Days after heated meeting, Texas Senate property tax committee passes 2.5-percent rollback rate bill

_{Editor's note: This story has been updated throughout.}

The Texas Senate’s new Property Tax Committee moved with breakneck speed Monday to advance a controversial proposal on one of Republican Gov. Greg Abbott’s top legislative priorities: slowing property tax growth.

In a 4-0 vote, the committee passed an amended version of Senate Bill 2, a complex bill that would further limit the amount local governments like cities, counties, school districts and special districts can spend without voters stepping in. (All four Republicans on the panel voted for the bill; Democrat Juan "Chuy" Hinojosa was present but didn't vote.)

SB 2 would require an election when local governments want to collect an additional 2.5 percent or more in tax revenues from existing properties, regardless of the total taxable values assigned to properties. The cap limits the amount of total revenue a local government can rake in without voter approval, even if its tax rate is not increased. But that election trigger does not apply to new developments, so local governments could still see their revenues increase on top of the growth SB 2 would allow without voter approval.

Disagreement over such an election trigger led 2017’s regular and special legislative sessions to end in stalemates because the Senate and House could not agree on how high to make the threshold. And at the time, both proposed triggers were higher than the 2.5-percent threshold proposed this year.

But the politics surrounding the issue have changed. Abbott and the leaders of each chamber — including new House Speaker Dennis Bonnen — announced last month that they were unified in their goal of slowing the increase of Texans’ property tax bills and setting the election threshold at 2.5 percent of revenue growth.

And state Sen. Paul Bettencourt, who chairs the Property Tax Committee, told The Texas Tribune last week that it was former Republican Speaker Joe Straus who successfully prevented the lower chamber from passing an election trigger below 6 percent.

“There’s no question,” the Houston Republican said.

Still, lawmakers of both parties and each chamber — including Bettencourt — admit the 2.5 percent election trigger could be raised as the bill works through the process. In an interview after Monday's vote, Bettencourt stopped short of saying he's adamant about the threshold staying at that point. But he said that 6 percent, where the House left the trigger in 2017's last impasse, is too high to help Texans slow property tax growth.

"Clearly, the lower it is, the better," he said Monday.

He said he expected to have enough support from his colleagues in the upper chamber to bring the new version of the bill to the full floor for debate.

"I'm confident I'm going to do my usual job of working the floor," he said.

While language in the current version of the bill would apply to school districts — and could force the state to spend more of its own money on public education — Senate officials and staffers said such provisions are just a placeholder until the Legislature tackles school finance reform with separate legislation.

A fiscal note from the Legislative Budget Board estimates that the 2.5 percent threshold would cause cities, counties and special districts across Texas to forgo billions in potential revenue in coming years — but that forecast assumes that no rollback elections would be approved by voters. It also relies on property tax estimates "extrapolated in line with the outlook for growth" in appraised property values.

Limited budget growth is driving much of the pushback from local leaders. The committee’s swift approval Monday — after more than a dozen amendments were adopted — came despite the opposition of city and county leaders from across Texas, who faced a tough audience of conservative lawmakers at the heated committee hearing last week.

When local leaders at that hearing restated familiar fears that SB 2 would constrain city and county budgets so much that police and fire response times would increase and potholes would go unfilled, Bettencourt repeatedly brushed aside their arguments.

Dallas Chief Financial Officer Elizabeth Reich said the 2.5 percent automatic election threshold could prevent her city from hiring back first responders it lost during a pension crisis two years ago.

“We view this as a threat to critical city services,” she said.

But Bettencourt and other committee members interrupted her and other local officials throughout the meeting. At one point, Bettencourt said he wouldn’t allow officials to spread “misinformation” at a public hearing.

“It’s political hyperbole, and I’m not going to stand for it,” he said at the hearing.

On Monday, he said one of the adopted committee amendments would prohibit local governments from reducing first responders' pay just because legislation with a new tax rate rollback trigger becomes law.

