Council eyes property tax hike above 3.5 percent

HomeCity of AustinCity CouncilCouncil eyes property tax hike above 3.5 percent

Two council members mention a possible increase of 4 to 5 percent

The Austin City Council will vote Thursday to direct staff to calculate a proposed maximum property tax increase of 8 percent higher than the current revenue.

The vote is an administrative step that gives the council the flexibility to adopt a rate higher than the state cap of 3.5 percent.

Under a property tax law passed in 2019 (SB 2), cities are capped at a 3.5 percent revenue increase per year without voter approval, excluding revenue derived from new construction and improvements.

But the law includes an exception for the year following a declared disaster, as there was this year due to Covid-19. Interim Budget Officer Kerri Lang explained that there is a June 30 deadline for the city to decide whether it will use the 3.5 percent cap or the 8 percent cap allowable after a disaster: “This is just the process that the state legislature has required in order for a higher tax rate to be considered.”

Thursday’s vote will not lock the council into any decision about the actual rate for 2022. In fact, several members speaking at a work session Tuesday suggested that they would not vote for a tax rate that hikes revenue as high as 8 percent.

Alison Alter

The discussion at Tuesday’s work session came after Council Member Alison Alter pulled the agenda item for discussion, saying she was “very uncomfortable with the higher range of where we could land under this scenario.” She asked the staff, “I would like to understand if we have an option to set that at somewhere between 3.5 and 8 percent.”

Chief Financial Officer Ed Van Eenoo nixed that idea, explaining that SB 2 required the calculation of the tax rate at which a rollback election would be triggered to be either 3.5 percent or 8 percent: “There’s not discretion today to pick a specific percentage. You’re simply directing staff to calculate it at 8 percent and then your decision about the specific tax rate you want to set would occur in August.”

Mayor wants ‘flexibility’ to raise rate above 3.5 percent

Steve Adler

For his part, Mayor Steve Adler voiced some concern about the public perception around Thursday’s vote to calculate the rollback rate at 8 percent, while still supporting the idea.

“All we’re doing is asking staff to calculate a number for us,” Adler said. “The danger is not in the public knowing what we did, but in the public thinking that we did something that we didn’t do.”

“All we’re asking for is the calculation as required by the law in order to maintain some flexibility as we move forward.”

Leslie Pool

Similarly, Council Member Leslie Pool said she would “appreciate that flexibility that we can have this year because of the disaster declaration,” noting that the city manager hadn’t yet proposed a draft budget.

Two council members, Alter and Ann Kitchen, referred to a possible tax increase of about 4 to 5 percent.

Ann Kitchen

Kitchen noted that calculating the voter-approval rate at 8 percent would give the council the flexibility “to go to 4 percent or 4.5 or something like that,” but added, “we’re not making a decision (now) at all.”

Likewise, Alter said, “If we don’t move forward with this at 8 percent we will be stuck at 3.5 percent and unable to consider an increase to 4 percent or 5 percent.”

“It is unfortunate that we can’t set this somewhere in between. I would be a lot more comfortable with that. It is just one of the quirks of the system, the way it was laid out by the legislature.”

Homestead exemption increase

The council will also vote Thursday on two ordinances increasing property tax exemptions for resident homeowners, seniors, and persons with disabilities.

Paige Ellis

The first ordinance, sponsored by Adler, Alter, Kitchen, Paige Ellis, and Sabino “Pio” Renteria, would hike the percentage-based property tax homestead exemption from 10 percent of the assessed value up to 20 percent.

The second ordinance, sponsored by the same members, would increase the senior and disabled homestead exemption from $88,000 to $113,000.

During the work session Tuesday, Adler engaged in what appeared to be a prepared back-and-forth with city budget officials.

He asked, “If we were to do the homestead exemption at 20 percent, (and) if we were to do the 3.5 tax rate increase for the typical median homeowner, what’s the reduction in taxes that would be achieved?”

Deputy Budget Officer Eric Nelson replied, “Comparing the FY 2022 projected tax bill at 3.5 percent without the increased exemption to that same scenario with the increase, the typical homeowner would save $141.06 per year.”

This exchange suggests that Adler views the larger homestead exemption as a way to alleviate rising homeowner tax bills while still hiking the property tax rate by at least 3.5 percent.

Council Member Ellis and several other council members joined Adler in voicing support for larger exemptions. Ellis said, “There are many neighborhoods in my district where people are on fixed incomes or their home prices have skyrocketed over recent years, including this past year in particular. There are many, many folks that need this type of relief.”

Greg Casar

On the other hand, Council Member Greg Casar backed the senior exemption while expressing some reservations about the homestead exemption, saying he wished the council could do a flat exemption rather than a percentage-based one.

He reasoned that a flat exemption would provide a proportionally greater benefit to Austinites with lower-value homes. “Ultimately, as far as I can tell, this is a shift (of the tax burden) from higher value homes to higher value commercial properties,” Casar said of the proposal.

“That’s the primary thing this does, while unfortunately providing too little reduction for lower-value homes compared to what we want, and potentially some (negative) impact on smaller landlords and small businesses.”

Legislature closes disaster exception 

If the council does adopt a voter-approval rate higher than 3.5 percent, this may be the last year that it could do so. Over the weekend, the legislature voted to modify the disaster exemption in SB 2, the 2019 overhaul of the tax code.

Under SB 1438, which is awaiting the governor’s signature, a disaster declaration in itself will no longer be sufficient to trigger modification of the 3.5 percent voter-approval cap. Instead, at least some property in the affected area must have been physically damaged for the city to avoid the cap.

Paul Bettencourt

Senator Paul Bettencourt (R-Houston), the bill’s author, said that the change was necessary because some local governments had used the pandemic as an excuse to raise taxes.

Bettencourt, who was the lead author on SB 2 in 2019, argued that the legislature originally included a disaster exemption in that bill with the idea that a city might suffer revenue losses as a result of a hurricane or other such disaster, which destroyed physical property. In that case, a city might want to raise its tax rate in order to compensate for the lower tax base.

Bettencourt likened the impact of the Covid-19 pandemic to a drought: “When we passed SB 2 last session, there was a specific provision that exempted a drought from being a reason a taxing unit could increase revenue above the 3.5 percent voter-approval rate.”

“The reason behind this is a drought is more of an economic disaster than a disaster that causes physical damage, like a hurricane or tornado or a flood,” he said in a statement of legislative intent.

Trust indicators: Bulldog reporter Daniel Van Oudenaren is a journalist with 12 years experience in local, state, and international reporting.

Links to related documents: 

Senate Bill 1438 (final)

Links to related Bulldog coverage:

Transit tax draws attack from the left, October 2, 2020



Congratulations. It looks like you’re the type of person who reads to the end of articles. Now that you’re informed on this topic we want your feedback.

Related Content

Plaintiffs in Acuña v. City of Austin seek sanctions and attorney’s fees

The plaintiffs won. All that’s left is a final order. To achieve that end, the trial court presided over by District Judge Jessica Mangrum...

Siegel running for City Council District 7

After losing in two hard runs for a seat in the U.S. House of Representatives, attorney Michael John Weills Siegel (D-Austin) has lowered his...

Six council members and numerous lobbyists appear to have criminally violated city’s lobby law

This story was updated at 2:45pm October 17th to add documentation that shows the City Attorney has taken no enforcement action or spent even...


What's really going on in government?

Keep up with the best investigative reporting in Austin.

* indicates required

Donate to the Bulldog

Our critical accountability journalism wouldn't be possible without the generous donations of hundreds of Austinites. Join them and become a supporter today!