Some Texas lawmakers are prioritizing taxpayer relief this legislative session, which began in January, but some 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.
“Property taxes are driving people out of their homes and hampering business expansion and growth,” Patrick said. “It’s time for this to stop.”
The legislation, proposed by Sen. Paul Bettencourt, R-Houston, would reform the way entities collect property tax revenue.[/caption]
Among other goals, SB 2 seeks to lower the property tax rollback rate 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 differ on 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 the[ir] salaries, equipment, vehicles, health insurance and pensions.”
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 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.
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 Harris County and Montgomery County appraisal districts. HCAD and MCAD appraisers determine the assessed value of a property using a formula referred to as mass appraisal. Using computer algorithms, the districts 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 like Bettencourt say the system still produces assessed values that often do not correlate with what is actually happening in the market.
In the Tomball and Magnolia areas, average assessed values have increased by 25 and 20 percent, respectively, between 2014 and 2016, according to HCAD and MCAD.
However, officials with the Harris County budget office 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, which are rising at a slower rate.
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. 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.
Changes if SB 2 is passed
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.
The election would be held during the uniform election date in November of the applicable tax year. 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. The bill would affect cities and counties but not municipal utility districts, emergency services districts or school districts.
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 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 a tax increase was voted down.
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
In Harris County—where 75 percent of population growth in 2016 was seen in unincorporated areas, according to county officials—property tax revenue will be even more crucial to the county moving forward, said Jim Robinson, deputy director for special projects with the Harris County Budget Management Department.
While tax rates in cities and counties in the area stayed flat or decreased, rises in home valuations in the area caused changes in annual tax levies, or total property tax revenue collected.[/caption]
“We are a rapidly growing county,” Robinson said. “We have enormous needs for public infrastructure, criminal justice and public health. All those things are incredibly expensive. To the extent the rollback rate is reduced, it gives all counties and cities less flexibility in meeting those needs.”
In Harris County, estimated tax revenue increased from $1.28 billion in 2013 to $1.45 billion in 2014 and $1.64 billion in 2015, including revenue from new property added.
In Montgomery County—where 83 percent of the county is unincorporated—property tax revenue will be critical, Judge Craig Doyal said.
Total property tax revenue brought in by Montgomery County has increased from $175.3 million in 2013 to $186.6 million in 2014 and $203.2 million in 2015, increases of 6.45 percent and 8.90 percent, respectively.
Montgomery County officials offered various perspectives on the effect of the property tax rollback.
Doyal said the county is evaluating ways to provide some property tax relief at the local level, but striking a balance is difficult because the county does not levy a sales tax.
“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. “It is a tough balance.”
Despite the counties’ concerns, representatives from the cities of Tomball and Magnolia argue some city budgets will not be affected, citing there has not been a need to raise property tax rates in the past few years. Much of their city revenue comes from sales tax or other revenue sources.
According to city budgets for the past three years, property taxes in Tomball and Magnolia have remained steady at 34.14 cents and 46.29 cents per $100 valuation, respectively.
“We haven’t raised our rates; a lot of cities tend to raise them quite frequently, but we just haven’t had to raise our tax rates,” Tomball City Manager George Shackelford said. “Sales tax is one of our bigger revenue sources—it’s about 40-44 percent of our general fund budget, and a lot of cities are probably not like that. They depend much more so on property tax but ours is sales tax-driven.”
Magnolia City Administrator Paul Mendes said the bill would likely not affect Magnolia either, as the city tax rate is already conservative. The city has kept the rate flat over the past few years and below the effective tax rate, or the rate which would allow the city to bring in the same revenue from the previous year. Only 14-16 percent of tax revenue from the city comes from property taxes, he said.
“Any time you cap a city ... it’s very difficult because we work real hard to keep our taxes down,” Mendes said. “I think [legislators are] not thinking about cities like us when they’re looking at capping taxes, because we pretty well hold it back ourselves.”
Additional reporting by Jesse Mendoza
The legislation, proposed by Sen. Paul Bettencourt, R-Houston, would reform the way entities collect property tax revenue.[/caption]
Among other goals, SB 2 seeks to lower the property tax rollback rate 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 differ on 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 the[ir] salaries, equipment, vehicles, health insurance and pensions.”
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 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.
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 Harris County and Montgomery County appraisal districts. HCAD and MCAD appraisers determine the assessed value of a property using a formula referred to as mass appraisal. Using computer algorithms, the districts 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 like Bettencourt say the system still produces assessed values that often do not correlate with what is actually happening in the market.
In the Tomball and Magnolia areas, average assessed values have increased by 25 and 20 percent, respectively, between 2014 and 2016, according to HCAD and MCAD.
However, officials with the Harris County budget office 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, which are rising at a slower rate.
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. 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.
Changes if SB 2 is passed
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.
The election would be held during the uniform election date in November of the applicable tax year. 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. The bill would affect cities and counties but not municipal utility districts, emergency services districts or school districts.
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 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 a tax increase was voted down.
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
In Harris County—where 75 percent of population growth in 2016 was seen in unincorporated areas, according to county officials—property tax revenue will be even more crucial to the county moving forward, said Jim Robinson, deputy director for special projects with the Harris County Budget Management Department.
While tax rates in cities and counties in the area stayed flat or decreased, rises in home valuations in the area caused changes in annual tax levies, or total property tax revenue collected.[/caption]
“We are a rapidly growing county,” Robinson said. “We have enormous needs for public infrastructure, criminal justice and public health. All those things are incredibly expensive. To the extent the rollback rate is reduced, it gives all counties and cities less flexibility in meeting those needs.”
In Harris County, estimated tax revenue increased from $1.28 billion in 2013 to $1.45 billion in 2014 and $1.64 billion in 2015, including revenue from new property added.
In Montgomery County—where 83 percent of the county is unincorporated—property tax revenue will be critical, Judge Craig Doyal said.
Total property tax revenue brought in by Montgomery County has increased from $175.3 million in 2013 to $186.6 million in 2014 and $203.2 million in 2015, increases of 6.45 percent and 8.90 percent, respectively.
Montgomery County officials offered various perspectives on the effect of the property tax rollback.
Doyal said the county is evaluating ways to provide some property tax relief at the local level, but striking a balance is difficult because the county does not levy a sales tax.
“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. “It is a tough balance.”
Despite the counties’ concerns, representatives from the cities of Tomball and Magnolia argue some city budgets will not be affected, citing there has not been a need to raise property tax rates in the past few years. Much of their city revenue comes from sales tax or other revenue sources.
According to city budgets for the past three years, property taxes in Tomball and Magnolia have remained steady at 34.14 cents and 46.29 cents per $100 valuation, respectively.
“We haven’t raised our rates; a lot of cities tend to raise them quite frequently, but we just haven’t had to raise our tax rates,” Tomball City Manager George Shackelford said. “Sales tax is one of our bigger revenue sources—it’s about 40-44 percent of our general fund budget, and a lot of cities are probably not like that. They depend much more so on property tax but ours is sales tax-driven.”
Magnolia City Administrator Paul Mendes said the bill would likely not affect Magnolia either, as the city tax rate is already conservative. The city has kept the rate flat over the past few years and below the effective tax rate, or the rate which would allow the city to bring in the same revenue from the previous year. Only 14-16 percent of tax revenue from the city comes from property taxes, he said.
“Any time you cap a city ... it’s very difficult because we work real hard to keep our taxes down,” Mendes said. “I think [legislators are] not thinking about cities like us when they’re looking at capping taxes, because we pretty well hold it back ourselves.”
Additional reporting by Jesse Mendoza
