After hearing recent concerns from homeowners of a dramatic rise in their property taxes, Austin City Council reviewed a local general homestead exemption Aug. 5 as a possible relief measure for homeowners.
Using current data, a 20 percent exemption would result in a $35.6 million drop in city revenues and an annual savings of $189 to the owner of a median-value home, Deputy Chief Financial Officer Ed Van Eenoo said.
The maximum tax exemption under Texas law is 20 percent, he said.
A homestead property tax exemption lowers the taxable value of a property, which in turn decreases the amount of tax the homeowner pays—the higher the exemption, the lower the tax.
"Homeowners are struggling to pay their property taxes," said Councilwoman Kathie Tovo, who sponsored the June 26 council meeting agenda item directing staff to provide homestead tax exemption scenarios. "We've received emails from members of the community who said they are afraid they won't be able to remain in their homes."
The city of Austin offers homestead property tax exemptions for residents who are either 65 years old or older or disabled individuals. These exemptions were increased March 20 from $51,000 to $70,000. However, the city lacks a general homestead property tax exemption.
Under state law, Texas cities can only offer a general homestead exemption based on a percentage of the homestead property's value, a system which Tovo said benefits owners of the more expensive properties. Instead, she said a flat-dollar exemption, calculated by exempting a fixed amount from the value of all homes before applying the city's tax rate, would have a greater effect on property owners who are in most need of help.
Tovo said creating the option to offer a flat tax rate exemption will be a high priority item for Texas cities during the next state legislative session.
"Offering a flat-rate homestead exemption would give municipalities more options on how they approach [these] exemptions," she said. "It would offer [Austin] an option we currently don't have."
Laura Pressley, an Austin Neighborhoods Council member and a Place 4 Austin City Council candidate, approached the council at its June 26 meeting with two homestead property tax exemption scenarios based on Travis Central Appraisal District data—a 20 percent benefit and a 10 percent benefit. She said she plans to cut subsidies, not city services to pay for it.
She also proposed an alternative that increased the homestead exemption to 20 percent over three years.
Dallas, Fort Worth and Houston offer 20 percent homestead tax exemptions while San Antonio does not, Van Eenoo said. The exemption does not apply to rental properties but only to a homeowner's principal residence, he said.
There are only two ways to make up the deficit caused by an exemption—cut the budget or raise the tax rate, Councilwoman Laura Morrison said. A general homestead exemption that produces a savings to a homeowner could be partially offset by an increase in tax by the city in order to maintain the same level of city services, she said.
"I think it's safe to say that the increased costs to the landlords will ultimately be passed on to renters," Van Eenoo said.
Van Eenoo said the net effect of the offset would be $125 annual savings for the homeowner instead of $189.
He said he will prepare scenarios by mid-September for council based on a hybrid proposal by Laura Morrison of a 20 percent capped homestead tax exemption.
