86th LegislatureLocal NewsState HouseState SenateTaxes & SpendingProperty Tax Loophole Could Allow Rate Increases Above New Limits Amid Coronavirus Pandemic

Because of the statewide disaster declaration, local taxing entities will be able to raise property taxes above the thresholds instituted by SB 2.
April 9, 2020
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The big focal point of the 2019 legislative session related to property taxes. Over the years, Texans’ concerns have ballooned along with their tax bills — largely driven by rising appraisals

But the state legislature implemented new caps on property tax increases, found in Senate Bill 2 which passed during the last legislative session, from the local taxing entities: 3.5 percent increase cap for cities and counties and a 2.5 percent increase cap on school districts.

In the closing months of 2019, many localities scrambled to implement one last property tax increase — some as high as the previous limit of eight percent — before the new limits went into effect in 2020. But now, four months into the year, those limits could be rendered null and void after Governor Abbott’s disaster declaration.

Section 26.07 (b) of SB 2 reads, in part, when seeking an increase deemed necessary in response to a disaster, with exception for a draught, “and the governor has declared any part of the area in which the taxing unit is located as a disaster area, an election is not required under this section to approve the tax rate adopted by the governing body for the year following the year in which the disaster occurs.” 

This means this year’s property tax collection, which will be based on appraisals determined from January until this month, would not be held to SB 2’s newly enacted limits.

The Texan Mug

A representative with the Legislative Budget Board confirmed to The Texan that the disaster declaration reinstitutes the eight percent limit as the presiding cap rather than those set by SB 2 — but it only applies to the counties and cities. 

Thus, to trigger an election from the voters, a tax rate increase would have to yield eight percent higher total revenue than the previous year. 

School districts will still be held to the 2.5 percent cap.

In 2018, across the entire state, $55 billion in property taxes were collected according to the comptroller’s website. That increased by almost 40 percent from 2014. School districts accounted for 63 percent of the 2018 total.

The addition of the disaster provision in SB 2 was implemented with 2017’s Hurricane Harvey in mind — to allow an area the ability to fund important projects geared toward recovery from said disaster.

However, this disaster applies to the whole state. Governor Abbott, to date, has decided against a statewide shelter order since its effects are being felt unevenly throughout the state and, for the most part, felt more acutely in the more densely-populated areas.

The burden of the economic implications of the disaster is also only increasing in weight. While Texas’ numbers are not out yet, unemployment claims have spiked dramatically across the country.

While some industries are doing well — such as grocery and liquor stores — due to the forced closure, many are not. Tough choices are being made.

Texas has no income tax, which means that tax bills do not fluctuate based upon income. If no proportional reduction in property taxes is applied, the burden taxpayers shoulder will grow more difficult to manage as incomes decline during the coming turbulent economic times.

Before the impact of the coronavirus, America’s roaring economy was led by Texas, which maintained record-low unemployment levels. But now economic forecasts expect unemployment to rise into the double digits.

Local entities now are faced with a choice between utilizing the loophole and further burdening its taxpayers — at a time when many household incomes are decreasing — or seriously examining their own finances.

This is not to say that every taxing entity will take advantage of the disaster declaration to raise tax rates. Lubbock County Commissioner Jason Corley told The Texan that county leadership is going to look at all options to cut unnecessary spending.

To avoid a situation wherein the county decides to raise property taxes above those thresholds in order to make ends meet, Corley said they are looking at hiring freezes and dipping into reserves.

Corley and his colleague Chad Seay made waves last September when they skipped the commissioner’s court meeting, during which they were set to vote on 2019’s property tax rate, to force the county to adopt the effective tax rate — or no-new-revenue rate.

“Just as if I lost my job the first thing I’d do is cut unnecessary expenses like the cable bill, we’re going to have to look at curtailing our expenses,” said Corley.

It is possible, although highly unlikely, that the economy recovers and those citizens who lost their incomes regain them by the time taxes are due at the end of this year. But even so, most Texans’ bank accounts are and will be taking a hit that’ll be felt for some time to come.

Local taxing entities have amassed huge amounts of debt in the years leading up to this crisis. With localities being so reliant on property taxes as a revenue source, utilizing this disaster loophole will be an attractive option for many of them.

But Texas homeowners have found it more and more difficult to pay the local government’s de facto lease on the home they nominally own, and are sometimes priced out of their homes entirely.

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Brad Johnson

Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.