City manager proposes maximum legal property tax rate

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City Manager Spencer Cronk
City Manager Spencer Cronk presented his FY 2022-23 budget proposal to a gathering of city staff and council members at the Montopolis Recreation and Community Center, July 15, 2022

Higher commercial tax bills will mitigate impact on homeowners

Austin City Manager Spencer Cronk proposed a budget Friday that sets a property tax rate at the maximum limit allowable under state law without triggering a tax election.

“I’m very well aware that financial pressures are front and center on the minds of many Austinites,” he said in remarks at the Montopolis Recreation Center, citing rising costs of housing, food, and gasoline.

“We are always mindful of our impact on the pocketbook of Austinites. At the same time, we firmly believe that effective city government is critical to the success, financially and otherwise, of our whole community—and we will endeavor to continue to strike the right balance.”

Under a revenue cap set by the legislature in 2019, the city can only increase its annual property tax revenue by 3.5 percent (not including taxes from newly built properties). To go beyond that limit, the voters must approve the rate at a tax election.

Cronk’s draft budget touches that limit but does not go beyond it. He proposes a maintenance and operation rate of 35.7 cents per $100 of taxable value—3.5 percent more than the no-new-revenue rate—plus a debt rate of 9.49 cents, for a total rate of 45.19 cents. Although this is nominally a decrease of 8.91 cents from the prior rate, it will bring in more revenue for the city because of drastic increases in property values.

“This is the tax rate needed to maintain a balanced budget in an environment of increasing cost drivers—such as the increased demand for services that accompanies population growth, employee bargaining agreements and pension costs,” the city manager wrote in his proposal.

The operating budget would increase by $279.6 million, or 6 percent, from $4.7 billion to nearly $5 billion. It would hike pay for city workers, add 395 new staff positions, earmark $5 million for one-time emergency rental assistance, and increase funding for disaster preparedness.

Impact on homeowners and businesses

According to a taxpayer impact assessment published with the budget, the new tax rate would result in an estimated $1,620 tax bill for the ‘typical’ ratepayer—defined as a non-senior owner-occupant homeowner with a median value home. Although that bill is $111 less than this year, higher utility rates and other fees mean that the typical residential ratepayer will owe the city $121 more next year than this year, or 2.7 percent.

Commercial properties will shoulder a proportionally higher tax burden, enabling lower residential tax bills even as the city collects more property tax overall. That’s because commercial properties don’t benefit from the 20 percent general residence homestead exemption, and because state law caps the annual increase on residential taxable values at 10 percent, whereas value increases are not limited for commercial properties.

The pandemic real estate boom fueled a 22.2 percent increase in the city’s total taxable property value this year, from $181 billion to $222.5 billion, including $3 billion of new construction, according to preliminary appraisal estimates cited in the budget proposal.

The budget proposal doesn’t break down how much of that increase is attributable to commercial real estate, but in Travis County commercial property values increased by 54 percent in this year’s appraisal roll, according to a press release from the Travis Central Appraisal District.

Several factors have contributed to that rise in values. After a slowdown early in the pandemic, Austin’s workforce returned to the office more rapidly than workers in other cities, employment recovered past pre-pandemic levels, and numerous firms relocated their headquarters to Austin, such as Oracle with 2,000 jobs and Markaaz with 500, driving demand for industrial and office space.

Estimated total bill

The City of Austin isn’t the only local government that levies property tax: the Austin Independent School District, Travis County Hospital District (dba Central Health), and Austin Community College each set their own tax rate, as do the counties and some special purpose districts. County tax offices collect these taxes on behalf of all the local governments in their jurisdiction so that taxpayers receive only one consolidated tax bill.

Austin’s portion of the overall median tax bill has ranged from 20 to 24 percent over the past decade, according to historical data included in Cronk’s budget proposal. If that range holds true next year, the owner of a median value home will owe four to five times the city’s $1,620 bill (the city’s projection for a “typical” ratepayer), for a total bill of $6,500 to $8,000.

However, the exact amounts owed won’t be clear until all the local taxing entities finish setting their rates in August and September, after which the county tax offices will start to mail out tax bills in October.

The city council is scheduled to take public comment on the proposed budget and tax rate July 27th and August 2nd, hold work sessions August 9th and 11th, and vote to adopt a new budget and tax rate August 17th.

The council is also weighing adding a housing bond to the ballot, which would further increase the overall tax bill. According to the council’s July 28th agenda, it will vote to ask City Manager Spencer Cronk to prepare an election ordinance placing a $300 million bond on the November ballot.

Spending plans

Significant cost drivers in the new budget include new investments in homeless services, an across-the-board wage increase of 4 percent for civilian staff, and higher operating costs for things like fuel and electricity. Police, EMS, and fire unions are currently in contract negotiations with the city and are asking for larger raises.

A tight labor market and rising costs of living in Austin have contributed to staff shortages in city departments. For example, the 9-1-1 command center is short dozens of call-takers and dispatchers, EMS has a vacancy rate of more than 22 percent, and some municipal pools have been shut this summer due to a shortage of seasonal lifeguards.

