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Thursday, August 3, 2017 by Jo Clifton

Adler bashes Texas over ‘state property tax’

During Wednesday’s budget presentation to City Council, Mayor Steve Adler spoke passionately about the state’s system for funding public schools, calling the current system a “state property tax.”

It is not city taxes that are out of line, Adler said. If Austin taxpayers are unhappy with the continuing increase in property taxes, they need look no further than the state legislature, Adler explained. “The state’s property tax, taxing our citizens to pay for public schools, is virtually the single cause for what people in this community are feeling is an increase in property taxes.”

The state is currently projected to recapture more than $537 million in taxes from the Austin Independent School District in Fiscal Year 2017-18, which is more than the $454.1 million the city is projected to take in from property taxes. It’s also a huge increase over the amount the state has collected in the past. Just four years ago, the state recaptured less than a quarter of that amount – about $123.6 million – from the district.

The only member of Council who challenged Adler on his assertions about the city’s property tax was Republican Council Member Ellen Troxclair, who called the city’s 8 percent rate of property tax growth “egregious.”

Adler said, “This is a city that has a history of Council members that have fought hard and worked really hard to keep property taxes low. Now I recognize that people in this community feel like property taxes are going up – 75 percent of the property tax increase that we’re feeling here in the city (under last year’s numbers) comes from one source only. It’s the increase in the state’s property tax.” The state, he said, “taxes our local citizens to pay for the schools in areas other than Austin, Texas.” He was referring to the current model of “recapture,” which is also known as the Robin Hood system.

“And don’t look at AISD as being the responsible party because they are getting less in dollars from every taxpayer today than they were getting four years ago. But meanwhile the state’s take from the citizens of Austin with its property tax increase – that’s the egregious element,” Adler said.

Troxclair responded, referring to Robin Hood, “The idea that you take from the rich and give it to those who are less fortunate (is) a principle that the city of Austin has more or less endorsed in our own policies. We’re doing it in everything from subsidized housing to living wage policies, etc. And all of a sudden when the city of Austin is on the other side of the equation and the state of Texas is looking to the city of Austin and identifying the city of Austin as a rich school district, as a rich city, and asking for some of those resources to be redistributed to the rest of the state, then all of a sudden, I guess it’s not such an attractive principle.”

She concluded, “I’m not defending the Robin Hood system. I don’t know that it’s the best way to make sure the kids in Texas are educated, but it’s hard for me to reconcile the difference in ideological approach when it seems like the city has no problem in applying that same ideology to a lot of other policies that we put in place.”

Adler said the legislature needs to take action to align what it recaptures from school districts with the current reality. He said there had been no realignment since the 1980s. Since that time, the district has gained more children for whom English is a second language and more children – 53 percent – who live below the median income.

Although some members of the Texas House of Representatives are willing, or even eager, to fix the school finance system, it has not been a priority. Gov. Greg Abbott, on the other hand, has made it a priority to cap cities’ taxing authority at a rate lower than the current 8 percent.

As the legislature moves toward capping the city’s authority to increase property taxes at either 4 or 6 percent year over year without a rollback election, city budget writers have little choice but to increase taxes to the current rollback rate, according to Adler and Deputy Chief Financial Officer Ed Van Eenoo.

Adler pointed out that the property tax rate in the city of Austin is currently about 44 cents per $100 valuation. “The property tax rate in San Antonio is about 55 cents; the property tax rate in Houston is about 60-65 cents. The property tax in Dallas is about 80 cents and the property tax in Fort Worth is almost 86 cents,” he said.

As Van Eenoo explained in a memo to the mayor and Council, the Texas Education Code establishes “a system of school financing whereby a portion of the property tax revenues collected in ‘property‐rich’ school districts is ‘recaptured’ by the state for redistribution to ‘property‐poor’ districts. Among all Texas school districts defined as property‐rich under (the code), the Austin Independent School District (AISD) is the single largest payer of recapture.”

In FY 2015-16, AISD sent back $266.1 million to the state for recapture. Under the district’s adopted budget, AISD will send $405.3 million back to the state this year. And if the law is not changed, the amount is projected to grow to $537.3 million for FY 2017-18.

Just over 43 percent of the city’s revenue comes from property taxes, with the rest coming from transfers from the utilities, sales tax, development services revenue and other fees. According to the city’s calculations, the property tax bill on a median-valued home is about 1.6 percent of the median family income in Austin.

Next Wednesday, if AISD agrees, Council will have a work session to hear about transferring some services and the funding for those services from the school district to the city. If they can work that out, the school district would be able to lower its taxes and send less money back to the state for recapture. However, the city would have to raise taxes above the current rollback rate, which could prompt a rollback election.

Adler argues, and he has the numbers to back him up, that city of Austin taxpayers who live within AISD would then have lower taxes. It’s a complicated scenario with a number of moving pieces, but it’s just the sort of thing that Adler and budget writers like.

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Photo by John Flynn.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

city budget: The city’s plan for expenditures based on income.

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