Austin City Council approves 6 percent homestead exemption

Austin homeowners will get a small break on their next property tax bill, even if the City Council hasn’t decided yet how to pay for it.

Near the end of a meeting that ran past midnight Thursday, the council approved raising the city’s homestead exemption to 6 percent and signaled its intent to pursue over four years the maximum 20 percent tax break for homeowners allowed under state law.

The vote was 7-4, with Council Members Ora Houston, Delia Garza, Greg Casar and Kathie Tovo voting against. Those council members voiced numerous concerns, from pointing out that an increased homestead exemption would knock the most value off the highest-end homes to noting that the property tax break would provide little relief for homeowners — and no relief to renters.

Mayor Steve Adler has been adamant that every “tool” the council has to address the rising cost of living in Austin will create winners and losers.

“I think that tonight the city of Austin is watching to see if we are serious about dealing with the affordability crisis in this city,” Adler said in the council’s late-night discussion. “I think they are watching to see if we can rise above ward politics and pitting one part of the city against another part of the city. We have an affordability crisis in this city which is affecting all parts of this city, and we need to deal with that.”

A 20 percent homestead exemption that could be phased in was the signature promise of Adler’s campaign, and many other council members made the tax break for homeowners a key plank in their platforms.

The 6 percent exemption — which knocks that amount off the value of a home when calculating the city tax bill — will provide more savings than residents would have seen under the $5,000 exemption the previous council approved in November. But council members didn’t decide how to pay for higher tax break, which could create an estimated $7.6 million hole in the budget.

Tovo, who last year was the lead sponsor of the $5,000 homestead exemption, said city financial staffers had ample time to incorporate that break into the upcoming year’s budget. But the council has no “clear plan” for closing the gap created by the larger exemption, Tovo said.

While some council members have called for cutting city spending — Council Member Ellen Troxclair identified $60.6 million in what she said were potential savings — Adler said he wants to see the cost of an exemption paid for with a property tax rate increase.

City financial staff members had projected a tax rate of 47.50 cents per $100 in taxable value for the upcoming year, which would be a large chunk of the $900 million in general fund revenue that would fund such services as police, libraries and parks.

If the city raised the tax rate to make up the lost revenue from the 6 percent exemption — effectively handing the largest tax increases to commercial and other nonresidential properties — the owner of the median-valued home worth $232,272 claiming the 6 percent exemption would still see $26 in savings compared with what he or she would otherwise pay in city taxes on the next property tax bill.

That homeowner, though, would still pay $30 more than he or she paid in city taxes this past year.

For the homestead exemption to affect the tax bills homeowners will receive later this year, city staffers had asked the council to make a decision on the homestead exemption by Thursday for budgeting purposes (state law contains a deadline of June 30).

The council isn’t scheduled to vote on the budget or tax rate for the fiscal year starting Oct. 1 until the end of the summer.

Before approving the 6 percent exemption, the council took a vote on a 20 percent exemption, which only Troxclair, Council Member Don Zimmerman and Council Member Sheri Gallo favored.

Though the council never voted on a 5 percent exemption proposed by Casar, who intended to pair that tax break with city funding for rental assistance, members said they were still committed to providing some relief to tenants.

On Thursday, the council also approved starting the process of establishing so-called homestead preservation districts in East and North Austin, which would allow the city to devote part of the property tax revenue from those areas to affordable housing.

Adler also said Thursday the council should move forward with its challenge of commercial appraisals, which is intended to raise commercial property valuations in Travis County and lift some of the tax burden off residences.

Slated for next week’s council meeting is a proposal to “freeze property taxes” for homeowners who are over the age of 65 or have a disability (the details of how that might work are still being hashed out). The city currently offers a $70,000 exemption for both those populations, which would be applied on top of the 6 percent exemption the council approved.

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