In remarks to council members and city employees at the Montopolis Recreation Center on Friday, Cronk said the staff shortages were an emerging crisis. “I would go further than calling it just a challenge,” he said. “Unfortunately, I think it is fair to say that we are headed in the direction of a crisis. The simple truth of the matter is that we do not currently have the staff that we need to deliver the services that we must.”

In addition to wage increases, which take effect October 1st, the city will pay a one-time staff retention stipend next month of up to $1,500 to both civilian and sworn employees with at least one year of service (which will come out of the current budget, not next year’s).

The budget proposal would also increase the city’s living wage from $15 per hour to $18.

Other new costs in the budget include adjustments to employee benefits and 395 new staff positions, bringing the level of authorized personnel from 15,547 to 15,942. Altogether those changes will result in a 5.4 percent gain in personnel costs to $1.85 billion, or 37 percent of the total budget.

Contractual costs will also drive spending. According to the budget proposal, contractuals (a category that includes rent, electricity, consultants, legal, and other contracted services) will increase by $180 million to $2.2 billion, or 8.8 percent.

Other revenue sources

Not all of these new costs will be funded by property taxes. The budget proposal projects steep increases in revenue from Hotel Occupancy Tax (up 55 percent), Vehicle Rental Tax (up 69 percent), aviation fees (up 45 percent), and sales tax (which is 16.6 percent above-budget so far this year and projected to grow another 5.6 percent next year).

Utility charges will increase by $96 million, primarily due to a planned Austin Energy base rate increase. Additionally, the budget calls for strong growth in revenue from fees, fines, permits, licenses and inspections, “primarily due to significant proposed increases in Austin Transportation Department right-of-way permitting fees and the continuation of robust development activity.”

In his speech Friday, Cronk said, “Austin’s economy continues to perform spectacularly. Like everyone, we experienced a significant economic downturn during the pandemic. But the fact is that Austin’s economy has come roaring back to life.”

That has enabled the city to use federal pandemic relief dollars for “transformational projects” rather than just plugging holes in the operating budget, he added.

Even so, he suggested that he would have preferred to set a higher property tax rate if it weren’t for the 3.5 percent state revenue cap: “Especially for a city whose population, and resulting demand for services, has grown as fast as Austin’s, what that 3.5 percent cap has meant is that we’ve been obligated to make some fundamental changes in the way we do business simply to cover annual increases in our base costs drivers—things like wages, rent, and health insurance premiums.”

“The state revenue cap will continue to present significant challenges for us moving forward.”

Trust indicatorsBulldog reporter Daniel Van Oudenaren is a journalist with 13 years experience in local, state, and international reporting.

Related Bulldog coverage:

Property value protests set new record, June 9, 2022

Appraised home values jump more than 50 percent, April 19, 2022

Related documents:

City of Austin Proposed Budget Snapshot (pdf, 2 pages)

Proposed Budget Snapshot, Climate Change Highlights (pdf, 1 page)

Full Text: City of Austin Proposed 2022-23 Budget (pdf, 971 pages)

Austin City Manager Budget Message (pdf, 9 pages)

Taxpayer Impact Statement (pdf, 1 page)

6 COMMENTS

  1. Just curious if you’ve written about property value increases on rental properties since they don’t benefit from homestead caps. Most owners of rental houses are “mom and pop” operators who can’t sustain massive tax bills. Larger tax bills equal higher and higher rental rates thus an unaffordable city. The city/county has not recognized this is a huge problem. Yes, it’s great when a property has a higher value – but only if you are selling it.

  2. I agree. I SAY WE VOTE FOR a crew of individual new budget Planners to come in and EACH do there own proposal and show more options and ways on how to cut cost and better ways to do the budget planning for the city.. AND show us tax payers WHERE our TAX MONEY is going and HOW WE CAN SAVE MONEY.. OBVIOUSLY they just need to budget there money better an quit asking for more

  3. I agree. I SAY WE VOTE FOR a crew of individual new budget Planners to come in and EACH do there own proposal and show more options and ways on how to cut cost and better ways to do the budget planning for the city.. AND show us tax payers WHERE our TAX MONEY is going and HOW it could be better utilized.. OBVIOUSLY they just need to budget there money better an quit asking for more

  4. They would not be needing to give such pay raise increases if the rent and utilities and taxes were not so OVER PRICED and ridiculous! As it is were all going to be living in TENT CITY’S on the CITYS PROPERTY cause WE can’t afford taxes and rent! WE might as well be stacking people in houses like we live In China just to pay the taxes…

  5. They would not be needing to give such pay raise increases if the rent and utilities and taxes were not so OVER PRICED and ridiculous! As it is were all going to be living in TENT CITY’S on the CITYS PROPERTY cause WE can’t afford taxes and rent! WE might as well be stacking people in houses like we live In China just to pay the taxes…

  6. The number one thing I see in there is the $5m bailout for landlords. This endless supply of bailouts for housing from the feds, state and cities is preposterous. It has to stop.

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