San Antonio – As property values continue to grow, the City of San Antonio may have to cut its property tax rate to avoid running into a state-mandated revenue cap.
If the city reduces its tax rate -- in a move that would happen this summer as the city council prepares a budget for FY 2023 -- it likely would not shrink your bill, just keep it from growing as much.
At the same time, city council members are discussing increasing the city’s homestead exemption, which is currently at the bare minimum of 0.01 percent, or $5,000.
The impact that would have on homeowners would depend on the value of the home and by how much council members increase the exemption.
CUTTING THE TAX RATE
The Texas Legislature passed Senate Bill 2 in 2019, which keeps cities from growing their property tax revenue, excluding new construction, by more than 3.5 percent in any one year. Going over that cap would trigger an automatic election in which voters would have to approve the tax rate.
The state had previously had a similar cap on property tax revenue growth, but it was set at 8 percent. And in cases where cities exceeded that caps, citizens still had to petition to hold an election on it.
City officials say SB 2′s changes affected the city’s financial dynamics.
“So in good years, like we are now, the city could potentially see that revenue coming in and be able to build our budget,” Deputy City Manager Maria Villagomez said of the previous, 8 percent cap. “In bad years, when there’s a recession or a pandemic, and there’s negative growth, then we were able to grow our revenues in previous years. This -- with this new law, we can’t do that anymore.”
The city had been seeing several years of valuation growth above 3.5 percent, before the new cap took effect in January 2020.
However, the city had a smaller degree of growth in the current fiscal year 2022. While home values were up, staff say certain industries -- like hotels and restaurants -- saw a drop in values.
But they expect that will change with this year’s property appraisals, which will affect the city’s FY 2023 budget and the tax rate council members adopt as part of it.
“We’re thinking that we’ll have to reduce the tax rate this summer,” City Manager Erik Walsh told reporters on Wednesday. “We won’t know for sure until July, but it’s -- with residential sales and commercial properties, probably not in a negative growth situation, we’re going to be there at that 3.5 percent cap.”
Staff say the city has not raised the tax rate in 29 years and has lowered it seven times. It’s currently set at 55.6 cents per $100 of valuation and brings in 30 percent of the city’s general fund revenue.
Instead, it has been property values that have driven the incessant increases to many homeowners’ tax bills.
Should the city cut its tax rate, it would show up in your 2022 bill, which is paid between October 2022 and January 2023. It would also only affect the city portion, which accounts for about 22 percent of your total property tax bill.
The city does have an option of partially exceeding the 3.5 percent cap. As explained by the Texas Municipal League, SB 2 allows for cities to “bank” the difference between the cap and their actual revenue growth for up to three years.
So the 0.4 percent the city was under the cap in FY 2021 and 1.4 percent it fell short by in FY 2022, could be used to increase the revenue growth cap in FY 2023 from 3.5 to 5.3 percent.
Deputy Chief Financial Officer Troy Elliott said that would be a policy discussion for the city council, though.
HOMESTEAD EXEMPTION
City Council members are again taking up the discussion about increasing the homestead exemption, something Councilman Clayton Perry (D10) and Councilman John Courage (D9) unsuccessfully pushed for last year.
A homestead exemption reduces the taxable value of the house you live in, in turn creating a lower tax bill.
The city’s homestead exemption only applies to its share of residents’ property tax, though, and does not affect how much homeowners have to pay other taxing bodies, like school districts or the county.
The city passed the smallest allowable homestead tax exemption of 0.01 percent in 2019, which has a minimum exemption amount of $5,000. That provides a savings of $28 for most homeowners in San Antonio.
El Paso has the same, minimum exemption, while other large Texas cities have larger homestead exemptions of 10 or even 20 percent - the largest allowable exemption.
However, city staff also point to San Antonio’s relatively low tax bill compared to other cities and the fact that 45 percent of all homesteads have a tax freeze on them.
City staff presented examples of expanding the city’s homestead exemption would affect homeowners at a Wednesday council meeting. Since any increase has to be based on a percentage of the value, higher priced homes would see the biggest increase, while cheaper homes may not even see any additional savings beyond what they’re getting through the minimum $5,000 exemption.
The city’s average homeowner in a $209,000 home, would see an additional $30 in annual savings if the city were to raise the exemption to 5 percent.
Perry said he wants the city to pass a 5 percent homestead exemption, but he would also like to show what a 10 or 20 percent homestead exemption would look like, too.
“I say we can -- dadgummit. We can afford this, and let’s help the homeowners here in San Antonio,” Perry said.
On the other side of the balance sheet, increasing the homestead exemption would mean additional money not coming into the city. Raising the homestead exemption to 5 percent, staff calculated, would keep about $5.3 million out of the city’s general fund.
“I want to know how many streets is $5 million? How many jobs is that in $5 million?” asked Councilwoman Phyllis Viagran (D3).
If the council wants to raise the homestead exemption for this year’s tax bills, it has to do so by July 1.