What is HB2/SB2?
It is a bill that says, if you as a city or county bring in > 2.5% more revenue than you did last year via property tax, that amount has to be ratified by the voters in a special November election. It is being billed as ‘property tax relief’. Schools, hospitals, and college districts are exempt and will presumably be covered under other legislation. It is being called the ‘Texas Taxpayer Transparency Act of 2019’.
Sounds great! Why don’t you like It?
- It isn’t real relief.
- The calendar for taxes, budgeting, and elections is awful.
- It doesn’t reduce spending.
- It doesn’t account for state and federal unfunded mandates.
- The house bill’s author is trying to fight any and all amendments from the floor, so there’s no chance to improve this thing.
- Schools, Hospitals, and Colleges are exempt, which account for 2/3rds of my tax bill.
Real Relief?
The proposed bill doesn’t permanently reduce your property taxes or change your appraised value. It only sets up a method for the taxpayers to approve your tax increase. And even if increased rates fail to pass this year, there’s nothing to stop them from passing in their entirety next year, effectively wiping out the relief.
HB2 simply gives 50.0001% of the voters the right to raise your property tax the full amount. Every. Single. Year. That isn’t relief. That’s kicking the can down the road at your expense.
There will also be a great deal of ballot confusion as to what is an ‘effective’ tax increase and what is a formal tax rate change. Because our ballot language is strictly controlled by the state, we can’t explain the differences on the ballot. We have to rely on outside educational materials that most people do not read.
The Calendar
Legislators still haven’t figured out how we are supposed to have time to finalize a budget, discuss it with the public, amend it, propose a tax rate for the coming year, and all in 14 days, during the summer months when political participation is usually at a low.
2019 Sample Calendar Under HB2 rules
4/15 : Very rough estimate of appraisal value sent to city
5/14 : New council sworn-in
6/18 : Last new members of council sworn in (if there were a run-off)
7/24 : Property owner value protests completed
7/25 : County delivers certified appraisal value to the city
7/26-8/4 : Staff begins adjusting and finalizing budget based on certified values
8/5 : Staff-finalized budget(s) presented to council and public
8/6 : Public Hearing
8/20 : 78 days until election – Election Call Deadline, Pass a tax rate, Approve a Budget
9/1 : 66 days until ratification election
10/1 : 36 days until ratification election
11/5 : Election Day
While we’ve waited until September in past years because it gives us two full months to digest the 500+ page budget, under this plan budget consideration will happen while the public is largely absent due to summer vacations or the first week or two of school. And if the public IS there, they will have 2 public hearings at best to weigh in; one the night after we receive the budget on another the night we’re expected to pass it. Of course we’ll adjust and add in special meetings at the mid-point, but I expect this timeline to severely limit public input and involvement.
If this goes forward in its current form as it appears like it might, it’s my intent to ask council to schedule and pay for a tax ratification election every year no matter what the effective tax rate increase is, even if it is less than 2.5%. Yes, the election proposed in HB2 is another unfunded state mandate that our city will have to absorb, but I don’t see another path right now without steamrolling through the budget process because we just don’t have time to do it any other way. This will remove some of the time pressure from the calendar, as we can make an adjustment to the rate on the ballot even after the election call.
Reducing Spending and Mandates
Every law that “sounds like a good idea”, or begins with “the cities should be made to” means that your tax dollars will be spent.
Our cost of complying with every “great idea” from Austin and Washington is astronomical. I would go so far as to say that employee salaries and compliance costs compete for the top expense line item. When it comes to waste water or landfill operations, I’d say that compliance costs easily outweigh salaries.
The state legislature has spent the last two years vilifying local governments for taxes but has yet to acknowledge any responsibility for their part in our cost of governance. They have in fact used this an excuse to exercise even more control over cities while still pushing more and more regulation out to them.
This deflection is disappointing, but not unexpected.
The same leadership that is attacking cities is sponsoring missions to neighboring states to bring large businesses to north Texas. Since we already have a housing shortage, they are introducing new demand in an area with short supply. That drives up prices. Higher prices drive up appraisals. Higher appraisals drive up taxes. It’s economics 101, and it’s a lesson that our state leaders are ignoring.
As a city I believe that we have to work to quantify our cost of compliance so that we can show the state the amount of financial pressure that they place us under. Until we can do that, I don’t know if any meaningful conversation can take place. I would encourage those representatives that preach about cutting regulations to do that for the public sector as well. Over-regulation in the public sector leads to higher taxes, just as it increases prices in the private sector.
