Two years after the Texas Legislature failed to pass legislation reforming the state’s property tax system, lawmakers have filed similar bills that would lower the cap on how much cities and counties can increase their revenue from property taxes from the previous year before needing voter approval.
Under existing state law, taxing districts can receive an increase in property tax revenue of up to 8 percent from the prior year—which is called a 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.
State Sen. Paul Bettencourt, R-Houston—who authored SB 2—said rising home values have driven up property tax bills across Texas at a rate homeowners are struggling to keep up with.
“As values go up, tax rates never come down,” Bettencourt said. “This is an everywhere problem right now. We’ve got values exploding all over the state. Taxpayers are taking a huge hit.”
However, officials from cities, counties and other taxing districts, including several in the Cy-Fair area, said the proposed reforms go too far and could create challenges in setting budgets and providing services. In Harris County, where the majority of population growth in recent years has taken place in unincorporated parts of the county such as Cy-Fair, county Chief Budget Officer Bill Jackson said property tax revenue is crucial to providing services.
“We don’t get any general sales tax [revenue], so we have to be able to provide all the services on property tax, which is a very difficult thing to do,” Jackson said at a Feb. 6 Senate hearing on the proposed reforms.
The Legislature is also focused on making changes to the home appraisal process as well as how the state funds public education, Bettencourt said. He said he believes all three of these topics are related and need to be solved to decrease how much homeowners pay in property taxes.
PROPERTY TAX, APPRAISAL REFORM
According to data from the Harris County Appraisal District, home values within the Cy-Fair area from West Little York Road to Hwy. 249 outside of Beltway 8 have increased by roughly 13-15 percent from 2015-18. In 2018, home value averages ranged from just under $200,000 closer to Beltway 8 to $245,000 in the western Cypress.
Bettencourt said the amount of property tax revenue being generated by these appraisal increases is greater than necessary for cities and counties to operate. According to Texas comptroller data, the amount of property tax revenue collected by Harris County increased about 37 percent between 2013-17.
Bettencourt said revenue generated from new properties in a city’s or county’s fiscal year is exempt from this proposed 2.5 percent cap. Instead, only existing properties from the previous year will be taken into account when looking at revenue increases from one year to the next.
“[Taxing entities] get new growth in the current tax year and a few other exemptions,” he said.
State Sen. Brandon Creighton, R-Conroe, filed SB 657, which proposes to 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 percent if a home’s value is $1 million or less and 5 percent if the value is more than $1 million.
Creighton also filed SB 1986, 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.
Several Cy-Fair area officials expressed concerns over how lowering the rollback rate to 2.5 percent could create challenges in budgeting and meeting the growing costs of providing services.
Jersey Village City Manager Austin Bleess said the city surpassed the 2.5 percent increase in property tax revenue in three of the past five years. He said if SB 2 were to pass in its current form, it could affect how the city pays for future capital improvement projects, such as street improvements. The city’s tax levy in 2017 was about $7.8 million, according to data from the state comptroller, which was lower than the previous year’s levy of $8.2 million.
“This proposed legislation could force us to take on more debt in the future rather than paying for projects as we go,” Bleess said.
Bobby Warren, who serves on the Jersey Village City Council, has previously called on the city to provide property tax relief on its own by raising the homestead exemption, a move that would allow residents to deduct greater value from their home appraisals before property taxes are calculated.
Jersey Village offers a homestead exemption of 8 percent. After a March 4 workshop, Warren said the city could pursue a mixture of raising the general homestead exemption and raising exemptions for people over age 65, but he said discussions are likely to continue through the city’s annual budget retreat in May. He said he does not think property tax changes at the state level will derail the city’s own discussions.
Some officials said they recognized the growing burden on homeowners but said their main point of contention was the severity of the 2.5 percent limit.
Jackson, when pressed by Bettencourt at the Feb. 6 hearing, said a 5 percent cap would be more manageable for the county.
Bob Janusaitis is a commissioner with Harris County Emergency Services District No. 9, which collects property tax revenue in Cy-Fair to help fund the Cy-Fair Volunteer Fire Department. He said lawmakers should consider reform that allows more leeway to smaller districts such as ESDs that would be more affected by a 2.5 percent limit.
Janusaitis argued that limiting ESDs would not have a substantial effect on lowering tax bills because they typically make up about 3-8 percent of an overall tax bill. He said he believes ESDs should be allowed to keep a higher rollback rate of around 6-8 percent, which would help them maintain firefighting services while not placing a burden on homeowners in a way larger entities might.
“We believe the state should take a balanced approach in any effort to require ratification elections or to reduce the rollback rate for petition elections,” Janusaitis said.
ESD No. 9 raised roughly $17.9 million in property tax revenue in the 2017-18 fiscal year, which rose to
$18.7 million in the 2018-19 fiscal year, an increase of about 4.6 percent, according to the state comptroller.
Bettencourt, defending the 2.5 percent figure, said any taxing entity that has a legitimate reason to increase its collections by a greater amount can make its case to voters and get the tax rate approved.
Lawmakers in the Texas House filed HB 3 March 5, which would provide $9 billion to increase the base funding for each public school student statewide, lowering school district property taxes by 4 cents. As of press time, the version of the school finance reform bill filed in the Senate did not include language for how much it would cost or how much it would affect school district property taxes.
Changing the school finance formula is a key part of property tax reform, Bettencourt said.
“Tax rates for the [school districts] must come down, too,” he said. “The only way you can do that is through school finance reform where the state picks up a bigger share.”
Bettencourt also filed SB 5 on March 8, which would increase homestead exemptions within schools districts from $25,000 to $35,000, with the revenue lost by school districts filled in by the state.
Over the past few years, the state’s share of public school funding has decreased in many school districts—including Cy-Fair ISD—while the local share, which consists of property taxes, has increased. This change has occurred despite CFISD not increasing its tax rate of $1.44 per $100 of valuation. In 2013-14, state revenue comprised 44.3 percent of CFISD’s budget. In 2017-18, the state covered 39.6 percent.
Bennett Sandlin is the executive director of the Texas Municipal League, an Austin-based organization that advocates on behalf of Texas cities and opposes SB 2. He said he believes addressing problems with school finance would be a more effective way at providing property tax relief than lowering the rollback rate.
“Sixty percent of your tax bill is school taxes, and they are going up dramatically because the state keeps putting up less money into it,” he said. “Property tax reform needs to come from school finance reform.”
This story features additional reporting by Zac Ezzone