AUSTIN, Texas – Gov. Greg Abbott said the state is looking to roll back the ability of cities and counties to raise property tax rates in order to fund disaster recovery.
Senate Bill 10, which passed out of House committee Friday, would further limit the growth of property tax rates for communities, both after a disaster occurs and in normal years.
It comes as Kerrville leaders voted last week to move forward in their city budget process using the maximum rate allowed under a disaster provision in the tax code.
In a one-on-one interview with KSAT 12 on Saturday, Abbott said he does not understand why cities and counties are considering raising property taxes to fund flood recovery efforts.
“With all the resources being provided by the state as well as by charitable organizations, I don’t see any reason for them to raise property taxes,” Abbott said. “They haven’t calculated in everything that the state of Texas is providing them.”
During the budget process, both Kerrville and Kerr County leaders feared a slow reimbursement process from federal and state officials based on their experience during previous disasters.
The bill would introduce a new maximum tax rate formula for communities in disaster-declared regions, and leaders would be forced to use the lower of the two.
How are leaders calculating this year’s rates?
Under the current tax code, when a taxing unit, such as a city or county, is located in a region declared to be a disaster area by the governor or president, its governing body can calculate a higher voter-approval rate.
The voter-approval tax rate is the maximum a single governing body can raise taxes without receiving voter approval under state law.
In a normal year, most taxing districts calculate their voter-approval rate using a 3.5% revenue growth rate.
In the tax year immediately following a disaster, districts can calculate the voter-approval rate with an 8% growth rate.
Kerrville and Kerr County leaders both voted to allow Tax Assessor Bob Reeves to calculate the higher voter-approval rate.
County leadership later introduced a budget that used the same tax rate as last year, and some commissioners have debated pushing the rate even lower.
Kerrville, however, moved forward in the budget process with the maximum increase. While it did not adopt the rate, if it does, taxes will rise to 57.11 cents per $100 of property value.
The potential rate hike represents an increase of more than 2% over last year’s rate, 55.95 cents per $100.
How would Senate Bill 10 limit future property tax increases?
Senate Bill 10 introduces two new formulas for assessors to use when determining the voter-approval rate following a disaster declaration, one for small bodies and one for larger ones.
If authorized by a governing body, the bill would force the assessor to calculate using both the new formula and the old formula, and use the smaller of the two.
For municipalities or counties with a population of fewer than 75,000 people, the new formula would be calculated by multiplying the tax rate needed to maintain operations, without new revenue, by 3.5%. Then, adding the current debt, unused increment and “disaster relief rate.”
For municipalities or counties with a population greater than 75,000, they use a 2.5% growth rate in the same formula above, instead of 3.5%.
It is important to note that neither in the current property tax code nor in the legislation is a disaster relief rate defined.
KSAT 12 reached out to the office of bill author Paul Bettencourt, R-Houston, earlier this week to ask for clarification on what this rate is. A response has not yet been provided.
It is also important to note that this bill would not take affect until next fiscal year, so it will not impact any current budget processes.
Gov. Abbott pointed to Harris County raising taxes after Hurricane Harvey as an example of situations the state wants to avoid.
In comments to the city council, Kerrville City Manager Dalton Rice said that state legislative pressure on property tax growth limits and expenditure caps is not sustainable.
“We had about three years of over-inflation period of appraisals,” Rice said. “It kind of gave a false positive that cities can survive.
“The cities that are thriving are the ones growing at 6-12% or higher,” Rice continued. “Cities that are built out or growing at a more managed rate, like the City of Kerrville, we are starting to see that impact operations.”
Rice said that disaster recovery will strain its operations for years, and without long-term diversification of its revenue, future budgets will likely require service cuts.
How will Senate Bill 10 affect communities not impacted by disaster?
For the state’s larger communities, Senate Bill 10 would limit future property tax increases.
For taxing districts with populations of 75,000 or more, the voter-approval rate would be limited to a 2.5% growth formula instead of the current 3.5%.
This would include the cities of San Antonio and New Braunfels, as well as Bexar, Guadalupe and Comal counties.
Regardless of size, the bill would also require districts that introduce an additional sales tax to subtract the sales tax’s gain rate from its voter-approval rate.
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