192 to $203,146, according to the HCAD. However, officials with the Harris County budget office said looking at averages can be misleading because they include new property added to the system. In other words, increases in the average assessed value do not necessarily reflect increases in individual homes, which are rising at a slower rate.
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 HB 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 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. 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 election would be held during the uniform election date in November of the applicable tax year. 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 4 percent revenue cap. The bill would affect cities and counties but not municipal utility districts, emergency service districts or school districts.
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.
Officials with the Harris County budget office pointed out that any decrease in the tax rate would result in more savings on property with higher appraised values. For example, a hypothetical decrease in the Harris County tax rate of one cent would save the average homeowner $14.67 per year on a home valued at $146,700, but the owners of Chase Tower, valued at $437 million in 2015, would save almost $50,000.
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.
“It would definitely save homeowners money in years where property values go [up] quickly,” O’Connor said. “And we’ve seen a number of years in Harris County where appraisals have risen by 10 percent.”
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.
In Harris County—where 75 percent of population growth in 2016 was seen in unincorporated areas, according to county officials—property tax revenue will be even more crucial to the county moving forward, said Jim Robinson, deputy director for special projects with the Harris County Budget Management Department.
“We are a rapidly growing county,” Robinson said. “We have enormous needs for public infrastructure, criminal justice and public health. All those things are incredibly expensive. To the extent the rollback rate is reduced, it gives all counties and cities less flexibility in meeting those needs.”
Robinson acknowledged the growing property tax burden but said there is little leeway to make cuts in these areas.
“People expect to be safe in their neighborhoods—for criminals to go to jail,” he said.
However, because Harris County has been conservative in its budgeting, SB 2 is not expected to have as much of an effect on Harris County as it might for other cities and counties, Robinson said.
Robinson said the county budget office have been in touch with Bettencourt’s team to communicate concerns and come up with solutions.
Robinson also suggested having the state put more money in public education as another way to lower property tax bills. School districts are primarily funded through property tax revenue and state aid, and he said an increase in state education funding would allow districts to decrease their tax rates.
“As a former chief appraiser, I recognize that property tax is a burden,” Robinson said. “Hopefully the final product will be something that taxpayers and jurisdictions are happy with.”