How officials, opponents came up with tax impact of Austin road bond

Figuring out the tax bill if voters approve Austin’s $720 million transportation bond proposition is, of course, a matter of math. But it is also a matter of perspective.

Supporters of the proposition on the Nov. 8 ballot, led by Mayor Steve Adler, have one calculation that appears to track with how the tax impact has been presented in past Austin bond elections. The median-value home, with a taxable value of $250,000, would see its property taxes go up about $56 a year under this scenario.

Bond opponents, though, have a much different formula that puts the typical homeowner’s annual cost at $170.

And the city Finance Department, which produced the figure Adler is using and vouches for it, provided the City Council with another way of looking at the property tax impact. Those assumptions produced an estimate of $108.

All three are based on assumptions of how fast the city’s tax base and housing costs will grow and what interest rates the city will get when it issues debt through bond sales, estimates that are always an inexact science. Officials also said that in rapidly growing Austin, the tax impact on a typical home is likely to be less than the initial city estimates.

Adler has little patience with bond opponents’ attempt to paint that $56 figure, or less than $5 a month, as a low-ball piece of spin. And he says the critics are throwing out whatever they can to sow doubt.

“What we have said (about taxes) is absolutely true,” Adler said.

Not so, said Roger Falk with the Travis County Taxpayers Union.

“We don’t necessarily have the right number,” Falk said. “But I don’t think that $4.67 a month is right, either. It’s low.”

Mixing apples and future apples

Inherent in the different estimates are the basic facts about the mechanics of such a huge bond program. If voters approve the bonds, the debt will be issued over five or more years. The city sells bonds only as it needs them, when specific projects are ready for construction, and the tax rate inches up accordingly.

Once all of the money is borrowed, the city estimates that a tax rate of 2¼ cents per $100 of taxable property value would be needed to make the bond payments, which typically last 20 years. But taxpayers wouldn’t see that full rate until roughly five years from now.

So how can the city present this moving target to voters?

Austin traditionally has done the calculation by, in effect, mixing apples and future apples, said Adler and Greg Canally, Austin’s interim chief financial officer. The city multiplies today’s median home value by the full tax rate to cover the bond, likely five years from now. That produces the $56-a-year figure Adler has cited for a $250,000 home.

Canally notes that’s a conservative estimate, as the owner of today’s $250,000 home wouldn’t see that full tax rate next year.

Imagine the year 2021

But there’s another way to do the math: Estimate what that median home will be worth five years from now, when the full tax rate hits, and calculate the 2021 tax bill. That was the alternate calculation that staffers gave the City Council in June, projecting that today’s $250,000 home would be worth $304,000 and that the owner would pay an additional $108.

Canally suggested that estimate is too high, though. New construction is expected to add to the tax base, which means more taxpayers will be helping with the tab, lowering the contribution for everyone.

That’s what happened with the $567 million bond package that voters approved in 2006 for various projects, including the new central library, affordable housing and street repairs. Officials estimated paying off that debt would require an increase of 2 cents per $100 of value in the property tax. For a home with a taxable value of $160,000, near the median for Austin back then, that would have resulted in a $32-a-year property tax increase.

Fueled by new construction and appreciating property values, though, the city’s tax base grew much faster than estimated, Canally said. Even with an increase in the median home value to about $204,000 in 2011, Canally said, the real tax increase on the median priced home was $13.06 a year, or about 40 percent of the original estimate.

Borrowed amounts differ

Falk and his allies with Honest Transportation Solutions, the political action committee opposing the bond proposition, take issue with another variable: how much money is being borrowed.

This dispute has to do with “bond capacity,” a municipal government term of art.

When the city issues debt, it pays it back over 20 years, much like a mortgage. Over time, as the borrowed amount decreases and the tax base grows, the city has the flexibility to borrow more money through new bonds without increasing the tax rate.

In this case, city finance officials say Austin has about $500 million in such capacity. The City Council elected to use up half of it — $250 million — toward the $720 million transportation proposition. That would mean just $470 million of the new bonds would trigger a higher tax rate, leading to the estimate of 2¼ cents per $100.

But Falk says that the tax impact should be based on the entire $720 million, because all of it would be borrowed and all of it would have to be paid back.

“It’s unfair of them to only show two-thirds of the amount,” Falk said. “There should be truth in how they present it to the public, not smoke and mirrors. … The average Joe doesn’t see it that way.”

Falk reaches his estimated tax impact — $170 on the typical home — by throwing the entire $720 million into the equation, as well as using a much higher median home value of $340,000, drawn from the Austin Board of Realtors website. But that figure from the Realtors group, which has endorsed the bond proposition, represents only actual home sales this August (there were fewer than 900) rather than any sort of comprehensive and geographically balanced survey of home values.

The city draws its median home figure from the Travis Central Appraisal District, which puts a value on every property in Travis County.

Adler scoffs at Falk’s figures and his approach, calling it “deceptive and dishonest.”

“That would define the question differently,” the mayor said. “What will be the change in what I pay for taxes if this passes? That’s the question I’m answering.”

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