Bettencourt argued that the bill still allows for revenue increases — and pointed out that taxes on new properties wouldn’t count toward the election trigger. He said that means local governments could still bring in more money and wouldn’t have to cut existing personnel or services. He has also frequently said that if government agencies want more money, they can make their cases to voters the way they do for bond elections.

“Not all are going to pass, but not all are going to fail, either,” he told The Tribune last week.

The next steps

Current state law, set during a period of high inflation in the early 1980s, allows local governments to collect an additional 8 percent in revenue on existing properties before involving voters. And even then, voters must collect enough signatures to force an election.

But as inflation has fallen in the decades since — and taxable values have increased thanks to booming property values — local governments have wide leeway in collecting millions in additional revenue without voter input.

“People have taken advantage of that, and they haven’t lowered their rates,” Bettencourt said last week.

The initial version of SB 2 exempted small taxing units (local governments whose potential property and sales tax collections are $15 million or less) from the new, lower trigger. Another committee amendment adopted Monday would allow voters who live in such jurisdictions to decide in an election next year whether they want that exemption to stand.

"This was the most popular request we got from the public," Bettencourt said.

A successful amendment from state Sen. Kelly Hancock, R-North Richland Hills, would change the term "rollback tax rate" to "voter-approved tax rate." He and other senators said that would make the trigger's point more clear to Texans.

The House’s companion bill, House Bill 2, also has a 2.5-percent election threshold. But leaders in the lower chamber so far are less bullish that the trigger will remain that low. State Rep. Dustin Burrows, R-Lubbock, chairs the House Ways and Means Committee that will consider HB 2. He is positioning the 2.5-percent proposal as a conversation-starter that’s been put forward by GOP leadership.

“This is a starting point for the bill,” Burrows said this month during an interview with Lubbock-based radio host Chad Hasty. “Ask me again in 60 days, and we’ll see where the bill is at.”

Burrows, who also chairs the House GOP Caucus, told Hasty that each of the lower chamber's 150 members will “have a seat at the table” when debate on the legislation begins on that side of the Capitol.

“We’re going to go through the process,” he said. “We’re going to have committee hearings on this and make sure everybody’s voices are heard. We’re going to go through it and see where we get to.”

While the state does not collect property taxes and cannot set city and county tax rates, it can decide when to let voters get involved. The House’s chief budget writer, state Rep. John Zerwas, R-Richmond, said Monday he supported a 2.5-percent election trigger as means of “starting the conversation” but suggested that the exact figure was still up for negotiation.

“I don’t know if it’s 2.5 percent or not because I do know that puts a real stranglehold on our county officials, our city officials,” he said in an interview with The Texas Tribune's Evan Smith. “But I do think they’re going to get comfortable with a number that’s less than 8.”

It's not yet clear if a 2.5-percent cap would have enough support in the House to pass, Zerwas said, but "we’re starting from the same place," he said, adding that "the Senate, the House and the governor are going to hear the same arguments."

A testy hearing

As mayors and county judges testified throughout the hearing last week, Bettencourt was quick to pull up records of their entity’s tax collections. He and his colleagues chastised local officials whose government agencies saw annual double-digit revenue increases, suggesting they need to be reined in so tax bills don’t price people out of their homes.

Senators then expressed shock that officials from local government agencies that haven’t increased revenues more than 2.5 percent in recent years nonetheless oppose SB 2. Lawmakers said the proposed threshold would not have affected local tax collections.

At one point, Hancock criticized city officials for claiming that an automatic election threshold isn’t needed because taxes aren’t out of control — while also arguing that the state should allow them to keep providing property tax breaks as economic development incentives.

“Those two arguments, they’re just contrary to one another,” Hancock said.

He and Bettencourt also took issue during the hearing with a Houston Chronicle article that circulated on social media as testimony was ongoing. It was headlined, “Senators hush critics at first property tax reform hearing.”

Bettencourt’s office issued a press release Monday touting the committee’s second meeting. It also noted that hundreds of people testified last week — and broke down the amount of time those who oppose the bill were allowed to speak.

“Clearly those that registered as ‘against’ had the highest amount of testimony with 4 hours, and the longest average time to explain their opinion,” the release said.