Sponsor Softens Divisive Bill on Property Tax Rates

_{Editor's note: This story has been updated to reflect additional committee testimony.}

Texas cities and counties would have a tougher time reaping the tax revenue bounty of surging property values under a contentious measure debated in a Senate committee hearing Thursday.

State Sen. Paul Bettencourt, R-Houston, said he hopes Senate Bill 182 will rein in the fast growth in city tax proceeds, particularly in areas with soaring property appraisals like communities around Houston and Austin. Under the bill, cities and counties would need voter permission to approve a tax rate that allows overall property tax revenue from existing homes and businesses to rise more than 6 percent.

“The public cannot withstand these kinds of appraisal-driven increases when the tax rate stays the same,” Bettencourt said. “We need to recognize that the taxpayer's ability to pay has to come into the equation for both commercial and residential owners.”

Currently, citizens can petition for a county or city to hold an election to roll back tax rates if property tax revenue on existing properties rises from one year to the next by 8 percent or more. Bettencourt’s bill would make the election automatic if the revenue increased by 6 percent. (School districts are already required to get approval from voters when proposing an increase above a "rollback rate" that is calculated by a complicated state formula.)

Bettencourt laid out the new proposal at a Senate Finance Committee hearing, acknowledging that it was a watered-down version of his original bill, which would have required all local governments other than school districts to hold rollback elections if their effective tax rate rose by 4 percent or higher. In his committee substitute, Bettencourt raised the rate to 6 percent and narrowed the focus to cities and counties, exempting hundreds of special taxing districts including hospital districts and municipal utility districts.

“I believe the 6 percent number has been suggested by leadership at times as a good compromise position in both houses,” Bettencourt said.

Amid a legislative session in which local governments and the state have been at odds over the definition of “local control,” Bettencourt’s bill has been among the most closely watched. State Sens. Kel Seliger, R-Amarillo, and Royce West, D-Dallas, accused Bettencourt of trying to micromanage cities and counties.

“It appears that what your bill is doing is the state of Texas is getting in the business of local government,” said West, drawing cheers from the hearing room crowd, many of whom were city and county officials waiting to testify against the bill. Senate Finance Chairwoman Jane Nelson, R-Flower Mound, said she would clear the room if there were another outburst.

Bettencourt described his bill as “the ultimate local control.”

“I’m not talking about tax cuts here,” Bettencourt said. “I’m talking about slowing the growth of government.” 

Dozens of officials from cities and counties around the state appeared to testify against the bill. Many argued that voters can already express their disapproval over tax increases by voting for someone else in the next election.

“Our elected officials know what our citizens want,” said Ryan Haverlah, budget director for Copperas Cove.

Several officials said new restrictions on raising revenue could lead to lower bond ratings for cities and counties, ultimately raising their borrowing costs. Fitch Ratings suggested such a scenario under Bettencourt's bill last month.

Fort Worth Chief Financial Officer Aaron Bovos echoed others in warning that Bettencourt’s bill might prompt cities and counties to raise property tax rates more than needed some years to build up reserves out of fear that they won’t be able to pass a larger rate increase in the future.

“That 8 percent growth we’re allowed provides us the flexibility to not have to increase our tax rate in advance of the time that we need it,” Bovos said.

Peggy Venable, policy director of the conservative Americans for Prosperity-Texas said her group views Bettencourt’s bill as a priority this session to stem the growth of local governments.

“I think it’s time we let taxpayers determine just how much local government we want and are willing to pay for,” Venable said.