Two years after the Texas Legislature failed to pass legislation reforming the state’s property tax system, lawmakers have proposed similar bills in the 86th session that would lower the cap on how much cities and counties can increase their revenue from property taxes from 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—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. Brandon Creighton, R-Conroe—who was 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 from cities and counties in the Lake Houston area have pushed back on the idea that the state needs to reduce the rollback rate to fix school funding.
“They blame all the cities for the property tax increases, but the state has failed to fund education, and really that’s the big problem right there,” Humble Mayor Merle Aaron said.
Property tax, appraisal reform
Sen. Paul Bettencourt, R-Houston—who was also a joint author of SB 2—said the bill is necessary because residents have seen their home appraisal values increase steadily in recent years, which leads to homeowners paying more in property taxes even if a city or county’s property tax rate has not changed.
According to data from the Harris County Appraisal District, homes within the Atascocita area from Beltway 8 to near Kingwood have increased in value by 8 percent from 2015-18.
Bettencourt said the amount of property tax revenue being generated by these appraisal increases is not necessary for cities to operate. According to Texas comptroller data, the amount of property tax revenue collected by Harris County increased about 40 percent between 2013-17.
Additionally, Bettencourt said any revenue generated from new properties in a city’s or county’s fiscal year are exempt from this 2.5 percent cap. Instead, only existing properties from the previous year will be taken into account.
“[Taxing entities] get new growth in the current tax year, and a few other exemptions,” Bettencourt said.
In addition to being a joint author on SB 2, Creighton said he has filed one bill and is considering another that would make significant changes to the home appraisal process.
SB 657 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 or 5 percent, depending on the value of the home.
Additionally, Creighton said he plans to file legislation that would require appraisal review board members to be elected to their positions 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.
Cities, counties push back
Officials from the city of Humble and Harris County say lowering the rollback rate from 8 percent to 2.5 percent would make it difficult to keep pace with the constantly increasing costs of operating a city or county. Also, both entities have cited specific situations in which the cap reduction could affect them.
Humble City Manager Jason Stuebe said over the past few years, the city has received an increase in property tax revenue of almost the full 8 percent rollback rate as the city steadily increases its property tax rate.
In 2014-15, the city’s tax rate was $0.20 per $100 valuation but increased to $0.25 in September. Stuebe said he is concerned that if SB 2 goes into effect, it will take the city decades to reach its desired tax rate of about $0.35 per $100 valuation.
Stuebe said the city is increasing its tax rate because its previous rate was unsustainable.
“We were at $0.20 [per $100 valuation]… and we weren’t keeping pace with the cost of doing business … and we recognized that,” Stuebe said.
At a Feb. 6 Senate Committee on Property Tax hearing, Bill Jackson, Harris County chief budget officer, said the cap reduction would make it difficult for the county to provide services to the growing population in unincorporated Harris County, such as the Atascocita area.
“In the last seven years, 700,000 people have moved to Harris County, and of that, 70 percent have moved to the unincorporated area,” Jackson said.
To fund services for this growing population, the county has to rely on property tax revenue because it does not receive sales tax revenue like cities and the state do, Jackson said.
Later in the hearing, when pressed by Bettencourt to provide a rollback rate that would be sufficient, Jackson said the county could handle a rollback rate of 5 percent but not 2.5 percent.
Public school funding
Although major legislation addressing the state’s public school finance system has not been filed as of press time, Creighton said changing the formula is also a key part of property tax reform.
Over the past few years, the state’s share of public school funding has decreased in many school districts—including Humble ISD—while the local share, which consists of property taxes, has increased. This change has occurred despite HISD not increasing its tax rate.
For example, in 2013-14, local revenue made up 51.1 percent of HISD’s total revenue, while state revenue made up 46.66 percent. In 2018-19, local revenue made up 55.93 percent of the district’s total revenue, with the state covered 40.85 percent.
“[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.”