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, 2016. 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. It’s time for this to stop,” 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 a 4 percent increase. If a city or county were to exceed the revenue cap, a rollback election would automatically be triggered giving voters the chance to approve or reject the proposed 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.”
“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 salaries, equipment, vehicles, health insurance and pensions.”
Changes if SB 2 is passed
SB2 was scheduled for a public hearing in the House Committee on Ways and Means on May 10. If the bill makes it out of committee and becomes law, the amount a homeowner’s property tax bill could go up each year would be limited.
Under existing rules, citizens have the option to petition for what is called a rollback election if a taxing entity exceeds the legal tax increase threshold allowed without voter approval, according to the Texas Comptroller of Public Accounts.
“[Property] valuations are generally growing because Pearland continues to be an attractive and desirable place. Public services are a part of continuing that attractiveness and vitality,” Pearland City Manager Clay Pearson said.
The bill would affect cities and counties but not municipal utility districts, emergency services districts or school districts, the latter of which typically has the heftiest tax rate.
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.”
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.
The call for reform
Brazoria and other Texas counties use several factors to determine each resident’s tax burden, according to the Brazoria County Appraisal District.
BCAD appraisers determine the assessed market value of each piece of real estate. Then, any exemptions are tacked onto the property, like senior or homestead exemptions. Finally, appraisal values are calculated against the tax rates set by each taxing entity, such as cities, counties, school districts and MUDs. The purpose of the appraisal is to allocate the tax burden fairly among all taxpayers, according to the BCAD.
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 homeownerstestifying 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 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 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.
In Brazoria County—and more specifically Pearland—where the population continues to surge, local governments continue find ways to allocate money for city services, public infrastructure and public health, according to city officials.
“Pearland continues to grow and local property taxes are one way to support the roads, parks and services that serve people,” Pearson said. “Additional revenue restrictions will mean the gap between services and growth will widen.”
In September 2016, Pearland City Council approved a tax rate of $0.6821, dropping the rate by a little more than 2 cents. Although the tax rate itself dropped, the city raked in more tax revenue than the year before due to the nearly 13 percent increase in appraisal values set by the BCAD.
If the city collected the same amount of revenue as 2015, the effective 2016 tax rate would have been 63.9 cents. The 2016 tax rate is also above a threshold called the rollback tax rate of 65.66 cents, according to the city’s tax notice.
A rollback rate is the maximum annual tax rate increase allowed by law without voter approval; Pearland residents could have petitioned the city for an election to reduce property tax rates to the rollback rate, according to the Texas Comptroller of Public Accounts.
In this case, if SB 2 was passed, the 6.5 percent increase over the rollback rate would automatically trigger an election to approve the tax increase.
In Pearland, average assessed values increased by 18.5 percent between 2014 and 2016, from $182,694 to $216,457, according to the BCAD.
“Local elected representatives and the dedicated public servants who serve are all very aware of the needs and responsibilities in the community. Local cities deliver the essential public services closest to the people—police, fire/EMS, roads, sidewalks, parks, libraries, etc. All of those in Texas are funded locally through local sales and property taxes,” Pearson said.