How special session property tax plans could rein in Austin tax hikes

Updated Aug 05, 2017
Nick Wagner
Property owners challenge their tax appraisals at the Travis Central Appraisal District office in the spring. NICK WAGNER/AMERICAN-STATESMAN

Legislation approved by the Texas Senate this summer designed to rein in local property tax increases would have done just that for Austin homeowners.

The Austin City Council has raised property taxes by more than 4 percent — above which Senate Bill 1 would force cities and counties to seek voter approval to hike taxes — in each of the past five years.

Under the House version of the bill, which sets the so-called rollback rate at 6 percent above current taxing levels, Austin would have gone past the limit three times in the past half-decade. The proposed Austin budget for the fiscal year starting Oct. 1, unveiled last week, calls for an 8 percent increase in property tax revenue, the maximum currently allowed without potentially triggering a rollback election.

The picture is different among the area’s county governments, however. Over the past five years, the three most populous counties in Central Texas have rarely exceeded the Senate’s proposed 4 percent limit and just once exceeded the 6 percent limit.

Gov. Greg Abbott has promoted the idea of reining in property tax increases as his No. 1 priority for the special session.

The showdown over property tax legislation, one of the most hotly contested items in the special session, has pitted local government officials from both parties against conservative Republicans in the Legislature.

‘Crying out for relief’

Republican Lt. Gov. Dan Patrick and Sen. Paul Bettencourt, R-Houston, have led the charge to restrict cities’ and counties’ ability to raise taxes without voter approval, arguing that property taxes have gone up faster than residents’ ability to pay them and singling out jurisdictions they have deemed to be too tax-hungry.

“Property tax payers are crying out for relief,” he said. “The public knows that if there’s a case that’s made from elected officials that we should spend more of their hard-earned money, they’ll vote for it. But if there’s not such a case, there should be protection.”

City and county officials and Democrats, however, point out that a majority of the property taxes Texans pay go to school districts, which aren’t included in the Bettencourt bill.

During the regular session, the Senate approved an automatic tax election trigger of 5 percent. The House watered it down by removing the rollback provisions. Neither version became law.

The Senate has already approved the 4 percent limit during the special session, which began July 18. A House committee approved a 6 percent rollback rate, but it hasn’t come up for debate before the full House.

The committee passage makes it more likely that the bill will become law, but there remains significant opposition in the House from Democrats and some Republicans who represent rural districts.

Local concerns

For local officials, property tax decisions are rarely about sweeping policy objectives or ideologies. Each tax increase or cut has a story behind it, and each jurisdiction has different factors to weigh.

Austin leaders, for example, have little control over most of the city’s major revenue streams and use property taxes, which make up about 40 percent of the city’s funding, to plug holes in the budget, said Ed Van Eenoo, Austin’s deputy chief financial officer.

The City Council cannot increase its rate for local sales taxes, a comparatively erratic source of funding, nor can it easily change how much money comes from the city’s utilities or from development fees.

When those other revenue streams decrease or slow down, as is the case now, the city’s expenses, which are driven by labor, don’t stop rising. “All of these other ways that the city funds itself, most of them, if not all of them, are growing less than our personnel costs,” Van Eenoo said.

“I don’t think (lawmakers) really understand how city budgets are constructed and how important the property tax is as a source of revenue to balance out our expenditures,” he said. “This isn’t about expanding government. This isn’t about new services or programs. This is about keeping pace with a growing city.”

Even officials from jurisdictions that haven’t run afoul of the bill’s proposed limits have concerns. Bettencourt has praised Travis County for having the most moderate tax increases among large Texas counties in recent years, a rare endorsement from the wing of the GOP that usually uses the Austin area as a rhetorical piñata.

“Travis County is by far, as best we can tell, best in class, certainly of the urban counties,” Bettencourt told the American-Statesman.

Travis County Judge Sarah Eckhardt said that she and the county commissioners have been able to keep tax increases low because of the county’s ample reserves and flexibility with property taxes. If Senate Bill 1 had been in effect, she said, they might not have left the rate low while tapping the reserves because they wouldn’t have the flexibility to raise taxes if money was short in the future and the reserves had been used up.

“We have a well-calibrated balance between our flexibility in tax rate and flexibility in reserves. If they take away our flexibility in tax rate, then we will make it up in our flexibility in reserves,” she said, by stockpiling cash. “We probably would not have reduced the tax rate so significantly … if we could not be sure we would be able to regain that flexibility in the future. It creates a disincentive for government to ratchet down its tax rate in times of prosperity.”