Editor's note: This story was updated at 10:45 a.m. Oct. 30 to clarify the timing of the adoption of Pearland's homestead exemption rate.

Pearland City Council held talks about increasing the city’s current homestead exemption rate, which has some of Pearland’s business community concerned.

Current situation

At an Oct. 23 City Council meeting, council members discussed possibly increasing Pearland’s homestead exemption rate of 2.5% to between 5% and 20%.

In fiscal year 2023-24, City Council voted to keep the existing 2.5% homestead exemption rate and adopt a tax rate of $0.6554 per $100 valuation, generating over $71 million in taxes. The cost is shared by homestead property owners and nonhomestead property owners, primarily businesses. The city has over 30,000 homesteads valued at $9 billion.

Homestead exemptions allow homeowners to save on property tax bills by withholding a portion of their property's value from what is taxed. To collect the same amount in revenue, cities must raise the tax rate, which falls on both homeowners and business owners.

Advocates of increasing the homestead exemption, such as council member Alex Kamkar, pointed to increased savings for homeowners, who are burdened with other increases, such as the 14% water rate increase passed earlier in October.

Yet others, such as Jim Johnson, Pearland Chamber of Commerce president and CEO, drew attention to the fact that the savings for homeowners would be minuscule compared to the increased costs for business owners.

For example, according to the city's presentation, a home with a taxable value of $321,569, the average taxable value for Pearland’s homestead properties, would save $46 in property taxes, assuming a homestead exemption rate of 20%.

On the other hand, Pearland’s businesses could end up paying taxes increased between hundreds to tens of thousands of dollars if the higher homestead exemption rate is adopted, according to the presentation.

Those opposed

Pearland business owner Russ Wilkins, who owns a forklift rental and equipment business with 35 employees, said he felt there already aren’t enough protections to cap how much businesses pay in taxes, and a homestead exemption increase would add to the burden.

Wilkins said his property taxes this year doubled from $40,000 to $80,000 due to an increase in the appraised value.

“We already pay higher in waste. We pay higher and water and garbage and all that,” Wilkins said. “So it's just it's nonstop, and you can't keep up whether it's the feds, the state [or] the local level.”

Both Wilkins and Johnson, who attended the City Council meeting, said the savings for homeowners are too small to justify raising the homestead exemption.

“Our attendance tonight is to advocate for a balanced approach, ensuring that while residents can enjoy a modest savings, it doesn't inadvertently place an undue burden on our local businesses,” Johnson said.

Items worth mentioning

Texas homeowners currently benefit from a 10% cap on how much their taxable home value can grow each year. While businesses don’t currently have a similar cap, the next election could change that.

On the Nov. 7 ballot, voters will consider Proposition 4, which would limit increases to nonhomestead property valuations to 20% over three years and increase the school district homestead exemption to $100,000.

Next steps

Pearland City Council voted to pause on considering a homestead exemption increase June 5. To enact a new homestead exemption rate for FY 2024-25, a second reading of an ordinance must be completed before June 30, 2024.