Resolution on COA Homestead Exemption

Unfortunately, I don’t think a progressive homestead exemption is legal in Texas. Also, it still would favor a smaller number of homeowners at the expense of the majority renters in our city.

This is exactly what is going down in all the central districts - renters or not. The city must demonstrate it can generate revenue from other sources besides property taxes on SF. It’s the only way to keep and grow support for bonds in the future. The increase in homestead exemption is absolutely necessary politically and should be skillfully leveraged to deliver on other strategies to fund city efforts at affordability. Austin is in a race to scale and right now the ‘Friends & Family-round’ investors are tapped out. It needs to start generating cash flow in the form of additional taxable units and transaction fees.

In order to be fair, progressive, not harm renters, and not give the most money to the wealthiest people in Austin, they could have passed a decrease in some flat fee that’s passed onto every household. Drainage fees, trash fees, etc or something else that’s on a utility bill. There are better ways to reduce taxes and fees than the homestead exemption, which benefits the wealthiest at the expense of the ones in most need.

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It’s weird. Austin, Jax, and Indy have similar size, budgets, and total housing units. Property taxes make up @30% of Indy’s revs, Jax’s are @50%, and we are at 42%. Indy and Jax have homestead deductions of what translates like 10-12% off the assessed home value. Same rollover set up.

But, Travis Cty tax rate is 2.25%. Jax (Duval Cty) & Indy is 1%.

So, anyway. I’m now confused.

A reduction of the overall rate would be better and more fair than a homestead exemption because you wouldn’t be targeting renters to pay more than homeowners. However, an overall rate reduction would still benefit the people with the most wealth more and there are still better ways to reduce taxes we have available. In a state with no income tax, which is a better way to tax, it seems like the property tax is a progressive option that we have to collect taxes. The downside is that you are taxing wealth and not income, which are closely related but not always the same. Someone could have a small income, but own a valuable asset. Unfortunately, we can’t provide an exemption based on income. Homestead exemptions do sound great politically though to a lot of voters.

“Point Austin: Homestead Exemption Still Burning
How many votes can $2 a month buy?”

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Then we need to change the law so that a progressive homestead exemption is legal in Texas. How would taxing a smaller number of homeowners at a higher rate hurt the majority renters in our city?

Because math :slight_smile:

The overall percentage of property taxes paid by homeowners would go down, and the percentage paid by renters would go up.

Can you show your work?

I thought it was pretty straightforward. Whatever the aggregate amount of dollars that the population of homeowners pays in property taxes is, it will go down after a homestead exemption. Property owners that have tenants pass an aggregate amount of property tax dollars on to their tenants. This amount will not go down after a homestead exemption, or it will not go down by as much. So the share of total property tax revenues paid by renters goes up. Make sense?

I hope supporters of the homestead exemption read the comments in the Austin Chronicle story that @Pete_Gilcrease cited.

In it, you’ll see @Dylan_Tynan explained the problems with the claim that appraisals for commercial property are too low (and therefore allegedly unfair to residential property owners).

Dylan can clarify, but my understanding is that people who reviewed the study found that the alleged 40% undervaluation of commercial properties was grossly inflated, and that the amount is more on the order of 10%. Moreover, the study didn’t even include multifamily (e.g. apartment complexes) among the commercial properties.

I’ve already shown that homeowners already benefit from other aspects of the tax code, including the mortgage interest deduction and the limit on annual property tax increases for homesteads. Now it appears the whole foundation upon which @Phil_Wiley built his support for the homestead exemption is quite shaky indeed.

Travis County already has a 20% homestead exemption, last I checked it was considered blue in a sea of red - offered just to put the debate in context, not defend any status quo.

@carlwebb kindly attached a definition of “progressive tax” which includes ideas such as (1) rate increases as the taxable amount increases, (2) resulting in average tax rate less than marginal tax rate, (3) imposed to reduce tax on those with lower ability to pay, and (4) frequently applied in reference to personal income taxes. Likely most have not studied the tax system in Texas, so I’ll try to give an arm chair quarterback overview. First a pop quiz:

The Texas State Legislature policy decisions tend to be more focused on promoting an environment that is considered?
(a) competitive for investors / businesses operating here or looking to relocate here, or
(b) supportive of affordable housing

It may help if we all look at what the relevant rules are, who made / controls them, and what their motivation might be:

(1) Texas has no personal income tax. This favors high income people - so (a)
(2) Texas does not require sales prices of property to be reported to local appraisal districts. This favors larger commercial property owners (including apartments) - so (a).
(3) Texas law provides local taxing entities “guidance” (limitations) on applying homestead exemptions - I’ll try again to get you to see this is another (a), and by opposing the slim pickings being offered, one may unknowingly support (a).

