Taxes & SpendingRepublican Leaders Oppose Disaster Property Tax Increases, Say Loophole Doesn’t Apply to Coronavirus-Related Damage

With tax revenues declining, cities and counties may look to raise property taxes above the 3.5 percent threshold instituted by SB 2 thanks to a loophole in the law.
May 21, 2020
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The statewide disaster declaration triggered a loophole in Senate Bill 2, hailed by state leaders as one of the main legislative accomplishments of the 86th Legislature.

As confirmed by the Legislative Budget Board (LBB), the loophole reads when seeking to raise property taxes above the 3.5 percent threshold in response to a disaster, with the exception of 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.”

Essentially, if a disaster is declared within a certain taxing entity’s area, it can then raise property taxes the year after up to the old eight percent threshold without triggering an automatic referendum by the voters.

The LBB confirmed to The Texan this only applies to cities and counties.

Intended as a measure for specific areas hurt by natural disasters (i.e. Hurricane Harvey), this section only refers to a disaster declaration by the governor with no other specifications.

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“It’s clear to us. That’s different than saying we think cities should raise taxes; it’s not like this is a field day. But the way the bill is written, it’s clear that the [3.5%] rollback is suspended,”said the Texas Municipal League’s (TML) Executive Director Bennett Sandlin to the Texas Tribune

As Sandlin alluded to, this doesn’t mean cities and counties will increase tax rates to the eight percent threshold, but it appears they can do so under the LBB’s interpretation of the law.

The City of Dallas, however, is already exploring the option of jumping to eight percent for this year.

Property taxes have been rising constantly in Texas both due to rate increases and valuation increases.

But various state leaders have maintained staunch opposition to this rise.

Governor Greg Abbott told WFAA on May 15, “I don’t construe the law the same way that the municipal league does. I disagree and I think the Texas attorney general disagrees with that legal interpretation.” 

He added, “Know this, your property taxes are not determined by the valuation of your home. They are determined by the taxing authority.”

Rates are set by the individual taxing entity. Taxing entities, and the elected officials at their helm, often try to hide tax increases behind the guise of enacting the same rate as the previous year while relying on appraisal increases to bring in more tax revenue. 

But appraisals still play a big role in Texas’ increasingly burdensome property taxes. While higher values reflect a boon the personal wealth of the homeowner, especially if they’ve paid off their property, their ability to pay the taxes does not necessarily increase proportionally. 

One DFW man saw his home’s value increase over 100 percent in four years. His income, which directly affects his ability to pay those taxes, did not increase even close to that level.

To that end, the “ability to pay” for many property owners may very well have depreciated, if not evaporated entirely. New unemployment claims continue to roll in nearly unabated with 2.4 million filed last week across the U.S.

“We are urging taxing authorities to not raise rates, but to cut property tax rates to lessen the burden on property owners in Texas,” Abbott concluded.

The governor is adamant in his belief that there is no loophole in that the provision that applies to physically-damaged property, and not economically-damaged property.

On April 13, Attorney General Ken Paxton, at the request of State Sen. Paul Bettencourt, issued an opinion on the matter, stating, “A court would likely conclude that the Legislature intended to limit the temporary tax exemption to apply to property physically harmed as a result of a declared disaster. Thus, purely economic, non-physical damage to property caused by the COVID-19 disaster is not eligible for the temporary tax exemption.”

While this is an interpretation from the state’s top lawyer, it is non-binding and may or may not forecast how a court would rule on the matter.

State Sen. Paul Bettencourt, who authored SB 2, told The Texan, “There is going to be tremendous pressure put on the taxing units both because of the circumstances that this is the first year of implementation of the new limits and the increased transparency implemented during the 86th Legislature.”

“I expect there to be a big fight in the fall over tax rates,” Bettencourt added.

The pressures Bettencourt alluded to will come from both property owners and from state officials — which will magnify even further the worse the pandemic-driven downturn becomes.

Due to the compression, essentially a buydown of school district’s share of the education budget, within House Bill 3, some property owners saw a decrease in their tax bill despite a valuation increase. 

This compression will continue for the rest of the biennium and is automatically triggered if valuations hit a certain threshold of increase.

However, many cities and counties also scrambled last year to implement one last increase before the new limits went into effect.

On an April Texas Republican Party tele-townhall, Lt. Governor Dan Patrick put his foot down, saying, “No local government should even be thinking about raising taxes. That would be the worst thing that can possibly happen.”

A group of Democratic Congressional members recently appealed to the governor for property tax relief in light of the pandemic’s devastation of the economy. They asked that all property tax “raises, interest, and penalties” be suspended. Specifying that this request only pertains to pandemic-laden times, they added, “We all believe in raising property taxes when times are good, and property values have indeed increased.”

Some localities may be looking to squeeze out another eight percent increase after consumption tax revenues have cratered due, at least in part, to mandated closures of businesses by those very same entities and the state. 

Additionally, many of the local public pension systems across Texas are drowning in $20 billion in unfunded liabilities, with prospects of defaulting on their promises rising rapidly.

But state officials seem determined to prevent this to the greatest extent possible, and the issue itself could make an appearance in court.

The other factor playing into this is the election. Valuation notices are being sent out now, and most taxing entities approve their tax rates at the end of the summer into the early fall. 

When asked about possible actions taken by the 87th Legislature, Bettencourt, pointing to the tax fight he foresees in the fall, stated, “For every action, there is an equal and opposite reaction.”

What reforms that hypothetical situation would yield, Bettencourt asserted, depends on the result of the fight to come.

A year removed from the passage of legislation which was likened to a “Super Bowl” of an accomplishment and the issue of property taxes is still at the forefront of Texas’ concerns.

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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.

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