Taxes & SpendingTwo Texas Republicans Highlight Recourse for Localities That Raise Property Taxes Via Loophole

This loophole allows for localities to raise property taxes above the 3.5 percent limit effective this year and instituted by the 86th Legislature up to the old limit of eight percent without triggering the referendum mechanism.

Back in June, Bettencourt and Burrows, growing frustrated with the proposals to exploit the provision during a serious pandemic-driven economic downturn, suggested a penalty must be established for localities who utilized the loophole.

Section 26.07 (b) of Senate Bill 2 (SB 2), states that an “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.” 

Governor Abbott declared a statewide disaster in March.

The provision was intended to provide flexibility to areas hurt by natural disasters, but does not specifically limit it to “physical” as opposed to “economic” damage caused by the pandemic. Governor Abbott and Attorney General Ken Paxton have each weighed in on the issue saying economic damage does not apply, but localities are operating as if it’s indistinct regardless.

The Legislative Budget Board (LBB) told The Texan in April that the provision does apply to the statewide disaster declaration.

Localities have been encouraged by advocacy organizations to use the loophole. One example includes the Texas Association of Counties which sent out notices advising the counties that property tax increases up to eight percent without voter approval is an option, and even provided draft resolutions for the increase.

But Burrows’ and Bettencourt’s plan involves another aspect of SB 2: the requirement that appraisal districts develop an archive in which property owners can see their tax rate compared with proposed ones.

Similar to the state’s Truth in Taxation information database, the local archives provide detailed info such as the 2019 property tax bill for a given property owner, the bill at the 3.5 percent voter approval rate, and the 2020 proposed rate.

In each database, the website also allows the property owner to submit feedback to specific taxing entities. And here lies the crux of the lawmakers’ proposed solution. They place their emphasis on the fact that the feedback is subject to public information requests.

Burrows told The Texan, “This creates a written record of questions about tax bills and the transparency that creates will help the taxpayer and discourage increases like these.”

He also said on the live stream, “The whole purpose behind SB 2 was to give voters more say in their property taxes.”

Bettencourt said that 38 jurisdictions have considered exploiting the loophole, but nine have since pulled back from the idea — one of which was the City of Dallas.

Burrows further added that he’s wary of localities transitioning to certificates of obligation — taxing mechanisms that do not require any voter approval — if passing property tax increases becomes too difficult to pass.

“Find your county tax portal, figure out how much more each is proposing to increase taxes, and then have your voice heard by submitting the feedback to your elected officials,” Burrows advised property owners.

Ahead of the 87th legislative session, capitol sources say that bills are being drafted to require localities that use the loophole to decrease their tax rate the following year proportionally to this year’s increase.

The panelists then expressed their desire to move toward a full-on consumption tax as a replacement for property taxes but acknowledged it may be a ways off.

Bettencourt and Burrows were the author and corresponding sponsor, respectively, of Senate Bill 2 in 2019.