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.
“Property taxes are driving people out of their homes and hampering business expansion and growth,” Patrick said.
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 an increase of 4 percent. If a city or county were to exceed the revenue cap, a rollback election would be triggered that would give voters the chance to approve or reject the rate.
Officials with Harris and Montgomery counties and the city of Humble have expressed concerns about how SB 2 could restrict future budgets, which fund public safety, economic development and transportation projects.
“What is the city’s option if we need the money and we go out and have an election and it [doesn’t pass]?,” Humble City Manager Darrell Boeske said. “We have to layoff people or cut services.”
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.
“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,” Bettencourt said.
The systems in Harris and Montgomery counties are designed to allocate the tax burden fairly among all owners of taxable property, according to officials with the county appraisal districts. HCAD and MCAD appraisers use computer algorithms to analyze property sales in each zone and perform 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 values that often do not correlate with what is actually happening in the market.
In Humble, Kingwood and Atascocita, average assessed values increased by 26.9 percent, 18.4 percent and 19.8 percent, respectively, between 2014 and 2016, according to HCAD.
However, officials with Harris County 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.
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 for 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 bill would not affect municipal utility districts, emergency services districts or school districts.
Patrick O’Connor, owner of Houston-based property tax consulting business O’Connor & Associates, said the bill would have the greatest effect in areas with high property value growth.
“It would definitely save homeowners money in years where property values go [up]quickly,” O’Connor said.
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 voted down the tax increase.
SB 2 would also install appraisal reforms, including the creation of oversight boards, raising small-business exemptions and standardizing the date for property owners to protest appraisals.
In Harris County—where 75 percent of population growth in 2016 was in unincorporated areas, according to county officials—property tax revenue will be crucial to the county moving forward, said Jim Robinson, deputy director for special projects with the Harris County Budget Management Department.
“We have enormous needs for infrastructure, criminal justice and health,” Robinson said. “All those things are incredibly expensive. To the extent the rollback rate is reduced, it gives all counties and cities less flexibility.”
Although Humble will be affected less by SB 2 than other cities because it relies more on sales tax revenue than property tax revenue, the legislation is a burden, Boeske said. It could force cities to ask for higher property tax rates than necessary in years with a 4 percent property tax revenue increase to avoid triggering future elections, he said. Losing an election surrounding tax increases could cause a city to cut jobs or services.
“You don’t want me to close the park or the swimming pool,” Boeske said. “You don’t want me to lay off two firemen and two policemen.”
City of Houston’s coffers will not be affected if the bill passes. However, residents’ tax bills are increasing because of higher home valuations, Houston City Council Member Dave Martin said. Houston, which includes Kingwood and Summerwood, has a voter-approved revenue cap that forced the city to cut the property tax rate each of the past four years. The rate has gone down from 63 cents to 58 cents per $100 valuation since 2013, Martin said.
“In the past five years, the city of Houston’s tax rate has gone down 8.5 percent due to the revenue cap,” he said.
In Montgomery County—where 83 percent of the county is unincorporated—property tax revenue will be even crucial to managing a growing population, Judge Craig Doyal said.
“We want to give people some relief, but at the same time not put ourselves in a position where we cripple the county operations and we have to cut back on law enforcement and we are way behind on road construction,” he said.