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Council mulls smaller homestead exemption

Thursday, May 7, 2015 by Elizabeth Pagano

As candidates, many of the current City Council members promised constituents a 20 percent homestead exemption. As Council members, they looked at the numbers Wednesday and weighed the benefits of a more cautious approach.

At a budget work session, Mayor Steve Adler advocated for the phased-in approach, which would start with a 6 percent homestead exemption and increase in subsequent years until the 20 percent exemption was realized.

“I believe the property tax burden for residential property and commercial property has gotten out of kilter,” said Adler. “And this is only one or two tools we have as a city to be able to adjust that.”

Deputy Chief Financial Officer Ed Van Eenoo explained that a 6 percent homestead exemption at the rollback rate could reduce property taxes without changing revenue for the city.

Under that rate, the owner of a median-valued homestead of $227,272 would save $49 in property taxes each year. Combined with the other taxing entities in the area, the average homeowner’s property tax bill is now $4,390.

In contrast, implementing the full 20 percent exemption in one fell swoop could cost the city $32.5 million at the forecast tax rate of 47.5 cents for every $100 of property value.

A 20 percent exemption would create a budget gap of $19.2 million at the rollback rate. The city could break even, but only if the tax rate is set at 50.83 cents for every $100 of property value, which exceeds the rollback threshold.

Under those terms, the owner of a median-value homestead would save $216 yearly at the forecast tax rate, $191 at the rollback rate and $155 at the break-even rate.

The rapid increase in property values in Austin complicates the issue. As a result, Van Eenoo said he expects this year’s rollback rate to be at or below the current tax rate. A projection from the budget office shows that the city is set to collect $6.7 million more at the effective tax rate because of increased property values.

Though he indicated that he would have taken the more measured approach regardless, Adler pointed out that the new plan has the added benefit of working more collaboratively with SB 279 by state Sen. Kirk Watson (D-Austin), which would allow for a flat homestead exemption.

That bill passed the Texas Senate with a condition that grandfathers properties that already have a homestead exemption should a city adopt a flat homestead exemption. If Austin were to adopt a 20 percent homestead exemption immediately and the voters accept the flat exemption in November, that provision could work against the city’s adoption of a less-regressive flat exemption.

However, if Austin implements a 6 percent exemption instead, homeowners with higher-valued homes would not have an incentive to grandfather their exemptions.

The work session also gave Council members an opportunity to reflect on what an exemption would mean for their district members. Homestead rates vary in the districts. District 10 has the highest percentage of the city’s roughly 132,000 homesteads, at 15.2 percent, and District 6 has the fewest homesteads, only 5.3 percent.

Additionally, home values play a role in what each district’s members will save with a 6 percent exemption. While District 10 will see a median reduction of $98, the median savings in District 2 will be only $24.

Homeownership rates also vary across the city.

Council Member Greg Casar pointed out that his district, for example, would see a lower reduction in taxes than other areas and that this smaller reduction would go to only about 30 percent of the district’s population.

Council Member Ellen Troxclair disagreed with that reasoning.

“Compared to zero, compared to nothing, compared to no help that they’re getting right now — to me it’s not only 30 percent. We have the opportunity to help at least 30 percent of people in everybody’s district,” said Troxclair. “I know I do have a lot of homeowners in my area, but regardless of the number of homeowners in my district, I would say any percentage of homeowners in District 8 would be so grateful for any kind of relief.”

Council Member Leslie Pool took time to point out that, no matter what they adopt, the city property tax bill makes up only about 22 percent of homeowners’ tax bills in the city, whereas taxes paid to the Austin Independent School District make up 52 percent.

“No matter what we do … the real driver of our tax bills are the school district taxes,” said Pool.


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