First, as far as whether large commercial properties (including apartments) have historically been undervalued, having that be the result is arguably part of the design point for the “system”. Why else withhold sales data and prevent the Appraisal Districts from doing their jobs more effectively and efficiently.? You need timely accurate sales data, by law, to do an appraisal, and the only sector where it has been reasonably consistently available has been single family homes / land - as the information is very public, vs. very not public for the others. I live across from West Campus, have some appraisal training, and have been studying the market for 24 years, so have no need for a “study” on whether their rental units have been valued equitably given cash flow.

Far as I recall, what first brought the big spotlight on appraisal inequities was Travis County paying $21.75 M for land it had said was only worth $7.6M in 2004, then increased the amount to $13.87M in 2010 shortly before buying it at a 57% premium (or 286% premium if you use the $7.6M reference point). More extreme examples and the comments made by both the Travis County Chief Appraiser and San Antonio Chief Appraiser in the statesman article below are worth a read.

http://stateswwwman.com/news/news/local/downtown-austin-properties-undervalued-appraiser-1/nRWK

Texas law requires school districts to offer a $25,000 exemption on residence homesteads @carlwebb, by virtue of this provision, Texas property taxes, in aggregate, are “progressive” based on terms (2) & (3) of the wiki definition. Since the school district tax is about / more than 1/2 of our total property taxes, this is the most powerful tool to potentially help property owners who have a relatively low taxable value - only the State Legislature can increase it - they do not allow local entities to give similar flat amount exemptions, instead they offer:

Any taxing unit, including a city, county, school district or special purpose district, has the option of deciding locally to offer a separate residence homestead exemption of up to 20% of a property’s appraised value, but not less than $5,000.. Why would the legislature limit it to 20%? (a) is it to protect commercial properties exposure, or (b) support affordable housing? Please - take it to the extreme to understand - if the homestead exemption were 100%, that would shift a big burden to commercial property owners. Commercial properties focused on supporting businesses would all feel the burden equally, and it would force pressure on rents &/or profit equally across that market segment. Interesting that the impact on home renters would be less obvious - increasing costs does put upward pressure on rent, but the reality is that home ownership affordability “informs” market rent, and given that successful applications for home ownership are a combination of principal, taxes, and insurance - to the extent homestead exemptions increase, taxes go down, home ownership becomes more affordable for millennials. Texas homestead exemptions are a small reward for commitment to a community, which includes paying off bonds, which renters are not obligated to because of their flexibility to move on - this coming from a long time mobile renter.

There is no “perfect” tax tool, each has intended and unintended consequences. Unless the tax tool is income based, if a system has an over reliance on any single tax tool there is a much higher risk of serious equity issues than in a system which spreads tax collection more evenly across multiple access points.

It is my opinion that there has been an over reliance on property taxes in Texas for some time, and as prices have escalated the situation has worsened, it is politically expedient. The “unintended consequence” is people are increasingly being taxed out of their home because they can not milk it to pay escalating property taxes. In Austin, for the General Fund “the share of revenue provided by property taxes has grown from 30% to 41.6% since 2005-06” (Chronicle 6/10/16). As I pointed out, that is symptom of of a major problem, causing gentrification, causing income segregation. It is because of that I support increasing the homestead tax, as it could be a small step in trying to reverse that tend - but I fear the budget will show too small a step to help accomplish anything.

Lastly, @rcauvin, if @Dylan_Tynan (welcome to the group!) takes a position that commercial properties are currently undervalued by only 10%, what is the “math” issue with an 8% homestead exemption? Time permitting, I would show you what several progressive communities do in the U.S. - we are not even players in the game (you can see via Google), but frankly do not have the time now, as whatever limited time is available would be better spend on…

What I really want talk about it creating a more “means” based system - as one objective; and one that promotes public transportation over the car culture as another. Both of which I believe support community values - both of which I believe may have potential to be accomplished based on a cursory review of statute. In another window - so as not do appear to deny or divert continued discussion here as others feel inclined…

Yeah, that’s my understanding, Roger. It’s about 10% undervalued if you use the TCAD study.

RECA says they did a study as well and came up with 7% undervalued for commercial and roughly 3% for residential ( http://www.reca.org/blog/post/fair-share-argument-on-commercial-appraisals-doesnt-add-up ).

