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Tinkering with city’s over 65 property tax exemption proves tricky

Wednesday, January 22, 2014 by Michael Kanin

Increasing the City of Austin’s tax exemption for residents 65 and older and the disabled could cost the city a substantial amount in lost revenue. According to Deputy Chief Financial Officer Ed Van Eenoo, who wrote in a memo in response to requests from Council members during last year’s budget discussion, even a small change to the $51,000 exemption could cost the city a lot.


Should Council members act to raise the exemption by just $1,000 per household, it would cost them more than $166,000 in lost revenue over the first year, Van Eenoo wrote. Over five years, that figure translates to more than $830,000.


That math plays out exponentially. If Council members were to increase the tax exemption by $9,000 per household, for example, Van Eenoo puts the cost in lost revenue to the city at a little over $1.3 million for FY2015. After five years, that increase would result in a loss of more than $6.6 million.


As Council members batted around the figures at Tuesday’s work session, City Manager Marc Ott noted that they did not necessarily have to scour the budget or raise taxes for more revenue. “You could shift it so that people would pay more, and that manifests itself as sort of a rate increase for those people,” Ott said. “Or, you could decide that you’re willing to do that and (hold revenues steady) and, as a result you’re going to live within your means, which means nobody’s paying more.”


Council members had been slated to take action on the matter Thursday. However, as they heard more details about the potential adjustment, it became clear that they would prefer to wait. “(I’d like to) at least reach out to the other taxing entities to talk about what we are doing,” offered Council Member Mike Martinez. “What I anticipate is (that) we go through this very difficult process of figuring out how much it’s going to impact our budget, we implement a greater exemption and at the end of this year, their tax bill just goes up anyway.”


Council Member Kathie Tovo echoed that call with a suggestion to bring the matter back for further vetting. “We might have an opportunity to have that discussion as a Council subcommittee,” she said. “The last couple of years, I believe we’ve been having discussions among the county, school district, and the city about our budgets coming up – both at Audit and Finance and at our joint subcommittee.”


Van Eenoo told Council members that he would need their vote on any changes by mid-March. That deadline would allow Austin’s budget staff to make appropriate adjustments to the city’s fiscal year 2015 budget.


Tax exemptions remain a perpetually hot item. Indeed, city officials have been taken to court in recent years over their willingness to part with property tax dollars in exchange for the preservation of historic homes. That matter has also brought wide media criticism.


Travis County officials have also tangled with historic preservation. As part of those discussions, county commissioners broached the topic of exemptions for residents aged 65 and older and the disabled. The current county exemption stands at $71,000 per homestead.


Meanwhile, Austin Independent School District officials are under a state law mandate to freeze property tax contributions from 65-plus residents at the rate paid as of their 65th birthday. Van Eenoo suggested that city officials could also take that action.


Van Eenoo also suggested that city officials could go another route. “Another potential mechanism for increasing the annual exemption amount that Council may wish to consider would be to adjust the exemptions by the same percentage as the change in the tax bill on a median-value home, net of either exemption, during the two most recent fiscal years,” Van Eenoo wrote in the memo.


When prompted by Council Member Laura Morrison, Van Eenoo said that the idea was based in officials’ attempt to “recognize the fact that these folks are on a fixed income, and as the value of their home goes up, it’s a bigger burden on them to have to pay that higher property tax bill.”


He continued: “This would at least provide a mechanism for the exemption amount to grow at the same rate as the increase in their property values. That’s not the same as achieving cost neutrality, but it at least creates a…logical connection between” the idea that as home values go up, the amount of their exemption needs to go up.


For his part, Council Member Bill Spelman worried about renters who might not directly benefit from the tax savings. “My guess is that the majority of disabled people are renting not buying, and that the people who are over 65 who are renting not buying probably have smaller income or more restrictions on their income,” Spelman said.


Van Eenoo told Spelman that he would check with city demographer about those figures.

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