Ok Robert, that’s all fine and well, but my taxes are still too high. What’s YOUR plan?
- Move the homestead appraisal cap from 10% to 5%.
- Require a ratification for formal tax rate changes.
Established back in 1997, the Homestead Appraisal Cap reduces the taxable value of your home. Basically, if you have a homestead exemption on your house (most of us do), it doesn’t matter how much your property value goes up. The appraisal district can only raise the taxable value 10%. My home values looked like this over the past few years:
Home Value
| Year | Improvement | Land | Total Market | Homestead Capped |
| 2018 | $ 177,300 | $ 55,000 | $232,300 | $ 214,522 |
| 2017 | $ 165,020 | $ 30,000 | $195,020 | N/A |
| 2016 | $ 165,020 | $ 30,000 | $195,020 | $ 177,518 |
| 2015 | $ 131,380 | $ 30,000 | $161,380 | N/A |
| 2014 | $ 121,040 | $ 30,000 | $151,040 | N/A |
| 2013 | $ 121,040 | $ 30,000 | $151,040 | N/A |
In 2018 my appraised value was $232,000 but the taxable value was $214,522.
The Numbers
A homestead exemption gives you 8% off of the taxable value of your home. If my home was worth $100k, and the tax rate was $.7046 per $100 of home value, then the city would collect:
Formula: (Home value * (1 – homestead %) * 0.007046) = Tax Collected
$100k home with homestead: 100000 * (1 – 0.08) * 0.007046 = 100000 * .92 * 0.007046 = $648.23 / year
$100k home without homestead: 100000 * 0.007046 = $704.60 / year
Based on how our economy has performed since 2014, I’ve built a scenario below.
Years 1 – 5 : 50% growth in value
Year 6 : Level off
Years 7 – 8 : Market correction / recession
Taxes are calculated with an 8% homestead exemption
| Year | Home Value | No cap (pre-1997) | With a 10% cap (current) | 10% Cap Home Value | With a 5% cap (new) | 5% Cap Home Value |
| 1 | $100,000 | $648 | $648 | $100,000 | $648 | $100,000 |
| 2 | $110,000 | $713 | $713 | $110,000 | $680 | $105,000 |
| 3 | $125,000 | $810 | $784 | $121,000 | $715 | $110,250 |
| 4 | $140,000 | $908 | $863 | $133,100 | $750 | $115,763 |
| 5 | $150,000 | $972 | $949 | $146,410 | $788 | $121,551 |
| 6 | $150,000 | $972 | $972 | $150,000 | $827 | $127,628 |
| 7 | $144,000 | $933 | $933 | $144,000 | $868 | $134,010 |
| 8 | $135,000 | $875 | $875 | $135,000 | $875 | $135,000 |
| Total Taxes Paid: | $6,831 | $6,737 | $6,151 | |||
With a shift from 10% to 5% on appraisal value caps, property tax payers would achieve savings across all taxing entities at the same time. Adding in a ratification election for any formal tax rate increases would ensure that municipalities still must come to the voters.
How is this helpful, and how is it different from what is being proposed?
This model is clear and steady even through recessions. Revenue, appraisals, and payments would remain predictable. They still grow slowly and adjust to the market and natural inflation. They continue to encourage home ownership, and they don’t further financially reward out of state land and housing speculation that is partly to blame for our high valuations.
Tax rate ratification elections are only required when the formal tax rate changes, which eliminates ballot confusion on effective -vs- formal rates.
Credit worthiness increases for local governments as risk is reduced. It applies steady pressure on cities to spend less and increase fees on amenities that are not a part of core governance.
Now What?
I hope our state reps will be able to fix what is in my opinion a fairly poorly-constructed bill. Other alternatives do exist like the one above, but our representatives need to be willing to examine them. So far they have made it clear that they are not interested in discussing anything outside of the narrow scope laid out at the beginning of the session.
If the problem is that property values are rising too rapidly, then dampen that rise with a single easy change, and stop trying to change the structure and timing of everyone’s fiscal years, elections, budgets, etc. Every extra little carve-out, provision, and exception is just making this mess even worse. The floor vote for HB2 is tomorrow, April 11th. Please read up on the bill, decide how you feel about it, and let your state legislator’s office know your opinion before then.
And above all, let your know legislator know that we have enough people here already. They can stop recruiting outside the state at any time.
Update 4/11/19 – The bill was pulled from the floor for additional work. There’s still time to engage your state rep and make a difference.