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Council considers homestead exemption timeline

Wednesday, February 11, 2015 by Tyler Whitson

Picking up on one of the most hotly debated campaign issues of the past election, City Council is grappling with what could be the first step in enacting a 20 percent homestead tax exemption.

Council discussed a resolution at Tuesday’s work session that would direct staff to analyze the impact the exemption would have on homeowners over the terms of one, two and four years and present the results to Council on March 24. The item is on the agenda for Thursday’s meeting.

Council Member Ellen Troxclair, the resolution’s sponsor, said that she hopes the analysis will provide Council with the information necessary to decide how best to move forward. “This was, by no means, an attempt to make a decision on how this policy would possibly even be implemented,” she clarified. “I don’t think that we’ve even gotten there in this conversation.”

Prior to last year, Austin did not have a homestead exemption. Council adopted an ordinance in November that effectively set an across-the-board $5,000 exemption for all homeowners, regardless of property value. Though that exemption applies to this year’s taxes, the 20 percent exemption could replace it next year.

City Manager Marc Ott told Council that he believes a 20 percent exemption would create “some sort of a revenue or funding shortfall” in next year’s budget, though it is too early to provide a reliable figure. “I would anticipate that it would be in the millions — significantly so,” he said.

Deputy Chief Financial Officer Ed Van Eenoo noted that staff performed an analysis last year and projected that there would have been a $36 million revenue loss if Council had implemented a 20 percent exemption this fiscal year.

If Council members want to consider the exemption in the fiscal year 2016 budget adoption process, it appears they and staff would have to work within a relatively tight time frame.

Ott said that the deadline likely would be July 1, and staff doesn’t usually get the data needed to begin making forecasts for the next fiscal year until mid-April, when the appraisal districts typically send out tax notices with appraised property values.

“In terms of analysis, right now, to meet a date like March 24, we’d really have to use last year’s data that we used in developing the budget for this current fiscal year,” Ott explained.

Van Eenoo followed up on this statement. “By mid-April … we would have the data, and then as part of our financial forecast we can bring back revised numbers based upon not only that new tax data but also our projected tax rate for next fiscal year,” he said. “We can turn the crank on this fairly quickly.”

Council Member Delia Garza said she is considering proposing amendments to the resolution. Among other things, she said she’d like to know how the exemption might affect renters — who account for over half of Austin residents — and how the effects might be distributed among the city’s 10 districts.

Van Eenoo said that, from what he has heard, the district analysis would not be an issue for staff. “We’ve been able to get that information from the appraisal districts,” he said. “We’ll be able to break things out a little bit more by districts in regard to typical home values and the kinds of savings that would result to typical homeowners in the different districts.”

Projecting rental impacts could pose more of a challenge, Van Eenoo said, referring to the situation as an “economic dilemma” that involves competitive markets. “That’s a difficult question and, quite frankly, one that I don’t know that we would have the expertise to answer,” he said. “It may require some professional outside help.”

Council Member Ann Kitchen noted that the timing of the conversation coincides with that of the Texas legislative session, which ends on June 1. Without naming specific items, she said that legislators are considering bills that, if passed, could give the city more taxing tools.

Van Eenoo said that, on the other hand, legislators are considering taking action that could limit Austin’s options for filling the revenue gap that the homestead exemption will likely create.

Senate Bill 182 would fall into this category. Currently headed to the Senate Finance Committee, it would reduce the state’s ad valorem rollback tax rate from 8 to 4 percent. The Budget Office has confirmed that, had such a law existed last year, the city would have been required to hold a special election in order to approve the current year’s budget.

“The discussion of maybe making up this revenue loss through increasing the tax rate, that’s very possibly going to be limited by actions at the state legislature,” Van Eenoo said. “So that would be something else to keep in mind.”

Photo by Underwood & Underwood (Library of Congress) [Public domain], via Wikimedia Commons.

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