Local government leaders are raising a red flag about proposed legislation that could further limit their ability to raise revenue.
One bill pending before the Texas Senate, Senate Bill 182, bars cities and counties from raising taxes more than 4 percent without voter approval. Another, Senate Bill 156, would limit homeowners’ property tax assessments from increasing more than 5 percent a year, down from 10 percent now.
Both bills appear to have strong support as lawmakers made tax reduction a priority this legislative session.
But city of Waco and McLennan County officials say the impact of both bills would be to handcuff their ability to deal with urgent needs or to comply with unfunded state mandates.
In a letter last week to Sen. Brian Birdwell, R-Granbury, Waco Mayor Malcolm Duncan Jr. called SB 182 “a misguided effort to reduce the property tax burden on homeowners and businesses.”
Duncan, who pushed through a tax-rate decrease two years ago, said the bill would “severely limit us from considering property tax decreases in the future” because of fears of being unable to raise them again.
Birdwell and state Rep. Charles “Doc” Anderson, R-Waco, said they are aware of Waco and McLennan County’s concerns and are approaching the proposed reforms cautiously.
“We have received numerous contacts on SB 182, and we’re tracking the issue very closely,” Birdwell said in a statement to the Tribune-Herald. “It’s no secret that I’m a vehement supporter of tax reform and relief, but I’m always going to think carefully about a bill’s impact on my local communities.”
Current state law restricts local governments from raising their taxes for maintenance and operations more than 8 percent per year without risking a voter petition for a “rollback” election. The bill by freshman state Sen. Paul Bettencourt, R-Houston, would make a rollback election mandatory after the 4 percent threshold.
The city of Waco last fall passed a 2014-15 budget with a 3.44 percent increase over the “effective tax rate,” or the rate needed to raise the previous year’s revenue. The year before, the city decreased taxes by 2.28 percent below the effective tax rate.
But city officials said it’s not unusual to have an increase of more than 4 percent.
“I think we’ve been over 4 more than we’ve been under 4,” Duncan said. “What this means is that we’d have to have an election just to approve a normal addition to the tax base, which is a huge burden.”
He said the state’s decisions create much of the need for local tax increases. He said the state has made deep cuts to transportation funding, forcing cities to pony up more money if they want projects done. He said the widening of Ritchie Road and China Spring Road cost the city much more than originally estimated, and projects like rebuilding the collapsing culvert in downtown Waco are hard to predict.
“I’m not saying we need to raise taxes or appraised values, but to take 4 percent and arbitrarily limit our revenue, we would have no ability to take care of our amenities, and our services would be impaired,” Duncan said.
Meanwhile, McLennan County in 2013 raised its tax revenues by more than 10 percent, right at the rollback rate once debt service was factored in.
County Judge Scott Felton said the tax hike was necessary to avoid a financial crisis. The root of the problem was increased costs at the county jail, he said.
Of Bettencourt’s bill, Felton said, “That’s one of those things you might be able to live with in most years, but in that one year, there were a lot of state and federal mandates that put you into a real dilemma. The adjustments made with the last tax increase were primarily due to the feeding and care of inmates. . . . We do our best to keep costs as reasonable as we can, but there’s certain things that are out of our control.”
Felton said he also objects to the proposal to lower the residential appraisal cap from 10 percent a year to 5 percent.
He said that would shift the tax burden onto businesses and create value inequities between homes. Opponents to the tax cap plan say that in strong housing markets, some homes would never catch up with market value until they’re sold.
Anderson said he’s worried about the burden of property taxes, and he hears complaints that McLennan County appraisals are too high. But he’s studying the implications of the proposals.
“Homeownership becomes a burden if your taxes double every nine or 10 years,” he said. “There’s a consensus to try to get some kind of relief in that regard, but the devil’s always in the details.”
He said he might consider a less drastic reduction in the rollback-rate threshold and the appraisal cap than the current bills would impose.
‘In a bind’
As for the rollback proposal, he said, “Four percent might be a little overbearing. You get in a position where you’re putting cities and counties in a bind.”
Another major property tax reform is Senate Bill 1, authored by state Sen. Jane Nelson, R-Flower Mound, and co-authored by 22 others, including Birdwell.
The bill would attempt to lower school property taxes by increasing homestead exemptions from the current $15,000 off the appraised value to a floating number based on 25 percent of the state’s median home value. For 2016, that would be about $33,625.
The bill also seeks to offset school districts’ losses with additional state aid.
“I’m excited to be part of this effort to create tangible tax relief for my constituents, and I’m pleased that we’re doing so without financially impacting Texas school districts,” Birdwell said in a statement.
Waco Independent School District board of trustees President Pat Atkins said that as long as the school district is made whole with state aid, the bill shouldn’t be a concern, but WISD officials are studying what the long-term implications of the plan could be.