June 9, 2014Austin American-Statesman
Austin state Sen. Kirk Watson will unveil a series of proposals this week aimed at reforming the state’s property tax and appraisal system, hoping partly to focus the city’s wide-ranging discussions about the rising cost of living. “It is clearly time for a complete discussion” about countering the market forces driving up costs in Austin, said Watson, a Democrat who is Central Texas’ most influential local politician.
Watson’s menu of ideas would apply statewide, though he crafted them with an eye toward Austin.
Some are new; for instance, Watson wants Texas cities, counties and other taxing entities to hold a referendum on expanding the homestead exemptions that create tax breaks for homeowners. Some of Watson’s proposals aren’t new and have gotten little traction in the past, including changing the way Texas determines the taxable value of commercial properties. And one idea runs along an Austin political fault line: allowing cities to offer apartment developers willing to guarantee modest rent the kind of economic incentive deals used to entice companies to move to the city.
Watson acknowledged that some of his proposals probably would not survive the Republican-controlled Legislature. Likewise, they would not resolve all of Austin’s affordability issues, which are rooted in economic forces that many boom towns experience.
Austin Mayor Lee Leffingwell said the ideas are worth pursuing.
“I think it’s a reasonable approach,” Leffingwell said. “I think all of these potential proposals are worth considering.”
Watson said he will solicit feedback on his proposals through social media and his website. He said he hasn’t yet discussed the ideas with other lawmakers.
Among the proposals:
• Require the disclosure of property sale prices, as many states do, which would improve the accuracy of commercial appraisals.
• Property owners who lose an appraisal appeal would have to pay the appraisal district’s attorney fees, to curb frivolous challenges.
• Move up the appraisal notice and protest deadlines so that the appraisal district isn’t pressured to settle cases before it must certify the tax roll.
Arguably the most important items involve expanding homestead exemptions.
Schools, cities, counties and other taxing entities are required or allowed to give discounts on the taxable value of a home. For instance, all schools take $15,000 off the taxable value.
Watson is proposing the state raise the school exemption to $25,000. In Austin, that means homes would get roughly $125 more knocked off their annual tax bill. He also wants to tie the amount of the exemption to inflation. That would address concerns from consumer advocates such as Bill Oakey of Austin, who contends the discounts are smaller than lawmakers originally intended because inflation has rendered the discounts less valuable over time.
Counties and cities are allowed to give discounts of up to 20 percent. Travis County has a 20 percent homestead exemption; Austin has no exemption. Many of the Austin suburbs have not adopted general homestead exemptions, either; however, like Austin, some of them give homestead discounts to disabled and elderly homeowners. Round Rock and Pflugerville are among them.
Leffingwell said he has been asking about an Austin homestead exemption since 2005 and has been told repeatedly that state law “did not have the flexibility we needed.” He and other council members have said that because cities can waive only a percentage of a home’s value, the law unfairly treats the owner of a $100,000 home the same as the owner of a $4 million home, despite presumed differences in the ability to make ends meet. Leffingwell and other city officials have been holding out for a flat discount.
Bill Aleshire, a former Travis County judge, has said for years that the city should offer a homestead exemption, even if it is not as good as council members want.
“You can have a modest home, and because you’ve got so many Californians moving here after selling their expensive real estate, your home suddenly isn’t so modestly priced, even though it’s still the same house. Your home’s value is not an indicator of your ability to pay escalating taxes,” Aleshire said.
On this, at least, Leffingwell and Aleshire agree: A homestead referendum of the type Watson wants for each taxing jurisdiction would appropriately measure residents’ preferences.
If voters said yes, they would shift the tax burden from homes to commercial properties. That in turn would shift the tax burden onto apartment complexes and rental houses. Watson’s response is to allow cities to use tax incentives to entice owners to price units moderately.
Leffingwell said that complaints about Austin’s economic incentive programs for large companies “have rendered them pretty much dead.” But he added that “if an economic incentive is for people on the ground, and really helps them deal with affordability issues, I think it would be worth pursuing.”