I just noticed in the long comment I left in the Austin Chronicle talking about commercial property undervaluation, I referenced a Houston Chronicle that is behind a paywall. Here is the google cached version of the article, which bypasses the paywall - http://www.reca.org/blog/post/fair-share-argument-on-commercial-appraisals-doesnt-add-up This is relevant because the genesis of the ‘commercial properties are undervalued’ idea came from Harris County, so seeing what they ended up doing is telling.

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Argh. Pasted in the wrong link. 3rd time’s the charm: http://webcache.googleusercontent.com/search?q=cache:dEDRc56QZuUJ:www.houstonchronicle.com/news/politics/houston/article/County-drops-challenge-of-HCAD-valuations-5639256.php+&cd=1&hl=en&ct=clnk&gl=us

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I found the Lincoln Institute report which did a “50-State Property Tax Comparison Study”.

Texas may be able to claim the title of the worst homestead tax state in the country, or is pretty close to it anyway. Austin homesteaders on average in 2011, paid more than in any other large city in the state - because at $199K our average values were much higher. Guess what has happened now that they are closer to $300K?

Table 3: Fifty Largest City Homestead Tax Rankings in Top Five or Bottom Five for $300,000 Valued Homes, Pay 2011 (Detroit properties were almost worthless then)

1 through 5

  1. Detroit: $9,874
  2. San Antonio $7,870
  3. Fort Worth $7,797
  4. El Paso $7,473
  5. Milwaukee $7,408

46 through 50

  1. Wash. D.C. $1,920
  2. New York $1,864
  3. Boston $1,820
  4. Denver $1,595
  5. Co. Springs $1,361

6% or 8% exemption should not be the issue. People are getting taxed out of their properties accelerating gentrification and leading to increased income segregation, partly because property taxes have risen such that they quickly have gone from funding 30% to 41% of Austin’s general fund. Getting back to 30% should be the focus, or working with other taxing entities to together provide equivalent relief. If we are blind to cause and effect nothing significant will be resolved.

Do you know why property taxes are high in Texas? Because we have no income tax - right? Wrong. It’s because we choose to have high property taxes - none of these cities have income taxes:

Table 26
Top 50 Homestead Taxes for Median Value Home $ = tax; (xxx) is for a median value home - 2011

(7) Austin $4,171 ($199K)
(17) Miami $3,014 ($186K)
(22) Seattle $2,494 ($287K)
(30) Memphis $2,122 ($112K)
(49) Las Vegas $1,443 ($126K)

I’m not here to “kick a dead horse”, but to let you know I found a great report on homestead tax policies, put together for policy decision making in Minnesota.

https://www.lincolninst.edu/subcenters/significant-features-property-tax/upload/sources/ContentPages/documents/Pay_2011_PT_Report.pdf1

Hopefully it will help everyone look at our policies differently, even if there is no single right answer on the policy question that started this thread. Related to that let me make one last (new) point - for the average Austin homesteaders an increasing and alarming % of their property taxes are to pay for land that can not be used. The average renter is on property more efficiently used, so is not being penalized for land use restrictions. Let’s help the effort to fix land use options, like Imagine Austin calls for, and this whole thing can easily be looked at in a different light.

@Dylan_Tynan - I dug deeper into the report & made a few edit corrections to yesterday’s reply to you. Thanks to you and the other participants for your thoughts and being open to others - @NatalieGauldin, @rcauvin, @Pete_Gilcrease, @tthomas48, @marmstrong18, @carlwebb, @kimberly

Travis County is .4169 per $100 valuation (plus it has a 20% homestead exemption available). The City of Austin is .4589 per $100 valuation. Combined that would be .8778 per $100 valuation (in other words, less than a penny per $100/valuation).

Jacksonville and Duval County have a combined government. They state their tax rate for the government operation for the main part of Jacksonville as a millage rate of 11.4419. Millage means it’s per $1,000 valuation rather than per $100. Also, note that they have some areas (beaches mostly) where that rate is less.

To compare our rate with theirs, you could multiply our stuff by 10. Thus, if you wanted to state ours like they state theirs, then we’d add Austin & Travis and multiply by 10 and that would give us a millage rate of 8.778 (per $1000 valuation), which is roughly 2 1/2 cents less than Jacksonville’s.

Jacksonville has a flat $50,000 homestead exemption. That would be a nice thing to have here in Texas if Texas law allowed cities to do a flat exemption amount rather than a percentage. Unfortunately, the legislature continually refuses to change the law to do that.

Let’s compare:

A $200K house in Austin would be $917/year with no homestead exemption or $844/yr with an 8% exemption for just the city part of the taxes. Then Travis County would be another $625/yr. So, Austin/Travis combo would be $1542/yr with no (city) homestead exemption or $1469/year with an 8% (city) homestead exemption.

