The other day the State Senate passed a bill to limit annual property tax growth for local governments to 3.5%, down from the current limit of 8%. There’s still hope that the House will not agree to such a sharp limit and that whatever ultimately gets to Greg Abbott’s desk will be less draconian, but right now things aren’t looking pretty for cities and counties.
The Senate bill puts an even harder cap on school districts (2.5%), but that is at least somewhat mitigated by the billions of dollars the state has agreed to give back to districts after years of recapturing and hoarding our tax dollars.
Remember, this isn’t about the actual tax rate, which in Austin has often declined year-to-year, but rather the amount of new revenue generated due to property value increases.
In his State of the City address last night, Mayor Steve Adler denounced the legislature, calling its actions a “war” on the state’s engines of economic growth. He rightly pointed out that the revenue caps will have almost no impact on people’s property tax bills, most of which are paid to school districts. In Austin and other property-rich districts, the entity that receives the greatest portion of our property tax bill is actually state government due to the Robin Hood school finance scheme.
A 2.5% cap would cause an annual budget deficit of $51.7 million in three years and at 3.5% it would be over $35 million. Again, $51.7 million and over $35 million. People are not telling you the truth when they tell you that these bills would not require budget cuts to existing budgets.
How and where are we going to cut over $50 million, or $35 million, out of our budget?
The reality is, because we spend about two-thirds of our general fund budget on public safety, it will be impossible to make the cuts required of HB2 and SB2 without impacting public safety. All parts of our budget are going to have to suffer cuts.
…The Manager committed to increasing our police force by 30 new officers a year to
enable us to staff more community policing but that’s a new program and would cost us about $13 million per year. If these caps get passed, we won’t be focusing on new programs, we’ll be struggling with cutting existing ones.
All of this is true, but much of this could have been avoided if Adler and others on City Council had not irresponsibly given away tens of millions of dollars in revenue by thrice increasing the homestead exemption over the past four years.
The expected City of Austin budget shortfall by 2022 from the legislature's radical tax cap proposals is ~$52m for that year.
In the current budget, the 10% homestead exemption costs ~$24m in lost revenue.https://t.co/LLumzEWvif
— Julio Gonzalez Altamirano (@juliogatx) April 12, 2019
The homestead exemption is a regressive tax benefit, since it is only conferred on the 45% of Austin households that own their homes.
It provides no relief for the renter-majority, which accounts for the great majority of those who are truly struggling. By providing a special exemption to homeowners, the city is shifting the property tax burden to commercial properties and therefore landlords, who pass the cost of property taxes down to their tenants.
Adler has said in the past that it’s unlikely that the homestead exemption increases have been too small to actually change what landlords’ are charging in rents. But the inequality builds over time and regardless, it’s the principle of the matter that counts.
The city’s top economic justice priority should be helping those experiencing the greatest need. The homestead exemption helps out some people who are in great need, but the majority of the tax revenue we forfeit flows to affluent homeowners who are hardly in need of a helping hand from city government.
A much more effective way to deliver savings to low-income people would be to invest more aggressively in the extremely successful low-income weatherization programs that help low-income tenants and homeowners substantially reduce their utility bills.
City Council missed another opportunity to put the city in a stronger financial position during the last budget cycle, when it only raised the property tax rate by 5.4%. In anticipation of the revenue caps, Council could have gone all the way up to 8% and put some of that money in reserve. Not only would that several million dollars have come in handy, but since revenue caps are based on the previous year’s levy, raising it to 8% would create a higher base for them to work off this year, making the 3.5% limit less painful.
Worst of all, these aren’t mistakes that can be easily undone. The Lege passed a law in 2015 prohibiting local governments from repealing a homestead exemption once it is approved. The silver lining is that that provision expires at the end of this year. Fingers crossed that the Lege doesn’t extend the expiration date.
Whatever tax policy the Lege ends up approving this year, City Council should vote next year to repeal the 10% homestead exemption, assuming it is able to. There are four CMs –– Casar, Tovo, Garza, Flannigan –– who have consistently opposed the homestead exemption, and my guess is that the renter-oriented Natasha Harper-Madison will oppose it as well. Renteria has a mixed record on it, but now that he’s not running for reelection I could see him peeling off to repeal it, particularly if the city is facing a state-created budget crisis.
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