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.

“Texans have told us loud and clear that common-sense 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 Sugar Land, 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 [their] salaries, equipment, vehicles, health insurance and pensions.”

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 Waller County is designed to determine values based on what the market is doing, according to officials with the Waller County Appraisal District.

WCAD appraisers determine the assessed value of a property using a formula based on annual market studies. Appraisers look at a variety of information including sales, to determine values.

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 Katy, average assessed values for Waller County increased by 13 percent between 2015 and 2016, from $172,160 to $195,255, according to the WCAD.

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 filed has been more extreme. Rep. Valerie Swanson, R-Tomball, filed HB 1050, which would abolish property taxes entirely by Jan. 1, 2022.

After SB 2

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 or passed.

The election would be held during the uniform election date in November. 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.

At a Jan. 31 budget workshop, Harris County Judge Ed Emmett pointed out that comparing how much tax revenue a governmental entity brings in to increases in property taxes paid at the individual level does not take overall growth into consideration.

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.

Budget concerns

SB 2 would not have as much of an effect on the city of Katy because officials have been working to reduce the tax rate for property owners for the past four years, according to city officials.

Katy is in the fourth year of a five-year property tax reduction plan, which outlines a reduction of 2 cents per year. However, officials said, the bill may reduce funds that growing cities could need.

Fort Bend County Judge Robert Hebert said that school districts and special districts would be exempt from the bill.

“Although it is being touted as a tax relief bill, it would not reduce anyone’s taxes,” Hebert said. “It will just restrict our ability to serve our growing population.”

Hebert said he intends to reach out to the senate finance committee to present his facts.

He also hopes to work with lawmakers to amend the bill to provide tax relief to constituents.

“Property taxes do need to be reformed and there does need to be significant tax relief,” Hebert said. “This bill as it’s written doesn’t provide that.”