A $200K house in Jacksonville would be $1716/yr (to come up with that I did $200K - $50K homestead then multiplied by .0114419) … (or, that might be more understandable if I had spelled it out better like: $200K - $50K then divide by 1000 to get 150 then multiply by 11.4419 which gets you $1716).

So we (surprisingly) come in $174/yr cheaper w/no city of Austin homestead exemption or with the 8% exemption we’re $247/yr cheaper.

That said, it looks like Austin’s school taxes are significantly higher than Jacksonville’s - maybe 4 or 5 cents er $1000/valuation. If you factor in the school taxes then we’d be slightly more expensive than Jacksonville.

Moving on to Indianapolis, they have a state income tax of 3.3% (or something like that). Note that the vast majority of states in the U.S. end up distributing state funds to cities and counties. Texas is one of the few that does not do that (in fact, it sometimes runs the other way here). Thus, it is extremely difficult to do an apples to apples property tax comparison across states – and that is especially true for states with income taxes or other special revenue sources that Texas doesn’t have.

I’m not sure that the Lincoln Institute report is going to be that useful for this discussion, because it is looking at the combined impact from all taxing jurisdictions, whereas the discussion in this thread is about just the City of Austin property tax rate and the city’s homestead exemption.

Because this atxfriends forum software doesn’t seem to let me paste in images and it only let’s me put in 2 URLs, I have created a webpage at the following URL that has 6 images in it (labeled Image 1 thru Image 6) that I will refer to below. See this URL for the 6 images:

http://www.electionaustin.com/txethics/atxfriends.html

Austin In Comparison to Other Texas Cities

I think the point you’re trying to make is that Austin’s taxes are high in comparison to other Texas cities. Aside from the fact that the Lincoln Institute report uses the combined tax impact, it also (at least in the stat you cited) just lists an overall amount and doesn’t adjust for either the median home value or the median family income. That makes it even less useful. I think you’d be better off looking at the chart that I have labeled “Image #1” at the above URL.

As you can see from that chart (Image #1), the City’s portion of the tax burden is right in the middle of the pack amongst the 5 largest Texas cities. It is neither high, nor low, by comparison. It did grow quickly since 2008 … about as fast as Dallas did.

Property Tax Share of Budget:

It’s true that the budget share from property taxes has gone from about 30% in 2006 to about 41% today for Austin. However, it’s not clear that that in and of itself is a problem. Fort Worth, Dallas, and Houston are all above 40% – see Images #2 thru #4 at the webpage I provided.

Image #2 is Fort Worth
Image #3 is Dallas
Image #4 is Houston

San Antonio’s share of revenue from property tax is much less because they have big transfers from the utilities that they own.

Utility Transfers as a City of Austin Revenue Source:

Austin owns its utilities and transfers money from them into its general fund every year. These transfers have been under attack for the last decade or so by conservative activists and, occasionally, the legislature. Around 2010 or 2011, Council acted to reduce those transfers even more, which obviously means share of revenue from other sources will increase. Thus, I don’t know that looking at growth or reduction in revenue source share is a good data point when looked at without context.

Image #5 shows Austin’s declining utility transfers

Overlapping Tax Burden:

As I said earlier, the topic at hand is really the City of Austin’s tax rate and homestead exemption. While the burden from the City’s taxes have increased a little bit (as shown in the Image #1 chart), the City’s share of the overall local tax burden is pretty small in comparison to the rest of the taxing jurisdictions. And, the City’s is not the only one to increase. This chart in Image #6 gives a look at the various entities and their taxing burden – be sure to read the paragraph underneath the chart in Image #6.

@marmstrong18, asked about property taxes in 3 cities. Here is the average 2011 customer experience based on writing a check related to property taxes (table 26) - there is no confusion on this point, which is why the Minnesota survey was funded.

Property tax $ ranking, amount, average property value - 2011

(7) Austin $4,171 ($199K property)
(36) Jacksonville $1,710 ($139K property)
(41) Indianapolis $1,589 ($127K property)

@Dylan_Tynan, I am going to respectfully disagree on a point - the discussion should not be about COA property tax exemption (tool view) - it should instead be about property taxes, and property tax exemptions (systems view which looks at the customers experience). That is why the good, and liberal people from Minnesota funded the survey, and in recognition of the imperfection of the property tax tool - continue to fund their government operations to be sure they stayed close to the average, instead of the extreme edge - like Texas, like Austin.