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Homestead tax exemption moves forward

Friday, February 13, 2015 by Tyler Whitson

City Council kick-started a process Thursday that could lead to the city giving homeowners an increased tax exemption on their property tax bills later this year.

Council unanimously adopted a resolution that directs city staff to complete a study on the potential tax incidence and impacts of implementing a 20 percent exemption over the course of the next one, two and four years. The deadline for staff to present the report to Council is May 12.

Council Member Ellen Troxclair explained her goal for putting forward the resolution. “The purpose is to collect information so that we … as a Council, can make a decision about if, when and how a homestead exemption is implemented,” she said.

Council has directed staff to cover the potential financial impact on homeowners, renters, commercial and industrial property owners and the city budget, and present the information in aggregate, by district and by income level.

The resolution also directs City Manager Marc Ott to consider revenue uses, tax rate changes and reductions in services as possible ways to address the revenue loss that the exemption will likely create in the next budget.

Deputy Chief Financial Officer Ed Van Eenoo noted that, though the information staff will need for the complete analysis will not be available until mid-April, he would direct his staff to get Council a preliminary report with a smaller scope using last year’s data as soon as possible.

Troxclair said the preliminary report would be an asset. “It would help us to at least start having conversations,” she said.

Council Member Greg Casar requested that the study look, if possible, at the relationship between income levels and whether residents rent or own their dwellings.

“My expectation would be that there’s a large number of low-income renters, although there are high-income renters, that would see no immediate tax relief,” Casar said. He added that he believes the goal of the exemption would be to “help those with moderate means.”

According to a recent housing market study, renters make up more than half of Austin residents.

Van Eenoo said that gathering some of the data Council has requested is “going to be very difficult.” However, he added, staff is “definitely game to try.”

Council Member Delia Garza asked that staff make recommendations on how Council could address any budget gaps that a homestead exemption increase could create. “I just want to make sure we’re taking a real good, thorough analysis of this,” she said. “I want to make sure that we’re looking at every single effect that implementing this could have.”

Van Eenoo told the Austin Monitor that, if staff and Council enact a new policy in time, the new exemption will effectively replace the current exemption on this year’s taxes.

The city currently offers a .01 percent exemption, which effectively creates a $5,000 flat exemption for all Austin homeowners this tax year. Council adopted this policy in November, and staff has projected that it will cost the city $3.129 million in the fiscal year 2015-2016 budget.

Ott said at Tuesday’s work session that, if Council wants to be able to implement a new policy this year and consider it part of the fiscal year 2015-2016 budget, the adoption deadline would be July 1.

Staff conducted a similar study last year and found that, had Council implemented a 20 percent homestead tax exemption, it would have cost the city $36 million in the current fiscal year.

Van Eenoo said Tuesday that the figure is “largely a linear function,” meaning that a reduction in the percentage would result, to an extent, in a proportional reduction in the overall figure. In other words, a 10 percent exemption would have cost about $18 million, 5 percent would have cost about $9 million, and so on.

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